-----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, V1sDaL7bQ0cFkNpCDKUqjFCthFrglFi0AbjdAukMuzqUqJZKGpxIjNRxLf6GXT4K W0MvYPo8l2Z0DFsY3GWKYA== 0000947871-10-000764.txt : 20100712 0000947871-10-000764.hdr.sgml : 20100712 20100709183243 ACCESSION NUMBER: 0000947871-10-000764 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20100131 FILED AS OF DATE: 20100712 DATE AS OF CHANGE: 20100709 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAZAURO RESOURCES CORP CENTRAL INDEX KEY: 0000908177 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 760195574 STATE OF INCORPORATION: A1 FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-21968 FILM NUMBER: 10947027 BUSINESS ADDRESS: STREET 1: 16360 PARK TEN PLACE STREET 2: SUITE 217 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 2815793400 MAIL ADDRESS: STREET 1: 16360 PARK TEN PLACE STREET 2: SUITE 217 CITY: HOUSTON STATE: TX ZIP: 77084 FORMER COMPANY: FORMER CONFORMED NAME: STAR RESOURCES CORP DATE OF NAME CHANGE: 19970529 FORMER COMPANY: FORMER CONFORMED NAME: TEXAS STAR RESOURCES CORP DATE OF NAME CHANGE: 19930624 20-F 1 ss95636_20f.htm ANNUAL REPORT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
 
 
¨  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
 
ý  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2010
OR
 
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ________________________ to ___________________
OR
 
 
¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ________________________

Commission file number 000-21968

BRAZAURO RESOURCES CORPORATION
(Exact name of Registrant as specified in its charter)
N/A
(Translation of the Registrant’s name into English)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

16360 Park Ten Place, Suite 217
Houston, TX 77084
(Address of principal executive offices)

Brian C. Irwin, (281) 579-3400, bcirwin@shaw.ca / (281) 579-9799,
771 Mariner Way, Parksville, B.C., Canada  V9P 1S4
(Name, Telephone, E-mail and /or Facsimile number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:  NONE

Securities registered or to be registered pursuant to Section 12(g) of the Act:  COMMON STOCK
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  NONE
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
 
92,897,320 Common Shares, as of January 31, 2010
 


 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes  o No  x
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.      Yes  o No  x
 
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  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was required to submit and post such files).       Yes  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):     Large accelerated filer  o Accelerated filer  o Non-accelerated filer  x
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
o  U.S. GAAP o  International Financial Reporting Standards as issued 
   by the International Accounting Standards Board
x  Other
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow   Item 17   Item 18  o

 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o    No  x
 
 
 
 
 
 
 
 
 

 
 
BRAZAURO RESOURCES CORPORATION
FORM 20-F
TABLE OF CONTENTS
 

Item 
Number
  Page
Number
     
Item 1.
Identity of Directors, Senior Management and Advisers
1
Item 2.
Offer Statistics and Expected Timetable
1
Item 3.
Key Information
1
Item 4.
Information on the Company
5
Item 4A.
Unresolved Staff Comments
13
Item 5.
Operating and Financial Review and Prospects
13
Item 6.
Directors, Senior Management and Employees
20
Item 7.
Major Shareholders and Related Party Transactions
28
Item 8.
Financial Information
30
Item 9.
The Offer and Listing
31
Item 10.
Additional Information
32
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
43
Item 12.
Descriptions of Securities Other than Equity Securities
44
     
     
     
PART II
     
Item 13.
Defaults, Dividend Arrearages and Delinquencies
44
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
44
Item 15T.
Controls and Procedures
45
Item 16A.
Audit Committee Financial Expert
46
Item 16B.
Code of Ethics
46
Item 16C.
Principal Accountant Fees and Services
46
Item 16D.
Exemptions from the Listing Standards for Audit Committees
47
Item 16E.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
47
Item 16F.
Change in Registrant’s Certifying Account
47
Item 16G.
Corporate Governance
47
     
PART III
     
Item 17.
Financial Statements
47
Item 18.
Financial Statements
48
Item 19.
Exhibits
48
     
     
Signatures
 
49
 
 
i

 

Item 1. 
Identity of Directors, Senior Management and Advisors

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

Item 2. 
Offer Statistics and Expected Timetable

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

Item 3. 
Key Information

A. 
Selected Financial Data

The selected consolidated financial information set forth below for each of the five years ended January 31, 2006, 2007, 2008, 2009 and 2010 has been derived from the consolidated financial statements of Brazauro Resources Corporation (“the Company”) for the years indicated and is expressed in Canadian dollars.  The selected consolidated financial information should be read in conjunction with the discussion in “Item 5. Operating and Financial Review and Prospects” and the Consolidated Financial Statements and related notes thereto included on pages 50 to 85 herein.  References in this Annual Report on Form 20-F to “Notes” are intended to refer to the Notes to the consolidated financial statements included herein.
 
In this Annual Report on Form 20-F all currency refers to Canadian Dollars (Cad$) unless indicated otherwise.
 
Since its formation, the Company’s activities have consisted primarily of acquiring interests in mineral properties, exploration of those properties and acquiring financing for such purposes.  Consequently, the selected consolidated financial data may not indicate the Company’s future financial performance.

Selected Consolidated Financial Data

   
Fiscal Year Ended January 31
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(000’s except for net loss per common share data)
 
Operating revenues
    -       -       -       -       -  
Write-down of mineral properties
    -       21       685       796       907  
Net loss for the year
    (4,641 )     (3,280 )     (4,481 )     (5,193 )     (8,259 )
Basic and diluted net loss per share
    (0.05 )     (0.04 )     (0.06 )     (0.10 )     (0.17 )
Working capital
    4,893       4,586       3,005       4,518       8,611  
Total assets
    35,922       35,315       30,640       11,330       13,498  
Total liabilities
    855       1,853       2,671       412       354  
Net assets
    35,066       33,462       27,969       10,918       13,144  
Common share capital
    86,516       82,106       74,807       53,729       53,433  
Dividends per share
    -       -       -       -       -  
Weighted average shares outstanding
    87,126       81,054       74,837       53,063       49,112  

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”), which differ in certain respects from the principles the Company would have followed had its consolidated financial statements been prepared in accordance with generally accepted accounting principles in the United States (“United States GAAP”).  A discussion of differences between Canadian GAAP and United States GAAP is contained in Note 21 to the consolidated financial statements.
 
 
1

 
 
If the Company had followed United States GAAP, certain items in the consolidated financial statements would have been reported as follow:
 
Selected Consolidated Financial Data (United States GAAP)

   
Fiscal Year Ended January 31
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(000’s except for net loss per common share data)
 
Operating revenues
    -       -       -       -       -  
Write-down of mineral properties
    -       -       115       31       109  
Net loss for the year
    (5,763 )     (6,033 )     (6,106 )     (6,174 )     (9,289 )
Basic and diluted net loss per common share
    (0.07 )     (0.07 )     (0.08 )     (0.12 )     (0.19 )
Working capital
    4,893       4,586       3,005       4,518       8,611  
Total assets
    26,690       27,234       25,284       7,598       10,747  
Total liabilities
    855       1,853       2,671       412       354  
Net assets
    25,835       25,381       22,613       7,186       10,393  
Common share capital
    86,516       82,106       74,807       53,729       53,433  
Dividends per share
    -       -       -       -       -  
Weighted average common shares outstanding
    87,126       81,054       74,837       53,063       49,112  

Exchange Rates

On June 30, 2010, the noon exchange rate for the Canadian dollar against the U.S. dollar according to the Bank of Canada, was Cad$1.00 = U.S. $0.9429. Bank of Canada exchange rates are nominal quotations, not buying or selling rates, and are intended for statistical or analytical purposes. Rates available from financial institutions will differ.

The following table sets forth, for each of the years between 2006 and 2008, additional information with respect to the noon buying rate for Cad$1.00.  Such rates are set forth as U.S. dollars per Canadian $1.00 and are based upon the rates quoted by the Federal Reserve Bank of New York. For years 2009 and 2010 was used the information with respect  the noon exchange rate for the Canadian dollar against the U.S. dollar according to the Bank of Canada nominal quote.

Rate
 
2010
   
2009
   
2008
   
2007
   
2006
 
Average (1)
    0.8917       0.9239       0.9508       0.9419       0.8844  

(1) The average rate means the average of the exchange rates on the last day of each month during the year.

Canadian/United States Dollar Exchange Rates for the Previous Six Months
 
Rate
 
January,
2010
   
February, 2010
   
March,
2010
   
April,
2010
   
May,
 2010
   
June,
 2010
 
High
    0.9780       0.9642       0.9938       1.0052       0.9900       0.9864  
Low
    0.9350       0.9283       0.9470       0.9799       0.9218       0.9391  
 
 
2

 

B. 
Capitalization and Indebtedness

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

C. 
Reason for the Offer and Use of Proceeds

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

D. 
Risk Factors

An investment in the Company’s common shares is highly speculative and subject to a number of risks. Only those investors who can bear the risk of the entire loss of their investment should participate, and an investor should carefully consider the risks described below and the other information that we file with the Securities and Exchange Commission and with Canadian securities regulators before investing in the Company’s common shares.  Additional risks that the Company is unaware of or that are currently believed to be immaterial may become important factors that affect the Company’s business. If any of the following risks occur, or if others occur, the Company’s business, operating results and financial condition could be adversely impacted.

The Company’s business plan to acquire additional exploration prospects, continue exploration activities on its current projects, and, if warranted, undertake development and mining operations, is subject to numerous risks and uncertainties, including the following:

Lack of Proven Properties and Development Funds.  At this point, all of the Company’s exploration prospects and property interests (collectively the “Properties”) are gold prospects in Brazil, and the Company has no income from operations.  While the Company has sufficient funds to complete the exploration phase currently underway, additional funds will likely be necessary in order for the Company to pursue further exploration on its existing properties and to acquire and develop additional exploration prospects.  Certain of the Company’s planned expenditures are discretionary and may be increased or decreased based upon funds available to the Company.

As of June 30, 2010, the Company had sufficient cash to fund general and administrative expenses and to complete planned exploration payments during fiscal 2011.  As discussed above, the Company will likely be required to raise additional capital for additional exploration activity on its existing properties and acquisition of new exploration prospects subsequent to fiscal 2011.  There can be no assurance that additional funds can be raised.  See “Item 5. Operating and Financial Review and Prospects”.

Limited Exploration Prospects.  The Company’s existing properties are all gold prospects in Brazil.  Accordingly, the Company does not have a diversified portfolio of exploration prospects either geographically or by mineral targets.  The Company’s operations could be significantly affected by changes in the market price of gold, as the economic viability of the Company’s projects is heavily dependent upon the market price of gold.  Additionally, the Company’s projects are subject to the laws of Brazil and can be negatively impacted by the existing laws and regulations of that country, as they apply to mineral exploration, land ownership, royalty interests and taxation, and by any potential changes of such laws and re gulations.

Title to Properties.  The Company cannot guarantee title to all of its Properties as the Properties may be subject to prior mineral rights applications with priority, prior unregistered agreements or transfers or native land claims, and title may be affected by undetected defects.  Certain of the mineral rights held by the Company are held under applications for mineral rights and, until final approval of such applications is received, the Company’s rights to such mineral rights may not materialize and the exact boundaries of the Company’s properties may be subject to adjustment.  The Company does not maintain title insurance on its properties.

Environmental Laws.  The exploration programs conducted by the Company are subject to national, state and/or local regulations regarding environmental considerations in the jurisdiction where they are located.  Most operations involving exploration or production activities are subject to existing laws and regulations relating to exploration and
 
 
3

 
 
mining procedures, reclamation, safety precautions, employee health and safety, air quality standards, pollution of stream and fresh water sources, odor, noise, dust, and other environmental protection controls adopted by federal, state and local governmental authorities as well as the rights of adjoining property owners.  The Company may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed exploration or production of minerals may have upon the environment.  All requirements imposed by any such authorities may be costly, time consuming, and may delay commencement or continuation of exploration or production operations.  However, at this time, the Company is exploring its Properties and does not anticipate preparing environmenta l impact statements or assessments until such time as the Company believes one or more of its Properties will prove to be commercially feasible.

Exploration and Development Risks.  The business of exploring for minerals and mining involves a high degree of risk.  Few properties that are explored are ultimately developed into producing mines.  At present, the Company has prepared a preliminary economic assessment of one of the Company’s properties, the Tocantinzinho Property.  The remaining property is an early stage exploration prospect and the Company has formed no estimate of a potential ore body.  The grade of any ore ultimately mined may differ from that indicated by drilling results.  Major expenses may be required to establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. & #160;It is impossible to ensure that the current development programs planned by the Company will result in a profitable commercial mining operation. Mineral deposits and production costs are affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions.

Competition. The mineral industry is intensely competitive in all its phases.  The Company competes with many companies possessing greater financial resources and technical facilities than itself for the acquisition of mineral concessions, claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees.

Political Risk. Properties in which the Company has an interest are located in the Amazon basin in Brazil, which may be of particular interest or sensitivity to one or more interest groups.  Consequently, mineral exploration and mining activities in those areas may be affected in varying degrees by political uncertainty, expropriations of property and changes in applicable government policies and regulation such as business laws, environmental laws, native land claims entitlements or procedures and mineral rights and mining laws, affecting the Company’s business in that area.  Any changes in regulations or shifts in political conditions are beyond the control or influence of the Company and may adversely affect its business, or if significant enough, may result in the impairment or loss of mineral concessions or other mineral rights, or may make it impossible to continue its mineral exploration and mining activities in such areas.

Potential Dilution to Existing Shareholders.  The Company will require additional financing in order to complete full exploration of its mineral properties.  The Company anticipates that it will have to sell additional equity securities including, but not limited to, its common stock, share purchase warrants or some form of convertible security.  The effect of additional issuances of equity securities will result in dilution to existing shareholders.

Limited Market for Common Shares.  The liquidity of the common shares of the Company, or ability of the shareholder to buy or sell the Company’s common stock, may be significantly limited for various unforeseeable periods.  The average daily volume of the Company’s shares traded on the TSX Venture Exchange during fiscal 2010 was approximately 89,000 shares.  The market price of the Company’s shares has historically fluctuated in a large range, as disclosed in “Item 9 - The Offer and Listing”.  The price of the Company’s common shares may be affected by many factors, including adverse change in the Company’s business, a decline in gold price and general economic trends.

Insurance Coverage.   Mineral exploration is subject to risks of human injury, environmental and legal liability and loss of assets.  The Company may elect not to have insurance for certain risks because of the high premiums associated with insuring those risks or, in some cases, insurance may not be available for certain risks.  Occurrence of events for which we are not insured could have a material adverse effect on the Company’s financial position or results of operations.
 
 
4

 

Key Executives.   The Company is dependent on the services of key executives, including its Chairman and Chief Executive Officer, Mark E. Jones, III, its President and Chief Operations Officer, James J. Komadina, its Director and retired President, Leendert G. Krol, and its Vice President of Exploration, Elton L. S. Pereira.  Each of the above individuals has many years of background in the mining industry.  The Company may not be able to replace that experience and knowledge with other individuals.

Fluctuations in Foreign Currency Exchange Rates.  The Company raises its equity in Canadian dollars and its exploration expenditures are generally denominated in Brazilian Reales and United States dollars.  As a result, the Company’s expenditures are subject to foreign currency fluctuations.  Foreign currency fluctuations may materially and adversely increase the Company’s operating expenditures and reduce the amount exploration activities that the Company is able to complete with its current capital. The Company does not engage in any hedging or other transactions to protect itself against such currency fluctuations.

Enforcement of Judgments against the Company.  The Company is incorporated in the Province of British Columbia, Canada.  Certain of our directors and officers live in Canada, and many of the Company’s assets are located in Brazil and Canada.  As a result, it may be difficult for investors to effect service of legal process within the United States upon directors and officers who are not United States residents.  Also, there is uncertainty as to the enforceability in Canada, in original actions or for enforcement of judgments of U.S. courts, of civil liabilities predicated upon U.S. federal or state securities laws.

Item 4. 
Information on the Company

A. 
History and Development of the Company

The Company was incorporated under the Company Act (British Columbia) on March 12, 1986 under the name Texas Star Resources Corporation.  The Company became a public company in January 1988 when it undertook an initial public offering of its Common Stock in British Columbia, Canada and became listed on the Vancouver Stock Exchange, a predecessor to the TSX Venture Exchange.  The Company’s name was amended to Star Resources Corp. in October 1996 and was further amended to Jaguar Resources Corporation in July 2003.  In September 2004, the Company’s name was changed to Brazauro Resources Corporation.

The authorized capital of the Company consists of an unlimited amount of shares of common stock without par value (the “Common Stock”), of which 93,846,055 shares were issued and outstanding as of June 30, 2010.  The Common Stock of the Company ranks equally as to dividends, voting rights and participation in assets and is traded under the symbol “BZO” on the TSX Venture Exchange.

The Company’s principal office is located at 16360 Park Ten Place, Suite 217, Houston, Texas, U.S.A. 77084, and its phone number is (281) 579-3400.  The Company’s website may be found at www.brazauroresources.com.

The Company is engaged in the business of exploring for and, if warranted, developing mineral properties and is concentrating its current acquisition and exploration efforts on those properties which the Company believes have large scale gold potential.  From inception and prior to 1988 the Company had limited business activities and through 1993 explored and abandoned several mineral properties.  During fiscal 1993, the Company elected to pursue prospects with the potential for commercial diamond production.

The Company completed three acquisitions in fiscal 1993 consistent with its focus on diamond exploration prospects in the United States.  During fiscal 1995 through 2003, the Company completed additional acquisitions in the United States and directly managed and funded exploration efforts on certain properties.  In fiscal 2003 the Company decided to cease exploration efforts in Arkansas due to disappointing exploration results, and began to pursue mineral exploration prospects, particularly gold prospects in South America.

From fiscal 2003 through the present, the Company has concentrated its efforts on gold prospects in Brazil and currently holds interests in properties located in the Tapajós Gold District of Brazil’s northerly Pará State.

 
5

 
 
The Company and Eldorado Gold Corp. have signed an agreement whereby Eldorado will acquire, through a court-approved plan of arrangement under the laws of British Columbia, all of the outstanding common shares of the Company (the “Brazauro Shares”) for total consideration consisting of common shares of Eldorado (the “Eldorado Shares”) having a value of approximately $122.4-million (including the value of new Brazauro).
 
Under the arrangement, each Brazauro Share will be exchanged for 0.0675 Eldorado Share, which together with the contemplated spin-out of TriStar Gold Inc. would value the Company at $1.33 per share, representing a premium of 92 per cent to the closing price of Brazauro Shares on the TSX Venture Exchange, as at May 11, 2010. In addition, as part of the transaction, Eldorado has agreed to finance, with C$10-million, a new exploration company that will contain certain exploration properties currently owned by the Company. Each shareholder of the Company, other than Eldorado, will receive one share of TriStar Gold Inc. for each three Brazauro shares in addition to 0.0675 Eldorado Share for each Brazauro Share.  TriStar Gold Inc. will hold the Bom Jardim and Andorinhas exploration properties presently held by the Company together with the C$10 million to be provided by Eldorado.
 
The arrangement has been approved by the boards of directors of Eldorado and the Company and will be subject to, among other things, approval by securityholders of the Company at a special meeting of securityholders of the Company convened for July 15, 2010 to approve the transaction. Officers and directors of the Company, representing approximately 8.9 per cent of the Company’s outstanding shares, options and warrants, have entered into lock-up and support arrangements with Eldorado under which they have agreed to vote in favor of the transaction. Eldorado owns 14,326,000 of the Company’s common shares and 4,916,000 warrants representing approximately 17.2 per cent of Brazauro on a fully diluted basis.
 
The British Columbia Supreme Court has issued an interim order in connection with the plan of arrangement which, if approved by securityholders of the Company, will implement the proposed acquisition of the Company by Eldorado Gold Corp.
 
The interim order provides for the calling of a special meeting of the securityholders of the Company to consider the arrangement. The arrangement is subject to, among other things, the final approval of the British Columbia Supreme Court, receipt of all necessary regulatory approvals, the approval by at least 66⅔ per cent of the votes cast by the holders of common shares of the Company, at least 66⅔ per cent of the votes cast by holders of options and warrants of the Company and shareholders, the approval by a simple majority of shareholders (excluding Eldorado and any other shareholders excluded by Multilateral Instrument 61-101), and the satisfaction or waiver of other conditions precedent to the arrangement. The hearing in respect of the final order to approve the arrangement is currently scheduled to take place on or a bout July 16, 2010, with the completion of the arrangement to occur no later than July 20, 2010.
 
The meeting will be held on July 15, 2010, at suite 2600, 595 Burrard St., Vancouver, B.C., at 10 a.m. (Vancouver Time). Securityholders of the Company of record as of 5 p.m. (Vancouver time) on June 10, 2010, will be entitled to attend and vote at the meeting.
 
In the event that the transaction is not completed, the Company has agreed to pay Eldorado a termination fee equal to $4.8million, under certain circumstances. Brazauro has also provided Eldorado with certain other customary rights, including a right to match competing offers. the Company has received a fairness opinion in respect of the transaction from BMO Capital Markets Inc.
 
Principal Capital Expenditures During The Three Most Recent Fiscal Years

In February 2007, the Company completed the acquisition of certain mineral rights to the Tocantinzinho Property via the acquisition of the following three corporations.  The Company acquired Resource Holdings 2004 Inc. (“RH 2004”, a British Virgin Islands corporation), and its subsidiary, Empresa Internacional de Mineração do Brasil Ltda. (“EIMB”, a Brazil corporation), in exchange for the issuance of 13,150,000 common shares of the Company and the payment of $50,000 (U.S.) to a third party.  Additionally, the Company acquired Mineração Cachambix Ltda.
 
 
6

 
 
(“Cachambix”, a Brazil corporation) from third parties upon payment of $850,000 (U.S.) and two future payments of $1,000,000 (U.S.) each, due and paid in February 2008 and 2009.

In fiscal 2008, the Company performed additional exploration activities at the Tocantinzinho Properties, resulting in the capitalization of approximately $1,623,000 in exploration expenditures in addition to the capitalization of acquisition costs totaling approximately $17,902,000 and primarily related to the acquisition discussed in the preceding paragraph.  At the Company’s Crepori Property, exploration activities including soil sampling and a diamond drilling program were completed.  Based upon the results of the exploration, the Company elected to terminate the option agreement at Crepori in April 2008.  Accordingly, the capitalized acquisition and exploration costs totaling approximately $577,000 were written off in fiscal 2008.

In fiscal 2009, the Company performed additional exploration activities at the Tocantinzinho and Bom Jardim Properties, resulting in the capitalization of approximately $2,122,000 and $520,000, respectively, in exploration expenditures in addition to the capitalization of acquisition costs totaling approximately $154,000 and $38,000, respectively. At the Company’s Crepori Property, additional exploration costs totaling approximately $21,000 were written off in fiscal 2009.

In July 2008, the Company entered into an option agreement under which it may acquire the mineral rights to the 20,688 hectare Piranha Property, located in Pará State.  The Company has an option to earn 100% of the Piranha Property, with no residual production royalty obligations, by payment of a total of $1,800,000 (Brazilian Reals) over three years. Exploration activities were conducted at the Company’s Piranha Property during fiscal 2009, resulting in the capitalization of acquisition and exploration costs of approximately $12,000 and $83,000, respectively.

In August 2009, the Company entered into another option agreement under which it may acquire the mineral rights to an additional 7,229 hectare property in the Piranhas area. The Company has an option to earn a 100% interest in this property, with no residual production royalty obligations, by payment of a total of BR$700,000 over three years. An initial payment of BR$20,000 was made in September 2009.

In December 2009, the Company entered into an option agreement under which it may acquire the mineral rights to an additional 7,404 hectare property in the Piranhas area. The Company has an option to earn a 100% interest in this property, by payment of a total of BR$2,500,000 over three years. An initial payment of approximately $42,000 (BR$75,000) was made in January 2010. The vendor will retain a 0.5% net smelter royalty, which the Company can repurchase for BR$3,000,000.

In fiscal 2010, the Company performed additional exploration activities at the Tocantinzinho, Bom Jardim and Piranhas Properties, resulting in the capitalization of approximately $62,000,  $568,000 and $335,000, respectively, in exploration expenditures in addition to the capitalization of acquisition costs totaling approximately $53,000, nil  and $63,000, respectively.

In May 2010, the Company decided to abandon certain mineral claims in the Bom Jardim area due to poor exploration results. As a result, the property was written-down by $929,848.
 
In December 2009, the Company entered into an option agreement under which it may acquire 100% of the Agua Branca Property, which consists of approximately 9,356 hectares of exploration licenses in the Tapajós region of Pará state, Brazil, in consideration for option payments of US$60,000 on signing of the agreement, made in December 2009, an additional US$60,000 due upon publication of the exploration licenses by the Brazilian National Department of Mineral Production (“DNPM”), made on May 2010, and US$2,000,000 in two years from the date of the definitive agreement. To maintain the option, the Company has to spend at least US$500,000 on the property in each of the first two years which includes at least 2,000 meters of core drilling in the first year. In addition, the Company will assume all existing commercial obligations on the property. The vendor will retain a 2% net smelter royalty, which the Company can repurchase for US$2,000,000.
 
 
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In fiscal 2010, the Company exploration activities at the Agua Property resulted in the capitalization of exploration expenditures for approximately $153,000, plus the capitalization of acquisition costs totaling approximately $63,000.
 
B. 
Business Overview

The Company is engaged in the business of exploring for and, if warranted, developing mineral properties and is concentrating its current acquisition and exploration efforts on those properties which the Company believes have large scale gold potential.  The Company holds interests in properties located in the Tapajós Gold District of Brazil’s northerly Pará State.

The Company’s mission is to discover and outline significant gold mineralization at its projects to bring on a major mining partner for development of its Properties.  Upon acquisition of an exploration property, the Company typically performs geologic evaluation and exploration efforts to determine if the project warrants further work including, but not limited to geologic mapping and sampling, geophysical surveys, and drilling.  The Company will continue to pursue mineral exploration prospects, focusing on the Tapajós and on a worldwide basis as opportunities arise, subject to adequate acquisition and exploration funding.

The Tapajós Gold District has a rich history of alluvial gold production.  During the 1970’s and 1980’s, the Tapajós area annually produced approximately 30% to 40% of Brazil’s total gold output.  Geologically, the Tapajós region is situated within the gold-productive, Archaean to Middle Proterozoic-aged Brazilian Shield that extends from Brazil through Guyana and into Venezuela.  In the immediate area of the Company’s projects, granitic basement rocks are intruded by subvolcanic andesitic and rhyolitic bodies, all of lower Proterozoic age.  The widespread alluvial gold deposits point to the area’s strong bedrock exploration potential.

The Company is subject to regulation by the Federal mineral land agency in Brazil, the Departamento Nacional de Produção Mineral (“DNPM”).  The Company’s holds exploration licenses or applications for exploration licenses granted by the DNPM for the Tocantinzinho and the Bom Jardim Properties.   Certain of the licenses for the Tocantinzinho Property are subject to periodic requirements for renewal, and the Company anticipates receiving the renewals in the 2010 calendar year.

Since its inception, the Company has had limited revenues from operations other than interest income on invested cash balances and gains on sales of equipment.

C. 
Organizational Structure

As of January 31, 2010, the Company had four wholly-owned subsidiaries; Brazauro Holdings (Brazil) Ltd., a British Columbia corporation (“Brazauro Holdings”), Star U.S. Inc., a Delaware corporation (“Star”), Brazauro Holdings (BVI) Ltd., a British Virgin Islands subsidiary, and its British Virgin Islands subsidiary, Resource Holdings 2004 Inc (“RH 2004”).  Star in turn owns 100% of the stock of three corporations, Diamond Exploration, Inc. and Continental Diamonds, Inc., both of which are Arkansas corporations (“DEI” and “CDI”, respectively), and Diamond Operations, Inc., a Delaware corporation (“DOI”).  The Company and Brazauro Holdings own 99.99% and 0.01%, respectively, of the common shares of Brazauro Recursos Minerais Ltda., a Brazilian cor poration. Brazauro Recursos Minerais Ltda. and Brazauro Holdings own 99.99% and 0.01%, respectively, of the common shares of Mineração Cachambix Ltda. (“Cachambix”) and of Mineracao Agua Branca Ltda., both Brazilian corporations.  RH 2004 and the Company own 99.99% and 0.01%, respectively, of the common shares of Empresa Internacional de Mineração do Brasil Ltda. (“EIMB”), a Brazilian corporation. All references to the Company herein include its subsidiaries unless otherwise noted.  The Company’s Consolidated Financial Statements referred to herein also include its subsidiaries.  The Company’s fiscal year ends January 31.

D. 
Properties

Currently, all of the Company’s Properties are located in the Tapajós Gold District of Brazil’s northerly Pará State.  The general location of the Company’s Brazilian Properties Tocantinzinho, Bom Jardim and Agua Branca properties
 
 
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are shown on the map provided below.  The map is followed by a description of the Company’s rights and interests in each of its Properties.


Tocantinzinho Properties

In August 2003, the Company entered into an option to acquire exploration rights to a total of 28,275 hectares in the Tapajós gold district in Pará State, Brazil under an option agreement with two individuals (herein referred to as “optionors”).  The option agreement entitled the Company to acquire a 100% interest in the exploration rights to such area (referred to herein as the “Tocantinzinho Properties”) over a four-year period in consideration for the staged payment of $465,000 (U.S.), the staged issuance of 2,600,000 shares of the Company and the expenditure of $1,000,000 (U.S.) on exploration. As of January 31, 2009, the Company has made all payments due under the option agreement and has met the requirement to expend $1,000,000 (U.S.) on exploration.
 
 
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Additionally, the option agreement required the Company to assume all existing obligations of the optionors to certain Brazilian residents in respect of the mineral rights to the Tocantinzinho Properties (the “Underlying Agreements”) totaling $1,600,000 (U.S.) over a four-year period.  As of January 31, 2009, the Company has made all payments due under the Underlying Agreements.

In fiscal 2006, the Company received exploration licenses in respect of the central 4,000 hectare area of the Tocantinzinho Properties on which it has been focusing its exploration efforts as well as for a 9,315 hectare area forming the north eastern and eastern boundary of the Tocantinzinho Properties.  Under the option agreement, the Company also holds rights to acquire two other applications for exploration licenses filed with the regulatory authorities in Brazil:  one covering 4,275 hectares that lies to the south of the central 4,000 hectare area and one (the “Extension Area”) covering 10,000 hectares that lies immediately to the east but continues well south of the central 4,000 hectare area.  The mineralized zone discovered by the Company on the Tocantinzinho Properties starts on the cen tral 4,000 hectare area and extends eastward beyond the boundary of the central 4,000 hectare area into the Extension Area.  The Company is subject under DNPM regulations related to periodic renewal requirements for its exploration licenses, and certain of those exploration licenses’ initial three year terms expired during fiscal 2009.  The Company has complied with the renewal requirements on the Extension Area and the 4,275 hectare area, and expects to receive extensions of those licenses during the calendar year 2009.  In February 2009, the Company received the renovation on the exploration license in respect of the central 4,000 hectare area.

During fiscal year 2006, the Company became aware that Talon Metals Corp. (“Talon”, formerly BrazMin Corp.) also had applied for exploration licenses to areas of the Tocantinzinho Properties, including all of the area of the mineralized zone discovered by the Company that lies within the Extension Area.  In response, the Company undertook an extensive review of its title position.

At the end of fiscal 2006, as a result of a title review by the Company, it came to the Company’s attention that a long dormant application for a mining license that covered the Extension Area had never been processed by the Departamento Nacional de Produção Mineral (“DNPM”) and was still valid.  According to advice from Brazilian counsel, the dormant application carried paramount title to the Extension Area.  The Company, through its subsidiary, Brazauro Recursos Minerais Ltda. (formerly Jaguar Resources do Brasil Ltda.), reached an agreement (“the Extension Area Agreement”) with the holder of such application, Mineração Cachambix Ltda. (“Cachambix”) to acquire its rights to obtain a mining license over the Extension Area, subject to receipt of confirmat ion from the DNPM of the continued validity of the application for the mining license and the completion of the assignment of the mining license to Brazauro Recursos Minerais Ltda. The Company made a payment of $150,000 (U.S.) to Cachambix in fiscal 2007 upon execution of the Extension Area Agreement.

In September 2006, the Company entered into an agreement (“the Title Consolidation Agreement”) with Talon whereby the Company would acquire the shares of Talon’s subsidiaries with interests in the area of the Tocantinzinho Properties, being Resource Holdings 2004 Inc. and its subsidiary, Empresa Internacional de Mineração do Brasil Ltda., in exchange for 13,150,000 shares of the Company.

On December 5, 2006, the DNPM published at the Brazilian Official Gazette that the application to which the Extension Area Agreement relates had been confirmed as the paramount title. The Company and Cachambix reached an agreement to modify the Extension Area Agreement in February 2007.  Under this modified agreement, the Company acquired all of the outstanding shares of Cachambix by payment of $850,000 (U.S.) plus its agreement to make two future payments of $1,000,000 (U.S.) each to be made to the former shareholders of Cachambix in February 2008 and 2009.  The Company’s obligation to make the future payments was secured by the Cachambix shares. The Company has made all the payments under the agreement.

In February 2007, under the terms of the Title Consolidation Agreement, the Company acquired Resource Holdings 2004 Inc. and its wholly-owned subsidiary, Empresa Internacional de Mineração do Brasil Ltda., from Talon in exchange for 13,150,000 common shares of the Company and payment of $50,000 (U.S.).
 
 
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The option agreement provides that the Optionors may be entitled to a sliding scale gross revenues royalty ranging from 2.5% for gold prices below $400 (U.S.) per ounce to 3.5% for gold prices in excess of $500 (U.S.) per ounce from production in respect of the mineral rights relating to the applications subject to the option agreement. Effective December 4, 2009, the Company entered into an amending agreement with the Optionors redefining the NSR royalty.  Under the amending agreement, the parties have agreed that the Company can buy down the royalty from 3.5 per cent to 1.5 per cent in two increments of 1 per cent each. The first payment of $2 million will be triggered by certain events including the exercise, if at all, by Eldorado Gold Corp. under its option/joint-venture agreement with the Company to acquire 60 per cent of the Tocantinzinho project, or failing such exercise, by completion of project financing, the making of a production decision or other specified events. The second payment of $3.5 million will be triggered by the making of a construction decision to proceed with the development of the Tocantinzinho project.  The amended royalty will cover all the ground referred to in the original agreement signed with the royalty holders in 2003, which encompasses the entire Tocantinzinho mineralized deposit.
 
Under a separate option agreement, the Company held exploration permits for an additional 16,052 hectares adjacent to the western border of the above Tocantinzinho Properties.  The Company agreed to make payments totaling $300,000 (U.S.) over a period of approximately four years to an individual as a finder’s fee related to this 16,000 hectare property. This additional property is not subject to the option agreement and therefore is not subject to the royalty.  The Company received an exploration license from the Brazilian regulatory authority with respect to the additional 16,052 hectares in fiscal year 2005, which expired in October 2007.  The Company has applied for a new exploration license.

In July 2008, the Company reached an agreement with Eldorado and completed a private placement required as part of Eldorado’s earn-in on an option to acquire an initial 60% interest in the Tocantinzinho Properties.  The private placement consisted of the issuance of 8,800,000 units of the Company (the “Units”) to Eldorado at the price of $0.95 per Unit for proceeds of $8,360,000 and is discussed in Note 8 below.

To complete its earn-in of the option to acquire an initial 60% interest in the Company’s Tocantinzinho Properties, Eldorado is required to incur $9.5 million in expenditures on the Tocantinzinho Properties within 24 months or pay the cash equivalent to the Company.  Subject to completing the earn-in, Eldorado will be entitled to exercise the option to acquire an initial 60% in the Tocantinzinho Properties by paying $40 million to the Company. Conditional
upon exercise of the first option, Eldorado will have a second option to acquire a further 10% interest exercisable after a construction decision has been made on the Tocantinzinho Properties by paying an additional $30 million, subject to increase to up to $40 million based on the proven and probable reserves outlined in the feasibility study, and a third option to acquire within two years of the construction decision a further 5% interest (for a total of 75%) by paying a further $20 million.  Eldorado has advised the Company that it has expended in excess of $9.5 million on the Tocantinzinho properties as of September 2009.
 
On February 25, 2009, the DNPM published in the Brazilian Official Gazette the renewal of the exploration license for the 4,000 hectares related to the central area for an additional period of three years. On May 20, 2009, the DNPM announced the issuing of an extra period of two years for the additional exploration at the 10,000 hectares related to the Extension Area.
 

Bom Jardim Property

In fiscal 2007, the Company applied for exploration licenses with the DNPM for a total of approximately 38,096 hectares in Pará State located approximately 190 kilometers southwest of the city of Itaituba. The exploration licenses were granted by the DNPM in September 2007 for a period of three years.

On May 9, 2008, the Company and a third party entered into a letter of intent (“the LOI”) whereby the Company could acquire, subject to certain conditions including the execution of a definitive agreement, the Bom Jardim property consisting of approximately 22,700 hectares of concessions and application areas in the Tapajós region of Pará State, Brazil, subject to the back-in rights described below.  The Company was to issue $1,000,000 in common shares for the Bom Jardim Property.
 
 
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The number of Company shares to be issued to the third party was to be calculated using a deemed price per share equal to the greater of the 30 day Volume-Weighed Average Price prior to closing or the Discounted Market Price (as defined in the TSX Venture Exchange Corporate Finance Manual) on the day prior to the date of the LOI (being $0.48).  The parties agreed to negotiate a definitive agreement governing the terms of the transaction in detail, which was anticipated to be executed during 2009 after the satisfaction of certain conditions of both parties, including board and regulatory approvals of the transaction and satisfactory due diligence.  Completion of the acquisition was conditional on the completion of the reorganization by the third party of the corporate structure within which the Bom Jardim Property is presently held.  On closing, the Company would acquire the subsidiary of the third party that holds all of the outstanding shares (or quotas) of the Brazilian “limitada” in which the Bom Jardim Property was to be held in exchange for the Company shares.

The third party was to have the one-time option, two years after closing the sale of the Bom Jardim Property, to back-in to earn a 60% interest in the Company indirectly holding the Bom Jardim Property by spending on the Bom
Jardim Property, over the next three years, an amount equal to two times the expenditures made by the Company on the Bom Jardim properties from closing to the second anniversary of closing.  If the third party elected not to back-in, the third party was to be entitled to a 2% Net Smelter Return Royalty on the Bom Jardim Property.  If the third party acquired the 60% interest, it would have had the further option to increase its interest to 70% by either completing and delivering a bankable feasibility study in respect of the Bom Jardim Property or by spending a further $10 million on the Bom Jardim Property over the succeeding three year period.  Thereafter, the parties were to contribute proportionately to further expenses.  The Company was to have the option to request the third party to lend t o the Company sufficient funds to meet the Company’s share of the cost of placing the Bom Jardim Property into production, in which case the third party’s interest will be increased to 75%.

In January 2009, after efforts to reach a definite agreement were not successful, the Company notified the third party that as contemplated on the LOI, both parties’ obligations were terminated.

Piranhas Properties

In July 2008, the Company entered into an option agreement under which it may acquire the mineral rights to the 19,899 hectare Piranhas Property, located in Pará State, Brazil.  The Company has an option to earn 100% of the Piranhas Property, with no residual production royalty obligations, by payment of a total of BR$1,800,000 (Brazilian Reals) over three years.  An initial payment of approximately US$11,000 was made in July 2008. Advance payments in the amount of approximately US$8,800 were made during fiscal 2010. The remaining payments under the option agreement total approximately BR$1,770,000 and are due as follows (all amounts are in Canadian dollars based on the exchange rate as of January 31, 2010):  $31,000, $63,000, $91,000 and $727,000, due in fiscal years 2011, 2012, 2013 and 2014, respec tively.  The Company can terminate the option agreement at any time without further obligation. In November 2009, the Company applied for the exploration licenses to the 19,899 hectare Piranhas Property.

In August 2009, the Company entered into another option agreement under which it may acquire the mineral rights to an additional 7,229 hectare property in the Piranhas area. The property has an exploration license granted by the DNPM in September 2009. The Company has an option to earn a 100% interest in this property, with no residual production royalty obligations, by payment of a total of BR$700,000 over three years. An initial payment of BR$20,000 was made in September 2009. The remaining payments under the option agreement are due as follows (all amounts are in Canadian dollars based on the exchange rate as of January 31, 2010): $23,000, $40,000, and $326,000, due in fiscal years 2011, 2012 and 2013, respectively. The Company can terminate the option agreement at any time without further obligation.
 
In December 2009, the Company entered into another option agreement under which it may acquire the mineral rights to an additional 7,404 hectare property in the Piranhas area. The Company has an option to earn a 100% interest in this property, by payment of a total of BR$2,500,000 over three years. An initial payment of approximately $42,000 (BR$75,000) was made in January 2010. The remaining payments under the option agreement are due as follows (all amounts are in Canadian dollars based on the exchange rate as of January 31, 2010): $100,000, $157,000, and $1,128,000, due in fiscal years 2011, 2012 and 2013, respectively. The vendor will retain a 0.5% net smelter royalty, which the Company can repurchase for BR$3,000,000. The Company can
 
 
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terminate the option agreement at any time without further obligation. In December 2009, the Company applied for the exploration licenses to the 7,404 hectare area in the Piranhas Property.
 
Agua Branca Property
 
In August 2009, the Company entered into a non-binding letter of intent with Talon Metals Corp. (“Talon”) to option the Agua Branca property from Talon’s Brazilian subsidiary.  Agua Branca consists of approximately 9,356 hectares of exploration licenses in the Tapajós region of Pará state, Brazil.
 
The non-binding letter of intent contemplates that, after due diligence by the Company was completed, the parties will enter into a definitive option agreement under which the Company may acquire 100 per cent of the property in consideration for option payments of US$60,000 on signing of the agreement with an additional US$60,000 due upon publication of the exploration licenses by the Brazilian National Department of Mineral Production (“DNPM”) which was expected on or before February 26, 2010 (extended to June 29, 2010), US$130,000 on or before December 31, 2010, and US$1,870,000 in two years from the date of the definitive agreement. To maintain the option, the Company has to spend at least US$500,000 on the property in each of the first two years which includes at least 2,000 meters of core drilling in the first year. In addition, the Company will assume all existing commercial obligations on the property. The vendor will retain a 2% net smelter royalty, which the Company can repurchase for US$2,000,000.
 
Effective December 10, 2009, the Company and Talon entered into a definitive agreement on the terms described above.
 

Item 4A. 
Unresolved Staff Comments

Not applicable.

Item 5.
Operating and Financial Review and Prospects

A. 
Operating Results

For the Years Ended January 31, 2010, 2009, and 2008

The following discussion should be read in conjunction with the information contained in the consolidated financial statements and notes thereto included in “Item 17. Financial Statements.”

Mineral Properties and Deferred Expenditures

The Company is engaged in the business of exploring for and, if warranted, developing mineral properties and is concentrating its current acquisition and exploration efforts on those properties which the Company believes have large scale gold potential.  The Company has been focusing on its Properties located in the Tapajós Gold District of Brazil’s northerly Pará State.

The Company’s current Properties are in the exploration stage and have not been proven to be commercially developable to date.  The Company’s existing Properties are gold prospects in Brazil which were acquired during fiscal years 2004 through 2010.  The Company capitalizes expenditures associated with the direct acquisition, evaluation and exploration of mineral properties.  When an area is disproved or abandoned, the acquisition costs and related deferred expenditures are written-off.  The net capitalized cost of each mineral property is periodically compared to management’s estimation of the net realizable value and a write-down is recorded if the net realizable value is less than the cumulative net capitalized costs.

The Company’s mineral properties and deferred expenditures increased to $30,138,894 at January 31, 2010 from $28,809,952 at January 31, 2009 as a result of acquisition costs totaling $179,139 and exploration costs totaling
 
 
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$1,149,803 related to the activities on the Company’s Brazilian properties.  As of January 31, 2010, the capitalized costs related to the Company’s primary exploration target, the Tocantinzinho Properties, totaled $28,225,391.  The capitalized costs related to the Company’s properties Bom Jardim, Piranhas and Agua Branca, totaled approximately $1,162,000; $493,000 and $216,000; respectively, as of January 31, 2010.  The capitalized costs related to the Company’s remaining property Andorinhas, totaled approximately $42,000 as of January 31, 2010.

The Company’s mineral properties and deferred expenditures increased to $28,809,952 at January 31, 2009 from $25,872,047 at January 31, 2008 as a result of acquisition costs totaling $231,571 and exploration costs totaling $2,745,256 related to the activities on the Company’s Brazilian properties, less the write-off of the exploration costs related to the Crepori Property of $20,922.  As of January 31, 2009, the capitalized costs related to the Company’s primary exploration target, the Tocantinzinho Properties, totaled $28,111,113.  The capitalized costs related to the Company’s property, the   Bom Jardim Property, totaled approximately $594,000 as of January 31, 2009.  The capitalized costs related to the Company’s remaining two properties, the Piranha and Ando rinhas Properties, totaled approximately $105,000 as of January 31, 2009.

In July 2008, the Company reached an agreement with Eldorado and completed a private placement required as part of Eldorado’s earn-in on an option to acquire an initial 60% interest in the Tocantinzinho Properties.  The private placement consisted of the issuance of 8,800,000 units of the Company (the “Units”) to Eldorado at the price of $0.95 per Unit for proceeds of $8,360,000.

To complete its earn-in of the option to acquire an initial 60% interest in the Company’s Tocantinzinho Properties, Eldorado is required to incur $9.5 million in expenditures on the Tocantinzinho Properties within 24 months or pay the cash equivalent to the Company.  Subject to completing the earn-in Eldorado will be entitled to exercise the option to acquire an initial 60% in the Project by paying $40 million dollars to the Company.  Conditional upon exercise of the first option, Eldorado will have a second option to acquire a further 10% interest exercisable after a construction decision has been made on the Tocantinzinho Properties by paying an additional $30 million dollars, subject to increase to up to $40 million dollars based on the proven and probable reserves outlined in the feasibility study, and a t hird option to acquire within two years of the construction decision a further 5% interest (for a total of 75%) by paying a further $20 million dollars.

In February 2007, the Company completed its acquisition of the mineral rights to the Extension Area within the Tocantinzinho Property as a result of the acquisition of the following three corporations.  The Company acquired Resource Holdings 2004 Inc. (“RH 2004”, a British Virgin Islands corporation), and its wholly-owned subsidiary, Empresa Internacional de Mineração do Brasil Ltda. (“EIMB”, a Brazil corporation), in exchange for the issuance of 13,150,000 common shares of the Company and payment of $50,000 (U.S.) to a third party.  Additionally, the Company acquired Mineração Cachambix Ltda. (“Cachambix”, a Brazil corporation) from third parties by payment of $850,000 (U.S.) and its agreement to make two future payments of $1,000,000 (U.S.) each, which were p aid on the due dates in February 2008 and 2009.

During fiscal 2008 the Company made the final option payment of $150,000 (U.S.) and 700,000 common shares of the Company due under the Option Agreement to acquire the Tocantinzinho Properties dated August 2003.  Additionally, in fiscal 2008 the Company incurred acquisition costs totaling approximately $1,290,000 (U.S.) related to the Tocantinzinho Properties, which primarily represent payments for mineral rights under the Underlying Agreements discussed in Note 6 to the Consolidated Financial Statements.

In July 2008, the Company entered into an option agreement under which it may acquire the mineral rights to the 20,688 hectare Piranha Property, located in Pará State.  The Company has an option to earn 100% of the Piranha Property, with no residual production royalty obligations, by payment of a total of $1,800,000 (Brazilian Reals) over three years.

In August 2009 the Company entered into another option agreement under which it may acquire the mineral rights to an additional 7,229 hectare property in the Piranhas area. The Company has an option to earn a 100% interest in this property, with no residual production royalty obligations, by payment of a total of BR$ 700,000 over three years. The Company can terminate the option agreement at any time without further obligation.
 
 
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In December 2009, the Company entered into an option agreement under which it may acquire the mineral rights to an additional 7,404 hectare property in the Piranhas area. The Company has an option to earn a 100% interest in this property, by payment of a total of BR$ 2,500,000 over three years. The vendor will retain a 0.5% net smelter royalty which the Company can repurchase for BR$ 3,000,000. The Company can terminate the option agreement at any time without further obligation.
 
In August 2009 the Company entered into a non-binding letter of intent with Talon Metals Corp. to option the Agua Branca property from Talon’s Brazilian subsidiary.  Agua Branca consists of approximately 9,356 hectares of exploration licenses in the Tapajós region of Pará state, Brazil. Effective December 10, 2009, after due diligence by the Company was completed, the parties entered into a definitive agreement under which the Company may acquire 100 per cent of the property in consideration for option payments of US$60,000 on signing of the agreement with an additional US$60,000 due upon publication of the exploration licenses by the Brazilian National Department of Mineral Production (“DNPM”) which was expected during the first quarter of 2010, US$130,000 on or before December 31, 2010, and US$1, 870,000 two years from the date of the definitive agreement. In addition, and to maintain the option, the Company will expend at least US$500,000 on the property in each of the first two years which will include at least 2,000 meters of core drilling in the first year and will assume existing commercial obligations on the property. The vendor will retain a 2% net smelter royalty which the Company can repurchase for US$2,000,000.
 
During fiscal 2008, the Company conducted exploration activities at the Crepori Property, and based upon the results of the exploration results elected to terminate the option agreement in April 2008.  Accordingly, the capitalized acquisition and exploration costs totaling $576,694 and $ 20,922 were written off in fiscal 2008 and 2009, respectively, and the Company has no further obligations under the option agreement.
 
On May 9, 2008, the Company and Gold Fields Holdings Company BVI Ltd. (“Gold Fields”) entered into a letter of intent (“the LOI”) whereby the Company was to acquire, subject to certain conditions including the execution of a definitive agreement, the Bom Jardim property consisting of approximately 22,700 hectares of concessions and application areas in the Tapajós region of Pará State, Brazil. In January 2009, after efforts to reach a definite agreement were not successful, the Company notified Gold Fields that as contemplated in the LOI, both parties’ obligations were terminated.
 
The Company’s mineral properties and deferred expenditures increased to $25,872,047 at January 31, 2008 from $6,368,126 at January 31, 2007 as a result of acquisition costs totaling $17,993,741 and exploration costs totaling $2,194,762 related to the activities on the Company’s Brazilian properties, less the write-off of the exploration costs related to the Sucuri and Crepori Properties of $684,582.  As of January 31, 2008, the capitalized costs related to the Company’s primary exploration target, the Tocantinzinho Properties, totaled $25,835,276.  The capitalized costs related to the Company’s remaining property, the   Bom Jardim Property, totaled approximately $36,000 as of January 31, 2008.

In fiscal 2007, the Company reviewed its exploration results related to the Sucuri property and determined that exploration activities would be suspended during fiscal 2008.  Accordingly, the capitalized exploration costs totaling approximately $708,000 were written off in fiscal 2007.  In fiscal 2008, after additional review of the viability of the property, the Company advised the optionor that the Company would release the Sucuri Property and no further payments would be made under the agreement.  The accumulated acquisition and exploration costs totaling $107,888 were written off in fiscal 2008.

Since 2004, 159 drill holes have been completed on the Tocantinzinho project by the Company and Eldorado. In addition, a resource of over 2.28 million gold ounces has been established and two Preliminary Economic Assessments (PEA) have been completed, both finding the project to be commercially viable.

In December 2006, the Company received a NI 43-101 qualified estimate of the gold resource at the Tocantinzinho Properties, and another two, in August 2007 and December 2007.  Additionally, the Company commissioned an independent, preliminary scoping study at the Tocantinzinho Properties, and results from the study were released in the third fiscal quarter of 2008.  In the fourth quarter of fiscal 2008, the Company commissioned and received an
 
 
15

 
 
additional preliminary scoping study at the Tocantinzinho Properties, and results from that study were released in December 2007.

During fiscal 2009 the Company completed an 8,500 meter core drilling campaign on the Tocantinzinho Property that was designed to upgrade inferred resources to the indicated category and to probe deeper into the mineralized zone with a view to increasing the total resources down to the level of 300 meters below surface.  Results of the 26 drill holes completed in the fiscal 2009 drilling campaign were released in October, 2008.

In January 2010 the Company announced the results of an updated PEA that confirms the economic viability and technical aspects of the Company’s 100%-owned Tocantinzinho property. The updated PEA was conducted by NCL Brasil Ltda. and builds on the assessment announced by the Company in December 2007.  It includes a detailed mine plan, enhanced engineering studies and committed budget proposals from suppliers for key elements of the mine development, including the provision of power to the site.

Income from Operations

The Company has not received any revenues from mining operations since inception.  During the years ended January 31, 2010, 2009, and 2008 the Company’s revenues were comprised primarily of interest income on proceeds received from prior financings.
 
General and administrative expenses totaled approximately $4,697,000 during fiscal 2010 as compared to approximately $3,727,000 during fiscal 2009, representing a net increase of approximately $970,000 or 26%. Included in general and administrative expenses during fiscal 2010 and 2009 were approximately $1,688,000 and $451,000; respectively, of stock compensation expense recorded using the fair value method. The variation in the stock compensation expense from fiscal 2009 to fiscal 2010 is due to the increase in the number of options granted during 2010.  A total of 5,905,000 and 500,000 options were granted in fiscal 2010 and 2009; respectively. A total of 4,170,892 and 584,474 options were forfeited in fiscal 2010 and 2009; respectively.  The Company’s common stock options vest mainly over a period of 18 mon ths, with 25% of the common stock options vesting upon the date of issuance and 12.5% of the common stock options vesting each quarter thereafter.

After adjusting for the effects of stock compensation expense on general and administrative expenses, the remaining general and administrative expenses totaled approximately $3,009,000 and $3,275,000 for the fiscal years of 2010 and 2009, respectively, representing a decrease of $267,000 or 8%. The decrease is due primarily to the following: (i) Shareholders relations expense decreased by approximately $304,000 due to the end of a promotional campaign conducted during fiscal 2009; (ii) Professional fees were higher in 2009 by approximately $145,000 as compared to 2010 due to execution of Eldorado and Bom Jardim transactions  in fiscal 2009, and (iii) Salaries increased by  approximately $187,000 in 2010 due to hiring of a new President of  the Company.

General and administrative expenses totaled approximately $3,727,000 during fiscal 2009 as compared to approximately $2,912,000 during fiscal 2008, representing an increase of approximately $815,000 or 28%. The increase is due primarily to the following: (i) the Company incurred consulting fees during fiscal 2009 totaling approximately $156,000 related to the Eldorado transaction; (ii) directors’ fees totaling $93,500 were awarded in fiscal 2009 and no directors’ fees were awarded during the similar period in 2008; (iii) an increase in professional fees totaling approximately $302,000 related to the increased activity in the Company during fiscal 2009, primarily legal fees related to the Eldorado transaction and the proposed  Bom Jardim transaction and geology consulting fees incurred in evaluating prospective pro perty acquisitions in Brazil; and (iv) a promotional campaign to investors conducted during fiscal 2009 costing approximately $250,000.

The Company anticipates that general and administrative expenses during fiscal 2011 will increase from the level experienced in fiscal 2010 as the Company incurs additional consulting and exploration expenditures related to the Brazilian Properties.
 
 
16

 

Differences Between Canadian and United States Generally Accepted Accounting Principles

At the present stage of the Company’s business development, there are no significant differences between Canadian and United States generally accepted accounting principles that impact the Consolidated Balance Sheets, the Consolidated Statements of Operations, the Consolidated Statements of Shareholders’ Equity and the Consolidated Statements of Cash Flows except for the capitalization of mineral properties and deferred expenditures  as discussed in Note 21 to Notes to Consolidated Financial Statements.

Fluctuations in Foreign Currency Exchange Rates.

The Company raises its equity in Canadian dollars and its exploration expenditures are generally denominated in Brazilian Reales and United States dollars.  As a result, the Company’s expenditures are subject to foreign currency fluctuations.  Foreign currency fluctuations may materially and adversely increase the Company’s operating expenditures and reduce the amount exploration activities that the Company is able to complete with its current capital. The Company does not engage in any hedging or other transactions to protect itself against such currency fluctuations.

Impact of Inflation.

As the Company is not anticipating recording sales and revenues from operations in the short term, a discussion of the effect of inflation and changing prices on its operations is not relevant.

B. 
Financial Condition; Liquidity and Capital Resources.

As of January 31, 2010, the Company had working capital of $4,892,539 as compared to working capital of $4,586,023 at January 31, 2009.  At January 31, 2010, the Company had current assets of $5,747,779, including $5,704,919 in cash and cash equivalents and $42,860 in other current assets compared to total current liabilities of $855,240.

In November 2009, the Company closed a private placement of 7,659,699 units at $0.65 per unit for gross proceeds of $4,978,804.  The Company paid brokerage cash commission on the placement of $308,867 plus additional share issuance costs totaling $113,315.  Each unit consists of one common share and one half of one share purchase warrant.  Each of the 3,829,849 warrants would entitle the holder to purchase one additional share of the Company at $1.00 until May 3, 2011. Additionally, brokerage agents received 475,180 agent’s warrants, entitling the holder to purchase one additional unit of the Company at $0.65 until May 3, 2011; each unit consists of one common share and one half of one share purchase warrant (the “underlying warrant”), entitling the holder to purchase one additional commo n share of the Company at $1.00 until May 3, 2011.

In July 2008, the Company closed a private placement with Eldorado Gold Corporation (“Eldorado”) by the issuance of 8,800,000 units of the Company (the “Units”) at the price of $0.95 per Unit for gross proceeds of $8,360,000.  The Company paid stock issuance costs totaling $38,200.  Each Unit consists of one common share and one-half of one non-transferable share purchase warrant.  Each full warrant would entitle the holder to acquire one additional share at a price of $1.30 per share until January 24, 2010. In the first quarter of 2009, the Company received approval from the TSX Venture Exchange to amend the 4,400,000 warrants to extend the expiry date to January 24, 2011 and to reduce the exercise price to $1.00. The shares, warrants and any shares issued upon exercise of the warr ants are subject to a four month hold period during which the securities may not be traded except as permitted by the Securities Act and the Rules made there under and the TSX Venture Exchange.

To complete its earn-in of the option to acquire an initial 60% interest in the Company’s Tocantinzinho Properties, Eldorado is required to incur $9.5 million in expenditures on the Tocantinzinho Properties within 24 months or pay the cash equivalent to the Company. Eldorado has advised the Company that it has expended in excess of $9.5 million on the Tocantinzinho properties as of September 2009. Subject to completing the earn-in Eldorado will be entitled to exercise the option to acquire an initial 60% in the Project by paying $40 million dollars to the Company.  Conditional upon exercise of the first option, Eldorado will have a second option to acquire a further 10% interest exercisable after a construction decision has been made on the Tocantinzinho Properties by paying an additional $30
 
 
17

 
 
million dollars, subject to increase to up to $40 million dollars based on the proven and probable reserves outlined in the feasibility study, and a third option to acquire within two years of the construction decision a further 5% interest (for a total of 75%) by paying a further $20 million dollars.

In March 2007 the Company closed a private placement of 9,253,333 units at $0.90 per unit for gross proceeds of $8,328,000.  The Company paid a brokerage commission on the placement of $372,960, plus additional share issuance costs totalling $48,610.  Each unit consisted of one common share and one half of one share purchase warrant.  Each whole warrant would entitle the holder to purchase one additional share of the Company at $1.60 for one year.  Subsequent to January 31, 2008, the Company received approval from the TSX Venture Exchange to amend the warrants to extend the expiry date to March 22, 2009 and to reduce the exercise price to $1.25 per share. In the first quarter of 2009, the Company received approval from the TSX Venture Exchange to amend the 4,626,666 warrants to extend the expiry date to March 22, 2010 and to reduce the exercise price to $1.00. The 4,626,666 warrants expired unexercised.

During fiscal 2010 and 2009 no stock options were exercised. During fiscal 2008 the Company received cash proceeds of $13,500 representing the exercise of 75,000 stock options, by officers, directors, employees and consultants at exercise prices from $0.10.

In February 2007, the Company completed its acquisition of the mineral rights to the Extension Area within the Tocantinzinho Property as a result of the acquisition of the following three corporations.  The Company acquired Resource Holdings 2004 Inc. (“RH 2004”, a British Virgin Islands corporation), and its wholly-owned subsidiary, Empresa Internacional de Mineração do Brasil Ltda. (“EIMB”, a Brazil corporation), in exchange for the issuance of 13,150,000 common shares of the Company and payment of $50,000 (U.S.) to a third party.  Additionally, the Company acquired Mineração Cachambix Ltda. (“Cachambix”, a Brazil corporation) from third parties by payment of $850,000 (U.S.) and its agreement to make two future payments of $1,000,000 (U.S.) each, which were d ue and paid in February 2008 and 2009.

All financings described herein were private placements and were made pursuant to the private placement laws of Canada and pursuant to the exemptions provided by Section 4(2) and Regulation S under the United States Securities Act of 1933.

The Company, except for the Tocantinzinho Property, has no other properties that have proven to be commercially developable, and has no significant revenues from mining operations.  The rights and interests in the Tocantinzinho, Piranhas, Agua Branca and Bom Jardim Properties in Brazil constitute the Company’s current mineral holdings.  While the Company believes it has sufficient working capital as of this date to meet its commitments during 2010, the Company cannot estimate with any degree of certainty either the time or the amount of funds that will be required to acquire and conduct additional exploration activities on new prospects.  Certain of the Company’s planned expenditures are discretionary and may be increased or decreased based upon funds available to the Company.  The Co mpany may seek additional equity financing during fiscal 2011, including the potential exercise of outstanding options and warrants.  The inability of the Company to raise further equity financing could adversely affect the Company’s business plan, including its ability to acquire additional properties and perform exploration activities on existing properties.  If additional equity is not available, the Company may seek exploration partners to assist in funding acquisition or exploration efforts.  Historically, the Company has been able to successfully raise capital as required for its business needs; however, no assurances are made by the Company that it can continue to raise debt or equity capital for a number of reasons including its history of losses and property writedowns, the fluctuation in the price of its common stock, the number of shares outstanding and the Company’s limited and speculative asset base of exploration properties and prospects.

C. 
Research and Development, Patents and Licenses

The Company is a mineral exploration company with no producing properties, so the information required by this item is not applicable.
 
 
18

 

D. 
Trend Information

The cyclical nature of the prices of metals, particularly the price of gold, is reasonably likely to have an effect on the Company’s liquidity and capital resources.  If the price of gold or the worldwide demand for gold decreases, there would likely be an adverse effect on the Company’s ability to raise additional funding and attract exploration partners for its Properties.

E. 
Off-Balance Sheet Arrangements.

As of June 30, 2010, the Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

F. 
Contractual Obligations

As of January 31, 2010, the Company’s operating lease obligations were approximately as follows:

   
Payments due by period
 
 
 
Contractual
obligations
 
 
Total
   
Less
than
1 year
   
1-3
Years
   
3-5
years
   
More
than
5 years
 
 
Operating Lease Obligations
  $ 206,545     $ 106,545     $ 100,000     $ -     $ -  

Additionally, the Company has payments totaling BR$4,875,000 required to maintain its interest in the Piranhas Properties.  While these payments are not fixed obligations since the Company can abandon the Properties at any time without penalty or further payments, these payments are required in order to maintain the Company’s interest.  The timing of all such payments is as follows (all amounts are approximate and in Canadian dollars based on the exchange rate as of January 31, 2010):  $154,000, $260,000, $1,545,000 and $727,000, due in fiscal years 2011, 2012, 2013 and 2014, respectively.
 
Additionally, the Company has payments totaling US$2,060,000 required to maintain its interest in the Agua Branca Property.  The amount of US$60,000 is due upon publication of the exploration licenses by the Brazilian National Department of Mineral Production (“DNPM”), US$130,000 on or before December 31, 2010, and US$1,870,000 in two years from the date of the definitive agreement. To maintain the option, the Company has to spend at least US$500,000 on the property in each of the first two years which includes at least 2,000 meters of core drilling in the first year. In addition, the Company will assume all existing commercial obligations on the property. The vendor will retain a 2% net smelter royalty, which the Company can repurchase for US$2,000,000.
 

G.  Safe Harbor

Certain statements in this Form 20-F under “Item 3. Risk Factors”, “Item 4. Properties”, “Item 5. Operating and Financial Review and Prospects”, “Item 8. Financial Information” and “Item 10. Additional Information” constitutes “forward-looking statements”.  These forward-looking statements are subject to various risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; competition; success of operating initiatives; the success (or lack thereof) with respect to the Company’s explor ation and development operations on its properties; the Company’s ability to raise capital and the terms thereof; the acquisition of additional mineral properties; changes in business strategy or development plans; exploration and other property writedowns; the continuity, experience and quality of the Company’s management; changes in or failure to comply with government regulations or the lack of government authorization to continue certain projects; the outcome of litigation matters, and other factors referenced in this Form 20-F. In addition, the Company entered into an agreement with Eldorado
 
 
19

 
 
pursuant to which, subject to certain conditions, Eldorado will acquire all the outstanding shares of the Company.   Forward-looking statements regarding the transaction are subject to assumptions and risks as set out in the Company’s Management Information Circular dated June 10, 2010. The use in this Form 20-F of such words as “believes”, “plans”, “anticipates”, “expects”, “intends” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.  The success of the Company is dependent on the efforts of the Company, its employees and many other factors including, primarily, its ability to raise additional capital and establishing the economic viability of its exploration Pr operties.

Item 6. 
Directors, Senior Management and Employees

A. 
Directors and senior management

The directors and executive officers of the Company, their ages and term of continuous service are as follows:

 
Name
 
Age
Position with
Registrant
Served As a Director
and/ or Officer Since
Patrick L. Glazier
52
Director
July 8, 1998
Brian C. Irwin
70
Director, CFO
October 3, 1995
Mark E. Jones, III
70
Director, Chairman & CEO
March 12, 1986
Leendert G. Krol
70
Director
March 6, 2003
Dr. Roger David Morton
74
Director
June 14, 1993
Gregory Chorny
60
Director
August 8, 2008
Elton L. S. Pereira
49
Vice President - Exploration
April 30, 2007
John Segner
52
Director
June  12, 2009
James Komadina
53
Director, President, COO
October 1, 2009

Patrick L. Glazier.  Mr. Glazier has served as the President of East Fraser Fiber Co. Ltd. based in Prince George, British Columbia for the past six years.

Brian C. Irwin. Mr. Irwin’s principal occupation was the practice of law as a partner of DuMoulin Black in Vancouver, British Columbia, until his retirement in June 2005. On May 29, 2008, Mr. Irwin was appointed the Chief Financial Officer of the Company.

Mark E. Jones, III.  Mr. Jones has served as Chairman of the Company from 1986 to the present.  In his capacity as Chairman of the Board of Directors, Mr. Jones is the chief executive officer of the Company.  Additionally, Mr. Jones served as the President of the Company from 1986 to June 1990, from July 2001 to March 2003, and from May 2005 until October 2009.  Mr. Jones has served as a Director of Crown Resources Corporation (“Crown”) from 1987 to 2006, when Crown was sold to Kinross Gold Corp.  Mr. Jones is also a director of Solitario Exploration & Royalty Corporation, where he has served since 1992 and is currently Vice-Chairman of the Board of Directors.

Leendert G. Krol.  Until his retirement in April 2001, Mr. Krol had spent 13 years with Newmont Mining Corporation including the last 10 years, successively, as Director of Foreign Operation, Vice President Exploration and Vice President International Exploration.  Mr. Krol served as the Company’s president from March 2003 until May 2005.  Mr. Krol also serves as a Director of Romarco Minerals Inc and StrataGold Corporation.

Dr. Roger David Morton.  Dr. Morton has been Professor Emeritus in Geology with the Department of Earth and Atmospheric Sciences at the University of Alberta since 1996. He is a member of the Board of Directors of Diamond Hawk Mining Corporation and Sola Resource Corporation.  Dr. Morton obtained his B.Sc. (Hons. 1st class) in Geology and his Ph.D. in Geology from the University of Nottingham, England.
 
 
20

 
 
Gregory Chorny.  Mr. Chorny, a retired barrister, has been involved in finance in the junior resources sector as an independent venture capitalist for the past sixteen years.

Mr. Elton L. S. Pereira.   Mr. Pereira began serving as the Company’s Chief Vice President - Exploration on April 30, 2007. Prior to his appointment as Vice President of Exploration of the Company, Mr. Pereira served as the Company’s Manager of Exploration for two years.  Mr. Pereira has over twenty years of experience in mineral exploration in Brazil, mainly with the Rio Tinto Group.  Mr. Pereira is a graduate geologist of Universidade do Vale do Rio dos Sinos of Rio Grande do Sul State and has a M.Sc degree from Universidade Federal do Ouro Preto of Minas Gerais State.

John Segner. Mr. Segner has been a private investor for the last 2 years. Mr. Segner served as a Managing Director and Global Partner of Invesco PLC from 1997 to 2009.

James J. Komadina. Mr. Komadina has a distinguished mining career. Prior to joining Brazauro he served as president and chief executive officer of Minera SA, a private natural resource investment firm and majority shareholder of Orvana Minerals (TSX:ORV). Previously, he was senior vice president of Gold Fields Exploration Inc., responsible for all non-South African global development projects.  Prior to that, he served as president and chief executive officer, North America, for AngloGold Limited, as well as holding responsible positions with Newmont Gold Company.

No director or officer of the Company has any family relationship with any other officer or director of the Company.  The Company has no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director.

B. 
Compensation

Officers

During the financial year ended January 31, 2010, Brazauro had four (4) Named Executive Officers: Mark E. Jones III, CEO, Jim Komadina, President and COO, Brian C. Irwin, CFO and Secretary, and Elton L.S. Pereira, Vice President Exploration. The Company has no long-term incentive plans.  However stock options are awarded from time-to-time at the discretion of the Board of Directors and the Compensation Committee.  The following tables set forth all annual and long-term compensation for services in all capacities to the Company and its subsidiaries for the last full financial years, including information regarding stock option awards made under the Company’s Stock Option Plan, , in respect of the CEO, the CFO, the COO and the Vice President Exploration.

Summary Compensation Table

   
Annual Compensation
   
Long Term Compensation
       
                     
Awards
   
Payouts
       
Name
and
Principal
Position
 
 
Salary
US ($)
   
 
Bonus
US ($)
   
Other Annual
Compensation
(2)
US ($)
   
Securities Under Options
Granted
(#)
   
Restricted
Shares
($)
   
LTIP
Payouts
($)
   
All other
Compensation (3)
US ($)
 
Mark E. Jones, III,
Chairman, President, CEO & Director
    200,000       10,000       29,724       850,000       -       -       7,800  
Brian C. Irwin,
CFO & Director (1)
    135,144       5,328       25,749       400,000       -       -       -  
James J. Komadina
President & COO (4)
    116,667       2,500       19,272       1,500,000       -       -       -  
Elton L. S. Pereira
VP Exploration
    184,892       10,547       -       400,000       -       -       -  
 
 
21

 
 
(1) Mr. Irwin provides consulting services to the Company under month-to-month contracts and a monthly fee of Can$10,000.
(2) Such other compensation includes Director’s fees paid for each Director’s meeting or committee meeting attended
(3) Car allowance.
(4) Mr. Komadina received a signing bonus of US$50,000 (included in Salary)

Long Term Incentive Plan (“LTIP”) Awards
The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance over a period greater than one financial year (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid to the officers during the most recently completed financial year.

Option/Stock Appreciation Rights (“SAR”) Grants During the Most Recently Completed Financial Year
The following table sets forth stock options granted under the Company’s stock option plan or otherwise during the most recently completed financial year to each of the officers.
 
Option Grants During the Most Recently Completed Fiscal Year

Individual Grants
 
 
 
Name
Securities
Under Options
Granted
(#)
% of Total Options
Granted to
Employees in
Fiscal Year
(4)
Exercise or
Base Price
($/Security)
 
 
 
Expiration Date
 
Mark E. Jones, III
 
350,000 (1)
500,000 (2)
 
14%
 
0.55
0.75
 
4/24/2014
12/15/2014
 
Brian C. Irwin
 
250,000 (1)
150,000 (2)
 
7%
 
0.55
0.75
 
4/24/2014
12/15/2014
 
James J. Komadina
 
500,000 (1)
1,000,000 (3)
 
25%
 
0.70
0.59
 
10/1/2014
11/25/2014
 
Elton L. S. Pereira
 
250,000 (1)
150,000 (2)
 
7%
 
0.55
0.75
 
4/24/2014
12/15/2014

 
(1)
The options are subject to vesting requirements (25% on the date of grant and 12.5% on each quarter end thereafter).
 
(2)
Options fully vested on the date of issue.
 
(3)
The options are subject to vesting requirements (50% on January 1, 2010 and 50% on April 1, 2010).
 
(4)
The exercise price of stock options is determined by the Board of Directors but shall in no event be less than the trading price of the common shares of the Corporation on the TSX Venture Exchange (“the Exchange”) at the time of the grant of the option.

The following table sets forth details of all exercises of stock options during the most recently completed financial year by each of the Named Executive Officer of the Corporation, and as of January 31, 2010, the number of unexercised options held by the Named Executive Officers, and the financial year-end value of unexercised in-the-money options on an aggregated basis.
 
 
22

 
 
Option Exercises in Last Fiscal Year

 
 
 
 
 
 
Name
 
 
Securities
Acquired
on Exercise
 
(#)
 
 
Aggregate
Value
Realized
 
($)
Unexercised
Options
at Fiscal
Year-End
(#)
Exercisable/
Unexercisable
Value of Unexercised
In-the-Money
Options
at Fiscal Year-End
($)
Exercisable/
Unexercisable
Mark E. Jones, III
 
Nil
Nil
1,374,240 – Exercisable
131,250 – Unexercisable
120,313 – Exercisable
72,188 – Unexercisable
Brian C. Irwin
Nil
Nil
713,123 – Exercisable
 93,750 – Unexercisable
195,938 – Exercisable
51,563 – Unexercisable
James J. Komadina
 
Nil
Nil
687,500 – Exercisable
 812,500 – Unexercisable
295,000 – Exercisable
295,000 – Unexercisable
Elton L. S. Pereira
Nil
Nil
1,106,250 – Exercisable
93,750 – Unexercisable
481,938 – Exercisable
51,563 – Unexercisable

Directors

The Company currently has six Directors, three of which Mark E. Jones III, James J. Komadina and Brian C. Irwin are also Named Executive Officers.  For a description of the compensation paid to the Company’s Named Executive Officers who also act as Directors, see “Summary Compensation Table” above.

The Company compensates all Directors for their services in their capacity as Directors as follows: Directors are paid an annual fee of Can$15,000 and Can$1,000 for each Directors meeting or committee meeting they attend, with the Chairman receiving Can$1,500.

The Company maintains no pension, profit sharing, retirement or other plan providing benefits to its Directors.

The following table sets forth all amounts of compensation paid or granted to the Company’s Directors, other than Named Executive Officers, for the most recently completed financial year:

Summary Compensation Table

   
Annual Compensation
   
Long Term Compensation
       
                     
Awards
   
Payouts
       
Name
and
Principal
Position
 
 
Salary
US ($)
   
 
Bonus
US ($)
   
Other Annual
Compensation
(2)
US ($)
   
Securities Under Options
Granted
(#)
   
Restricted
Shares
($)
   
LTIP
Payouts
($)
   
All other
Compensation
US ($)
 
Leendert G. Krol ,
Director (1)
    96,000       4,800       22,804       750,000       -       -       -  
Dr. Roger David Morton, Director
    -       -       22,804       350,000       -       -       -  
Gregory Chorny,
Director
    -       -       25,654       250,000       -       -       -  
Patrick L. Glazier,
Director
    -       -       23,754       400,000       -       -       -  
John Segner, Director
    -       -       48,869       150,000       -       -       -  
 
 
23

 
 
(1) Mr. Krol provides consulting services to the Company under month-to-month contracts and a monthly fee of US$8,000.
(2) Such other compensation includes Director’s fees paid for each Director’s meeting or committee meeting attended.

Long Term Incentive Plan (“LTIP”) Awards
The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance over a period greater than one financial year (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid to the Directors during the most recently completed financial year.

Option/Stock Appreciation Rights (“SAR”) Grants During the Most Recently Completed Financial Year
The following table sets forth stock options granted under the Company’s stock option plan or otherwise during the most recently completed financial year to each of the Directors.
 

Option Grants During the Most Recently Completed Fiscal Year

Individual Grants
 
 
 
Name
Securities
Under Options
Granted
(#)
% of Total Options
Granted to
Directors in
Fiscal Year
(3)
Exercise or
Base Price
($/Security)
 
 
 
Expiration Date
Leendert G. Krol
 
350,000 (1)
400,000 (2)
 
13%
 
0.55
0.75
 
4/24/2014
12/15/2014
Dr. Roger David Morton
 
150,000 (1)
200,000 (2)
 
6%
 
0.55
0.75
 
4/24/2014
12/15/2014
Gregory Chorny
 
150,000 (1)
100,000 (2)
 
4%
 
0.55
0.75
 
4/24/2014
12/15/2014
Patrick L. Glazier
 
150,000 (1)
250,000 (2)
 
7%
 
0.55
0.75
 
4/24/2014
12/15/2014
John Segner
 
150,000 (2)
 
3%
 
0.75
 
12/15/2014

 
(1)
The options are subject to vesting requirements (25% on the date of grant and 12.5% on each quarter end thereafter).
 
(2)
Options fully vested on the date of issue.
 
(3)
The exercise price of stock options is determined by the Board of Directors but shall in no event be less than the trading price of the common shares of the Corporation on the TSX Venture Exchange (“the Exchange”) at the time of the grant of the option.

The following table sets forth details of all exercises of stock options during the most recently completed financial year by each of the Directors of the Company, and as of January 31, 2010, the number of unexercised options held by the Directors, and the financial year-end value of unexercised in-the-money options on an aggregated basis.
 
 
24

 

Option Exercises in Last Fiscal Year

 
 
 
 
 
 
Name
 
 
Securities
Acquired
on Exercise
 
(#)
 
 
Aggregate
Value
Realized
 
($)
Unexercised
Options
at Fiscal
Year-End
(#)
Exercisable/
Unexercisable
Value of Unexercised
In-the-Money
Options
at Fiscal Year-End
($)
Exercisable/
Unexercisable
Leendert G. Krol
Nil
Nil
1,442,965 – Exercisable
 131,250 – Unexercisable
230,313 – Exercisable
72,188 – Unexercisable
Dr. Roger David Morton
Nil
Nil
558,848 – Exercisable
 56,250 – Unexercisable
106,563 – Exercisable
30,938 – Unexercisable
Gregory Chorny
Nil
Nil
368,750 – Exercisable
 81,250 – Unexercisable
139,063 – Exercisable
43,438 – Unexercisable
Patrick L. Glazier
Nil
Nil
792,396 – Exercisable
 56,250 – Unexercisable
161,563 – Exercisable
30,938 – Unexercisable
John Segner
Nil
Nil
150,000 – Exercisable
 Nil – Unexercisable
Nil – Exercisable
Nil – Unexercisable


The Company has no arrangements, standard or otherwise, pursuant to which directors are compensated by the Company or its subsidiaries for their services in their capacity as directors during the most recently completed fiscal year or subsequently, other than the payments disclosed above.

C. 
Board Practices

All directors are elected annually by the shareholders and hold office until the next Annual Meeting of Shareholders.  There are no directors’ service contracts with the Company that provide for benefits for the directors upon termination of service.

Messrs. Chorny, Glazier and Morton are members of the Company’s Audit Committee, all of whom are “independent directors” under the rules of the Securities Exchange Act of 1934, as amended.  Mr. Chorny serves as the Audit Committee’s financial expert.

The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial information provided by the Company to regulatory authorities and shareholders, the Company’s systems of internal controls regarding finance and accounting and the Company’s auditing, accounting and financial reporting processes.  Consistent with this function, the Audit Committee will encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures and practices at all levels.  The Audit Committee’s primary duties and responsibilities are to:
 
·
Serve as an independent and objective party to monitor the Company’s financial reporting and internal control system and review the Company’s financial statements.
 
·
Review and appraise the performance of the Company’s external auditors.
 
·
Provide an open avenue of communication among the Company’s auditors, financial and senior management and the Board of Directors.
 
Messrs. Morton, Chorny and Irwin serve as members of the Company’s Compensation Committee.  The Compensation Committee has responsibility for determining compensation for the directors and senior management.  To determine compensation payable, the Compensation Committee reviews compensation paid for directors and
 
 
25

 
 
CEOs of companies of similar size and stage of development in the mineral exploration industry and determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management while taking into account the financial and other resources of the Company.  In setting the compensation, the Compensation Committee annually reviews the performance of the CEO in light of the Company’s objectives and considers other factors that may have impacted the success of the Company in achieving its objectives.

D. 
Employees

The Company’s principal office is located in Houston, TX.  The Company also maintains administrative offices in Belem, Brazil and field offices in Itaituba, Brazil.  The Company had 31, 23, and 26 full-time employees at January 31, 2010, 2009, and 2008, respectively; however, the Company retains consultants, independent contractors and part-time employees on an as-needed basis in connection with its exploration and development activities.  For each of the years ended January 31, 2010, 2009, and 2008, six of the Company’s full-time employees were based in the United States and the remaining employees were based in Belem and Itaituba, Brazil.

E. 
Share Ownership

The following table sets forth, as of June 10, 2010, the number of the Company’s common shares beneficially owned by the directors and members of senior management of the Company, individually, and as a group, and the percentage of ownership of the outstanding common shares represented by such shares.

The shareholders listed below possess sole voting and investment power with respect to the shares shown.

 
Name of Beneficial Owner
Number
of Shares
 
Percent of Class
Patrick L. Glazier (2)
2,027,317 (1)
2.0 %
Brian C. Irwin
756,373 (1)
*
Mark E. Jones, III
3,177,790 (1)
3.1 %
Leendert G. Krol
1,419,115 (1)
1.4%
Dr. Roger David Morton
575,098 (1)
*
Gregory Chorny (3)
1,601,922 (1)
1.6%
Elton L. S. Pereira
1,100,000 (1)
1.1%
John Segner
1,000,000 (1)
1.0%
James J. Komadina
1,500,000 (1)
1.5%
Officer and Directors of the Company as a group
  (9 persons)
 
13,157,615 (1)
 
12.8 %
* Less than 1%.

 (1)  A director of the Company.  Includes the following options to purchase common shares:

 
Name
Number of Options
(#)
Exercise Price
($)
 
Date of Expiration
Patrick L. Glazier
61,000
187,646
200,000
150,000
250,000
1.30
2.00
0.55
0.55
0.75
March 22, 2010
July 21, 2010
December 18, 2012
April 24, 2014
December 15, 2014
 
 
26

 
 
 
Name
Number of Options
(#)
Exercise Price
($)
 
Date of Expiration
Brian C. Irwin
156,373
200,000
250,000
150,000
2.00
0.55
0.55
0.75
July 21, 2010
December 18, 2012
April 24, 2014
December 15, 2014
Mark E. Jones, III
500,390
350,000
500,000
2.00
0.55
0.75
July 21, 2010
April 24, 2014
December 15, 2014
Leendert G. Krol
155,100
469,115
200,000
350,000
400,000
1.30
2.00
0.55
0.55
0.75
March 22, 2010
July 21, 2010
December 18, 2012
April 24, 2014
December 15, 2014
Dr. Roger David Morton
40,000
125,098
100,000
150,000
200,000
1.30
2.00
0.55
0.55
0.75
March 22, 2010
July 21, 2010
December 18, 2012
April 24, 2014
December 15, 2014
Gregory Chorny
200,000
150,000
100,000
0.50
0.55
0.75
August 8, 2013
April 24, 2014
December 15, 2014
Elton L. S. Pereira
100,000 (4)
300,000 (4)
250,000 (4)
150,000
250,000
150,000
0.57
0.57
0.57
0.55
0.55
0.75
February 15, 2010
August 4, 2010
May 11, 2012
December 18, 2012
April 24, 2014
December 15, 2014
John Segner
150,000
0.75
December 15, 2014  
James J. Komadina
500,000
1,000,000
0.70
0.59
October 1, 2014
November 25, 2014

(2)  The beneficial owner has sole ownership, with the exception of a total of 630,875 shares, where ownerhips is shared.
(3)  The beneficial owner has sole ownership, with the exception of a total of 500,000 shares, where ownership is shared.
(4)  These options were re-priced in May 2008 to $0.57.

Shares Subject to Options

The Company maintains a stock option plan for its directors, officers and employees and may issue up to 13,000,000 options. The following table sets forth the Company’s compensation plans under which equity securities are authorized for issuance at the dates indicated.
 
 
27

 
 
Equity Compensation Plan Information as of June 30, 2010
 
 
 
 
 
 
Plan category
 
 
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 
 
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
 
(a)
(b)
(c)
Equity compensation
  plans approved by
  security holders
 
 
9,249,588
 
 
$0.85
 
 
3,750,412
Equity compensation
  plans not approved by
  security holders
 
 
-0-
 
 
N/A
 
 
-0-
 
Total
 
9,249,588
 
$0.85
 
3,750,412

Under the terms of the plan, the exercise price of each option equals the closing market price of the Company’s stock on the date of grant. Most of the options granted under the Company’s stock option plan are subject to vesting requirements (25% on the date of grant and 12.5% on each quarter end thereafter) and all have a term of five years.  Options are issued at the discretion of the Board of Directors.  As of June 30, 2010, included in the 9,249,588 common share options outstanding were the 8,088,622 common stock options granted to directors and officers as disclosed in the second preceding table plus a total of 960,966 and 200,000 common stock options issued to employees and consultants, respectively.

Item 7. 
Major Shareholders and Related Party Transactions

A. 
Major Shareholders

The following table sets forth, as of June 30, 2010, the number of Common Stock and the corresponding percentage ownership of each person who held of record, or was known by the Company to own beneficially, more than five percent of the Company’s Common Stock.  Unless otherwise indicated, the Company believes the following persons have sole voting and investment power with respect to the number of shares set forth opposite their names.

Name and Address of Beneficial Owner
Number of Shares
Percent of Class
     
CDS & Co.  (1)
P. O. Box 1038, Station A, 25 The Esplanade
Toronto, Ontario M5W 1G5
 
 
 
62,441,345
 
 
66.54%
Cede & Co.  (1)
P.O. Box 20, Bowling Green Station
New York, New York 10274
 
 
 
7,048,007
 
 
28.82%
Eldorado Gold Corporation
1188 – 550 Burrard Street
Vancouver, BC V6C 2B5
 
 
14,326,000
 
 
 
15.26%

(1)  It is the understanding of the Company that all of these shares are held by the record shareholder in a nominal, fiduciary, trustee or similar capacity.  The Company is unaware of the identities of the beneficial owners of these shares, with the exception of shares held by the Company’s officers or directors included in such share positions.
 
 
28

 

To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.

The Company’s common stock is issued in registered form and the following information is taken from the records of Computershare Investor Services Inc. located in Vancouver, British Columbia, Canada, the registrar and transfer agent for the common stock.  As of June 30, 2010 there were 92 holders of record of the Company’s Common Stock including 69 in the United States who collectively held 30,320,838 common shares, representing 32% of the total issued and outstanding shares of 93,846,0551 common shares.

On May 28, 2010, a total of 100,000 common shares were issued as a result of exercise of the same number of stock options with an exercise price of $0.55. The Company received exercise proceeds totaling $55,000.

On May 12, 2010, the Company entered into an agreement with Eldorado, pursuant to which, subject to certain conditions, Eldorado would acquire, by way of court approved Plan of Arrangement, all the issued and outstanding shares of the Company. The transaction is expected to close by July 20, 2010 and is subject to customary conditions including without limitation the approval of British Columbia Supreme Court and certain regulatory approvals. Details of the agreement are described in Item 4.A, above, and Item 8.B below.

On March 22, 2010, a total of 300,000 common shares were issued as a result of exercise of the same number of stock options with an exercise price of $0.51. The Company received exercise proceeds totaling $153,000.

In November 2009, the Company closed a private placement of 7,659,699 units at $0.65 per unit for gross proceeds of $4,978,804.  Each unit consists of one common share and one half of one share purchase warrant.  Each of the 3,829,849 warrants would entitle the holder to purchase one additional common share of the Company at $1.00 until May 3, 2011. Additionally, brokerage agents received 475,180 agent’s warrants, entitling the holder to purchase one additional unit of the Company at $0.65 until May 3, 2011; each unit consists of one common share and one half of one share purchase warrant (the “underlying warrant”), entitling the holder to purchase one additional common share of the Company at $1.00 until May 3, 2011. Eldorado participated with the acquisition of 1,032,000 units.

In July 2008, the Company reached an agreement with Eldorado and completed a private placement required as part of Eldorado’s earn-in on an option to acquire an initial 60% interest in the Tocantinzinho Properties.  The private placement consisted of the issuance of 8,800,000 units of the Company (the “Units”) to Eldorado at the price of $0.95 per Unit. Each Unit consists of one common share and one-half of one non-transferable share purchase warrant. Until exercise of the second option, more particularly described in item 5A Eldorado has agreed that it will exercise or cause to be exercised all voting rights attached to the Company’s shares issued pursuant to the private placement  in favor of the directors nominated by management for election at each annual general meeting of the shareholde rs of  the Company.

In February 2007 the Company and Talon Metals Corp. entered into a Voting Trust and Placement Rights Agreement (the “Voting Agreement”) pursuant to which the Company had the right to direct the voting of the shares issued to Talon Metals Corp. except in certain conditions, including but not limited to a merger, amalgamation or a sale of all or substantially all of the Company’s assets.  Further, the Company had the right to find purchasers for the shares if Talon Metals Corp. wished to sell.  The Voting Agreement would terminate on the earliest of: (i) the day following the second shareholders meeting after the Voting Agreement is entered into, (ii) eighteen months after the Voting Agreement is entered into, and (iii) the date on which the shares held by Talon Metals Corp. and its affiliates repres ent in the aggregate less than 10% of the then outstanding shares.

In September 2007, Talon sold 8,214,500 common shares of the Company to several third parties.  After the sale Talon holds 4,935,500 shares or approximately 6.5% of the outstanding shares.  The Voting Agreement terminated when the holdings of Company common shares by Talon became less than 10% of the Company’s outstanding common shares.  The Company and Talon entered into an agreement whereby Talon agreed that it will not sell any of its remaining common shares of the Company for six months without the prior consent of the Company.
 
 
29

 
 
B. 
Related Party Transactions

All related party transactions are discussed in Item 6 above.

C. 
Interests of Experts and Counsel

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

Item 8. 
Financial Information

A. 
Consolidated Statements and Other Financial Information

Consolidated Financial Statements

The Consolidated Financial Statements of the Company included as part of this Annual Report on Form 20-F are incorporated by reference in response to this Item 8.  An index to the Consolidated Financial Statements is included in Item 17.

Legal or Arbitration Proceedings

There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject.  The Company is involved from time to time in claims arising in the normal course of business.
 
A legal action was filed against the Company in the Supreme Court of British Columbia, Canada, in August 1996 by James M. Cairns relating to a claim by Mr. Cairns for the failure of the Company to make a timely release of escrow shares.  In fiscal 2009, the action was dismissed for lack of prosecution.
 

Dividend Policy

The Company has never declared or paid cash dividends on its Common Stock.  The Company presently intends to retain cash for the operation and development of its business and does not anticipate paying cash dividends in the foreseeable future.  A future determination as to the payment of dividends will depend on a number of factors, including future earnings, capital requirements, the financial condition and prospects of the Company and such other factors as the Board of Directors of the Company deems relevant.


B. 
Significant Changes

On May 11, 2010, the Company entered into an agreement with Eldorado, in which Eldorado would acquire, by way of court approved Plan of Arrangement (the “Arrangement”), the issued and outstanding shares of the Company not held by Eldorado. Each Brazauro Share not held by Eldorado would be exchanged for 0.0675 of a share of Eldorado plus one third of a share of a new exploration company. Eldorado’s outstanding warrants to purchase Brazauro Shares will be cancelled and the Company ‘s remaining unexercised options and warrants will be exercisable for Eldorado shares on substantially identical terms, adjusted in respect of exercise price and number, on the same exchange ratio being offered for the shares of the Company .

Through the Arrangement, Eldorado would acquire the Company ‘s flagship Tocantinzinho project as well as the Agua Branca and Piranhas properties. The remaining exploration assets of the Company will become assets of a newly incorporated company and all holders of the Company’s shares, except Eldorado, would receive one third of a share of the new company for each share held of the Company. In addition, Eldorado will provide $10 million in funding to the new company upon the closing of the transaction.
 
 
30

 

The Arrangement has been approved by the board of directors of the Company and the arrangement is subject to, among other things, the final approval of the British Columbia Supreme Court, receipt of all necessary regulatory approvals, the approval by at least 66⅔ per cent of the votes cast by the holders of common shares of the Company , at least 66⅔ per cent of the votes cast by holders of options and warrants of the Company and shareholders, the approval by a simple majority of shareholders (excluding Eldorado and any other shareholders excluded by Multilateral Instrument 61-101), and the satisfaction or waiver of other conditions precedent to the arrangement. The hearing in respect of the final order to approve the arrangement is currently scheduled to take place on or about July 16, 2010, with the completion of the arra ngement to occur no later than July 20, 2010.

In May 2010, the Company decided to abandon certain mineral claims in the Bom Jardim area due to poor exploration results. As a result, the property was written-down by $929,848 as of April 30, 2010.


Item 9. 
The Offer and Listing

A. 
Offer and Listing Details

The Company’s Common Stock is listed on the TSX Venture Exchange (“the TSX”) in British Columbia, Canada under the symbol “BZO”.  The Company’s Common Stock is not traded on an exchange or market in the United States.

The high and low sales prices (in Canadian dollars) as quoted on the TSX for the below referenced fiscal years were as follows:

 
Price Range of Common Stock
Fiscal Year Ended January 31,
High
Low
2010
0.75
0.35
2009
0.90
0.10
2008
1.00
0.43
2007
1.64
0.60
2006
2.50
0.80


The high and low sales prices (in Canadian dollars) as quoted on the TSX for the below referenced quarterly periods were as follows:

   
Price Range of Common Stock
   
Fiscal Year Ended January 31
   
2010
   
2009
Fiscal Quarter Ended
 
High
   
Low
   
High
   
Low
 
April 30
    0.74       0.35       0.43       0.10  
July 31
    0.75       0.53       0.57       0.14  
October 31
    0.74       0.55       0.90       0.34  
January 31
    0.69       0.50       0.73       0.46  
 
 
31

 
 
The high and low sales prices (in Canadian dollars) as quoted on the TSX for the below referenced months were as follows:

 
Price Range of Common Stock
Month Ended
High
Low
January 2010
0.67
0.59
February 2010
0.68
0.56
March 2010
0.64
0.55
April 2010
0.59
0.47
May 2010
1.33
0.49
June 2010
1.46
1.20


B. 
Plan of Distribution

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

C. 
Markets

The common shares of the Company trade on the TSX Venture Exchange under the symbol “BZO”.

Item 10. 
Additional Information

A. 
Share Capital

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

B. 
Memorandum and Articles of Association

Please see Exhibits 1.1, 1.2, 1.3, 1.4 and 1.5.

C.
Material Contracts

The following is a summary of the material contracts entered into by the Company for the two years ended June 30, 2010:

In July 8, 2008, the Company reached an agreement with Eldorado Gold Corporation (“Eldorado”) and completed a private placement required as part of Eldorado’s earn-in on an option to acquire an initial 60% interest in the Tocantinzinho Properties.  The terms of this agreement are described in “Item 8.B Financial Statements,” above.

The option agreement dated July 18, 2008 between Maria Teresa Barbosa Da Silva and the Company relating to the acquisition of  the mineral rights to the 20,688 hectare Piranha Property, the terms of which are described in “Item 8.B Financial Statements,” above.

In November 2008, the Company’s board of directors approved the adoption of a Shareholder Rights Plan (the “Rights Plan”).  By an agreement dated May 14, 2009, the Company amended its Rights Plan, and on June 12, 2009, shareholders ratified the Rights Plan, as amended, to maintain it in full force and effect. The Rights Plan, as
 
 
32

 
 
amended, has an initial term which expires at the annual general meeting of shareholders of the Company to be held in 2012, unless terminated earlier.  The Rights Plan may be extended beyond 2012 by resolution of shareholders at such meeting.
 
Brazauro entered into a Financial Advisory engagement letter dated June 19, 2009 with BMO Nesbitt Burns Inc. (“BMO”) pursuant to which, among other things, BMO agreed to provide its opinion as to the fairness of the consideration to be received in a proposed Transaction, from a financial point of view, to Brazauro Shareholders. The terms of the engagement agreement between Brazauro and BMO provide that BMO is to be paid a fee for its services as financial advisor to Brazauro, a fee on delivery of the Fairness Opinion, no portion of which is contingent upon such opinion being favourable, and fees that are contingent on an unsolicited offer being made for any of the securities of Brazauro or a proposed Transaction or another transaction is completed. In addition, Brazauro has agreed to reimburse BMO for its reasonable out-of- pocket expenses in connection with the engagement and to indemnify BMO and certain related persons against certain liabilities in certain circumstances.

In August 2009, the Company entered into an option agreement with Maria Tereza Barbosa da Silva under which it may acquire the mineral rights to additional 7,229 hectares in the Piranhas area. The terms of the agreement are described in “Item 8.B Financial Statements,” above.

In August 2009, the Company entered into a non-binding letter of intent with Brazmin Ltda. and Talon Metals Corp. (“Talon”) to option the Agua Branca property from Talon’s Brazilian subsidiary.  Agua Branca consists of approximately 9,356 hectares of exploration licenses in the Tapajós region of Pará state, Brazil. Effective December 10, 2009, the Company and Talon entered into a definitive agreement on the terms described in “Item 8.B Financial Statements,” above.

Amending agreement dated December 4, 2009 amending the Option Agreement dated July 31, 2003 between the Company and Dennis Moore and Alan Carter with respect to the Tocantinzinho Property, Brazil. Under the Amending Agreement the parties have agreed that Brazauro can buy down the royalty from 3.5% to 1.5% in two increments of 1% each. The first payment of $2,000,000 will be triggered by certain events including the exercise, if at all, by Eldorado Gold Corporation under its Option/Joint Venture agreement with the Company to acquire 60% of the Tocantinzinho project or failing such exercise by completion of project financing, the making of a production decision or other specified events. The second payment of $3,500,000 will be triggered by the making of a construction decision to proceed with the development of the Tocantinzinho Project . The amended royalty will cover all the ground referred to in the original agreement signed with the royalty holders in 2003 which encompasses the entire Tocantinzinho mineralized deposit.
 
In December 2009, the Company entered into an option agreement with Marlene Soares Tavares under which it may acquire the mineral rights to additional 7,404 hectares property in the Piranhas area. The terms of the agreement are described in “Item 8.B, Financial Statements” above.

On May 12, 2010, the Company entered into an agreement with Eldorado, pursuant to which, subject to certain conditions, Eldorado would acquire, by way of court approved Plan of Arrangement, all the issued and outstanding shares of the Company. The transaction is expected to close by July 20, 2010 and is subject to customary conditions including without limitation the approval of British Columbia Supreme Court and certain regulatory approvals. Details of the agreement are described in Item 4.A and Item 8.B above.


D. 
Exchange Controls

The Company is not aware of governmental laws, decrees or regulations in Canada restricting the import or export of capital or affecting the remittance to the United States of interest, dividends or other payments to non-resident holders of the Company’s Common Stock.  However, the payment or crediting of interest or dividends to United States residents may be subject to applicable withholding taxes at a rate prescribed by the Income Tax Act (Canada)  and as further modified by the provisions of the Canada-United States Tax Convention (1980) (see “Taxation” below).
 
 
33

 

Except as provided in the Investment Canada Act (the “ICA”), there are no limitations under the laws of Canada, the Province of British Columbia or in the charter and organizational documents of the Company on the right of nonresident or foreigner owners to hold and/or vote the shares of the Company.

The ICA applies when a “non-Canadian” individual or entity or controlled group of entities as defined in the ICA proposes to make an investment to acquire control of a Canadian business enterprise, either directly or indirectly, and by way of purchase of voting shares of a corporation or of substantially all of the assets used in the Canadian business enterprise.  An investment in voting shares of a corporation is deemed to be an acquisition of control where more than 50% of the voting shares are acquired.  An acquisition of less than one-third of the voting shares of a corporation is deemed not to be an acquisition of control and an acquisition of between one-third and one-half of the voting shares of a corporation is presumed to be an acquisition of control unless it can be established that the acquisi tion does not in fact result in control of the corporation by the investor.

An investment to acquire control of a Canadian business enterprise, the gross assets of which exceed certain thresholds, must be reviewed and approved under the ICA before implementation.  An investment to acquire control of a Canadian business enterprise, the gross asset value of which falls below these threshold amounts, is one in respect of which notification must be given under the ICA although approval is not required prior to implementation of the investment.   NAFTA Investors, (i.e.) investors who are nationals, other than Canadian, as defined in the North American Free Trade Agreement, are not considered for the purposes of the ICA to be “non-Canadian”.

E. 
Taxation

Certain Canadian Federal Income Tax Considerations

The following summary is relevant to a holder of common shares who (i) is the beneficial owner of the common shares; (ii) is not, and has never been, a resident or deemed resident of Canada for the purposes of the Income Tax Act (Canada) (the “ITA”), (iii) is considered a resident of the United States and a “qualifying person” for the purposes of the Canada-United States Income Tax Convention (the “Treaty”) entitled to full benefits thereof, (iv) does not use or hold and is not deemed to use or hold common shares in, or in the course of, carrying on a business in Canada, and (v) has not acquired their common shares pursuant to a tax-deferred exchange under the ITA .
 
Special rules, which are not discussed below, may apply to a holder  that are insurers which carry on business in Canada and elsewhere, and this summary is not applicable to such holders. Such holders should consult their own tax advisors.

This summary is based on the current provisions of the ITA, the regulations thereunder (the “Regulations”), all proposals to amend the ITA and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposals”) and counsel’s understanding of the administrative and assessing practices and policies of the Canada Revenue Agency (“CRA”) which have been made publicly available prior to the date hereof. No assurance can be given that the Proposals will be enacted as proposed, if at all. This summary does not take into account or anticipate any other changes in law, whether by legislative, regulatory, administrative or judicial decision or action or changes in the administrative practices of CRA, is not exhaustive of all Canadian federal in come tax considerations and does not take into account other federal tax considerations or provincial, territorial or foreign income tax legislation or considerations.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder. The tax liability of a holder will depend on the holder’s particular circumstances. Accordingly, holders should consult their own tax advisors for advice with respect to their own particular circumstances.

 
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Dividends

  
Generally, dividends paid by a Canadian corporation to non-resident individuals or corporations are subject to withholding tax at a rate of 25% under Part XIII of the ITA.  However, under paragraph 2 of Article X of the Treaty the withholding tax rate may be reduced, as follows, to:

 
a)
5% of the gross amount of the dividends if the beneficial owner of such dividends is a US resident company which owns at least 10% of the voting stock of the corporation paying the dividends; and

 
b)
15% of the gross amount of the dividends in all other cases.

Dispositions of Capital Property

Capital gains realized by a non-resident person on the disposal of shares that are considered to be taxable Canadian property (“TCP”), as defined in the ITA, are taxable in Canada as capital gains.  Under draft amendments to the ITA, the shares of a Canadian public corporation will be TCP where at any time during the preceding 60 month period (i) a shareholder, together with persons with whom the shareholder does not deal at arm’s length have owned at least 25% of the issued shares of any class of the shares of the public corporation; and (ii) more than 50% of the fair market value of a common share of the company is derived directly or indirectly from one or any combination of (A) real or immovable property situated in Canada; (B) Canadian resource pr operty (as defined in the ITA); (C) timber resource property (as defined in the ITA), or (D) options in respect of, or interests in property described in any of (A) through (C) above, whether or not such property exists. “Arm’s length is a term defined in the ITA.

If a US resident shareholder disposes of shares that are TCP, the shareholder may be exempt from tax in Canada under Article XIII of the Treaty if, at the time of the disposition of the shares, the value of the shares was derived principally from something other than direct or indirect real property interests situated in Canada.  Real property interest is defined in the Treaty to include gains on Canadian real and resource properties and shares of companies that derive more than half of their value from such properties.

The ACB of a share includes the cost of the share plus or minus any adjustments that may be required under the ITA. The ACB of each common share of a corporation owned by an investor at any particular time will be the average ACB to him of all common shares of that corporation owned at that time.

Disposition of Non-Capital Property

The foregoing discussion is a summary of certain tax considerations which may be relevant to shareholders of the Company.  It is not intended as a substitute for personal tax planning and professional tax advice.

Certain United States Federal Income Tax Considerations

The following is a summary of certain material U.S. federal income tax consequences to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of Common Stock of the Company.

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Stock.  In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Stock.  Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and f oreign tax consequences of the acquisition, ownership, and disposition of Common Stock.

Notice Pursuant To IRS Circular 230:  Anything contained in this summary concerning any U.S. federal tax issue is not intended or written to be used, and it cannot be used by a U.S. Holder, for the purpose of avoiding federal tax penalties under the Internal Revenue Code.  This summary was written to support the promotion or marketing of the transactions or matters addressed by this Form 20-F.  Each U.S. Holder should seek U.S. federal tax advice, based on such U.S. Holder’s particular circumstances, from an independent tax advisor.
 
 
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Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the Internal Revenue Service (“IRS”), published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Form 20-F.  Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis.  This summary does not discuss the potential eff ects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.

U.S. Holders

For purposes of this summary, a “U.S. Holder” is a beneficial owner of the Company’s Common Stock that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or any state in the U.S., including the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to co ntrol all substantial decisions of such trust.

Non-U.S. Holders

For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Stock other than a U.S. Holder.  This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Stock to non-U.S. Holders.  Accordingly, a non-U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Stock.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Stock to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own Common Stock as part of a straddle, hedgi ng transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired Common Stock in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold Common Stock other than as a capital asset within the meaning of Section 1221 of the Code; (h) U.S. expatriates or former long-term residents of the U.S.; or (i) U.S. Holders that own, directly, indirectly, or by attribution, 10% or more, by voting power or value, of the outstanding shares of the Company.  U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Stock.

If an entity that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Stock, the U.S. federal income tax consequences to such partnership (or “pass-through” entity) and the
 
 
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partners of such partnership (or owners of such “pass-through” entity) generally will depend on the activities of the partnership (or “pass-through” entity) and the status of such partners (or owners).  Partners of entities that are classified as partnerships (or owners of “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountant regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Stock.

Tax Consequences Not Addressed

This summary does not address the U.S. state and local, U.S. federal alternative minimum tax; U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Stock.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the U.S. state and local, U.S. federal alternative minimum tax, U.S. federal estate and gift, and foreign tax consequences of the acquisition, ownership, and disposition of Common Stock.

U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Stock

Distributions on Common Stock

Subject to the “passive foreign investment company” (“PFIC”) rules discussed below, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to Common Stock will be required to include the amount of such distribution in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company.  To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in Common Stock and, (b) thereafter, as gain from the sale or exchange of such Common Stock.  H owever, the Company does not intend to maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to Common Stock will constitute ordinary dividend income.  Dividends paid on Common Stock generally will not be eligible for the “dividends received deduction.”

For taxable years beginning before January 1, 2011, a dividend paid by the Company generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Company is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) certain holding period requirements are met.

The Company generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”) if (a) the Company is incorporated in a possession of the U.S., (b) the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or (c) the Common Stock is readily tradable on an established securities market in the U.S.  However, even if the Company satisfies one or more of such requirements, the Company will not be treated as a QFC if the Company is a PFIC, as discussed below, for the taxable year during which the Company pays a dividend or for the preceding taxable year.

As discussed below, the Company believes that it was a PFIC for the taxable year ended January 31, 2010, and based on business plans and financial projections, the Company expects that it will be a PFIC for the taxable year ending January 31, 2011. (See more detailed discussion at “Passive Foreign Investment Company Rules” below).  The determination of whether the Company will be a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.  In addition, whether the Company will be a PFIC for its current taxable year depends on the assets and income of the Company over the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this Form 20-F.  Consequently, there can be no assurance regarding the Company’s PFIC status for any taxable year during which U.S. Holders hold Common Stock, and there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status.

If the Company is not a PFIC, but a U.S. Holder otherwise fails to qualify for the preferential tax rate applicable to dividends discussed above, a dividend paid by the Company to a U.S. Holder, including a U.S. Holder that is an
 
 
37

 
 
individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains).  The dividend rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the dividend rules.

Disposition of Common Stock

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Stock in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in Common Stock sold or otherwise disposed of.  Subject to the PFIC rules discussed below, any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if Common Stock are held for more than one year.  Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Stock generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules, unless such gains are resourced as “foreign source” under an applicable income tax treaty, and an election is filed under the Code.  (See more detailed discussion at “Foreign Tax Credit” below).

Preferential tax rates currently apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust.  There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation.  Deductions for capital losses are subject to significant limitations under the Code.

Receipt of Foreign Currency

The amount of any distribution paid in foreign currency to a U.S. Holder in connection with the ownership of Common Stock, or on the sale, exchange or other taxable disposition of Common Stock, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time).  A U.S. Holder that receives foreign currency and converts such foreign currency into U.S. dollars at a conversion rate other than the rate in effect on the date of receipt may have a foreign currency exchange gain or loss, which generally would be treated as U.S. source ordinary income or loss.

Taxable dividends with respect to Common Stock that are paid in foreign currency will be included in the gross income of a U.S. Holder as translated into U.S. dollars calculated by reference to the exchange rate prevailing on the date of actual or constructive receipt of the dividend, regardless of whether the foreign currency is converted into U.S. dollars at that time.  If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt.  Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and gen erally will be U.S. source income or loss for foreign tax credit purposes.  Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

Foreign Tax Credit

A U.S. Holder who pays (whether directly or through withholding) foreign income tax with respect to dividends paid on Common Stock generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such foreign income tax paid.  Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income.  In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.”  In addition, this limitation is calculated separately with respect to specific categories of income.  Dividends paid by the Company generally will constitute “foreign source” income and generally will be categorized as “passive
 
 
38

 
 
income.”  The foreign tax credit rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the foreign tax credit rules.

Passive Foreign Investment Company Rules

The Company generally will be a PFIC under Section 1297 of the Code if, for a taxable year, (a) 75% or more of the gross income of the Company for such taxable year is passive income or (b) 50% or more of the assets held by the Company either produce passive income or are held for the production of passive income, based on the fair market value of such assets.  “Gross income” generally means all revenues less cost of goods sold.  “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation.  In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

In addition, if the Company is a PFIC and owns shares of another foreign corporation that also is a PFIC (a “Subsidiary PFIC”), under certain indirect ownership rules, a disposition of the shares of such Subsidiary PFIC or a distribution received from such other Subsidiary PFIC generally will be treated as an indirect disposition by a U.S. Holder or an indirect distribution received by a U.S. Holder, subject to the rules of Section 1291 of the Code discussed below.  To the extent that gain recognized on the actual disposition by a U.S. Holder of Common Stock or income recognized by a U.S. Holder on an actual distribution received on Common Stock was previously subject to U.S. federal income tax under these indirect ownership rules, such amount generally should not be subject to U.S. federal income tax.

The Company believes that it was a PFIC for the taxable year ended January 31, 2010, and based on business plans and financial projections, the Company expects that it will be a PFIC for the taxable year ending January 31, 2011.    The determination of whether the Company will be a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.  In addition, whether the Company will be a PFIC for its current taxable year depends on the assets and income of the Company over the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this Form 20-F.  Consequently, there can be no assurance regarding the Company’s PFIC status for any taxable year during which U .S. Holders hold Common Stock, and there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status.

If a U.S. Holder owns Common Stock in any taxable year in which the Company is a PFIC, such U.S. Holder generally would be required to file IRS Form 8621 (or other form specified by the U.S. Department of the Treasury) with the U.S. Holder’s U.S. federal income tax return for the appropriate taxable year.  Each U.S. Holder should consult its own tax advisor regarding this filing requirement.
 
Default PFIC Rules Under Section 1291 of the Code

If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Stock will depend on whether such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”).  A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”

A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of Common Stock and (b) any excess distribution paid on the
 
 
39

 
 
Common Stock.  A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current taxable year) exceeds 125% of the average distributions received during the three preceding taxable years (or during a U.S. Holder’s holding period for the Common Stock, if shorter).

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Stock, and any excess distribution paid on the Common Stock, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Stock.  The amount of any such gain or excess distribution allocated to prior years of such Non-Electing U.S. Holder’s holding period for the Common Stock (other than years prior to the first taxable year of the Company beginning after December 31, 1986 for which the Company was not a PFIC) will be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such prior year.  A Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such ta x liability had been due in each such prior year.  Such a Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.  The amount of any such gain or excess distribution allocated to the current year of such Non-Electing U.S. Holder’s holding period for the Common Stock will be treated as ordinary income in the current year, and no interest charge will be incurred with respect to the resulting tax liability for the current year.

If the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds Common Stock, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent years.  A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Stock were sold on the last day of the last taxable year for which the Company was a PFIC.

QEF Election

A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above.  However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company and each Subsidiary PFIC, which will be taxed as long-term capital gain to such U.S. Holder, and (b) and the ordinary earnings of the Company and each Subsidiary PFIC, which will be taxed as ordinary income to such U.S. Holder.  Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain.  A U.S. Holder that makes a QEF E lection will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company.  However, a U.S. Holder that makes a QEF Election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge.  If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.

A U.S. Holder that makes a QEF Election generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the Common Stock to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election.  In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Stock.

The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely.  A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for the Common Stock in which the Company was a PFIC.  A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such first year in respect of the Company and each Subsidiary PFIC, if any.  However, if the Company was a PFIC in a prior year, then in addition to filing the QEF Election documents, a U.S. Holder must elect to recognize (a) gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if the Common Stock were sold on the qualification date or (b) if the
 
 
40

 
 
Company was also a CFC, such U.S. Holder’s pro rata share of the post-1986 “earnings and profits” of the Company as of the qualification date.  The “qualification date” is the first day of the first taxable year in which the Company was a QEF with respect to such U.S. Holder.  The election to recognize such gain or “earnings and profits” can only be made if such U.S. Holder’s holding period for the Common Stock includes the qualification date.  By electing to recognize such gain or “earnings and profits,” such U.S. Holder will be deemed to have made a timely QEF Election.  In addition, under very limited circumstances, a U.S. Holder may make a retroactive QEF Election if such U.S. Holder failed to file the QEF Election documents in a tim ely manner.  A U.S. Holder that did not make a timely QEF Election with respect to the Company is strongly urged to consult its own tax advisor regarding the availability of, and procedure for making, a retroactive QEF Election.
 
A QEF Election will apply to the taxable year for which such QEF Election is made and to all subsequent taxable years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election.  If a U.S. Holder makes a QEF Election and, in a subsequent taxable year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those taxable years in which the Company is not a PFIC.  Accordingly, if the Company becomes a PFIC in another subsequent taxable year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any such subsequent taxable year in which the Company qualifies as a PFIC.  In addition, the QEF Election will remain in effect (although it will not b e applicable) with respect to a U.S. Holder even after such U.S. Holder disposes of all of such U.S. Holder’s direct and indirect interest in the Common Stock.  Accordingly, if such U.S. Holder reacquires an interest in the Company, such U.S. Holder will be subject to the QEF rules described above for each taxable year in which the Company is a PFIC.

Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election. U.S. Holders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in the event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election.

Mark-to-Market Election

A U.S. Holder may make a Mark-to-Market Election only if the Common Stock is marketable stock.  The Common Stock generally will be “marketable stock” if the Common Stock is regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enfo rced and (ii) the rules of such foreign exchange ensure active trading of listed stocks.

A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above.  However, if a U.S. Holder makes a Mark-to-Market Election after the beginning of such U.S. Holder’s holding period for the Common Stock and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Stock.

A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each taxable year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Stock as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Stock.  A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the lesser of (a) the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in the Common Stock over (ii) the fair market value of such Common Stock as of the close of such taxable year or (b) the excess, if any, of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (ii) the amount allowed as a deduction because of such Mark-to-Ma rket Election for prior taxable years.
 
 
41

 

A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the Common Stock to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election.  In addition, upon a sale or other taxable disposition of Common Stock, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years).

A Mark-to-Market Election applies to the taxable year in which such Mark-to-Market Election is made and to each subsequent taxable year, unless the Common Stock cease to be “marketable stock” or the IRS consents to revocation of such Mark-to-Market Election.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the availability of, and procedure for making, a Mark-to-Market Election.

Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the Common Stock, no Mark-to-Market Election may be made with respect to the stock of any Subsidiary PFIC that such U.S. Holder is treated as owning.  Hence, the Mark-to-Market Election will not be effective to eliminate the interest charge described above.

Other PFIC Rules

Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Stock that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations).  However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Stock are transferred.  Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election.  For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Stock as security for a loan will, except as may be provided in T reasury Regulations, be treated as having made a taxable disposition of such Common Stock.

Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC.

The PFIC rules are complex, and each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Stock.

Recent Legislative Developments
 
Newly enacted legislation requires certain U.S. Holders who are individuals, estates or trusts to pay up to an additional 3.8% tax on, among other things, dividends and capital gains for taxable years beginning after December 31, 2012.  In addition, for taxable years beginning after March 18, 2010, new legislation requires certain U.S. Holders who are individuals that hold certain foreign financial assets (which may include shares of Common Stock) to report information relating to such assets, subject to certain exceptions.  Each U.S. Holder should consult its tax advisor regarding the effect, if any, of this legislation on its ownership and disposition of shares of Common Stock.
 
Information Reporting; Backup Withholding For Certain Payments

Under U.S. federal income tax law and regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation.  Penalties for failure to file certain of these information returns are substantial.  U.S. Holders of Common Stock should consult with their own tax advisors regarding the requirements of filing information returns, and if applicable, any “mark-to-market election” or “QEF election” (each as defined below).

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from certain sales or other taxable dispositions of, Common Stock generally will be subject to information reporting and
 
 
42

 
 
backup withholding, currently at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding.  However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding rules.  Any amounts withheld under the U.S. backup withholding rules will be allowed as a credit again st a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.  Each U.S. Holder should consult its own financial advisor, legal counsel, or accountant regarding the information reporting and backup withholding rules.

F.
  Dividends and Paying Agents

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

G. 
Statement By Experts

This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and as such, there is no requirement to provide any information under this item.

H. 
Documents on Display

The documents referred to in this Form 20-F can be viewed at the office of the Company, which is located at 16360 Park Ten Place, Suite 217, Houston, TX  77084.  The Company is required to file financial statements and other information with all of the Securities Commissions in Canada electronically through the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can be viewed at www.sedar.com.

I. 
Subsidiary Information

This information is not required for reports filed in the United States.

Item 11. 
Quantitative and Qualitative Disclosures About Market Risk.

Transaction Risk and Currency Risk Management

The Company is not exposed to market risk related to derivative financial instruments or other financial instruments.  At the present time the Company has no long-term debt or source of revenue as the Company is in the resource exploration and development stage on its mineral property interests.

Foreign Currency Exchange Rate Risk

The Company is engaged in mineral exploration in Brazil.  The Company’s significant contracts related to its Brazilian activities are denominated in U.S. dollars.  The Company’s equity financings are denominated in Canadian dollars.  Changes in the price of foreign exchange rates could significantly affect the Company’s profitability and cash flows.  See “Key Information” under Item 3 above, for a description of factors relating to foreign exchange and currency fluctuations.  Its liabilities are denominated in Canadian and U.S. dollars.   The Company does not engage in hedging transactions at this time.

We operate on a multinational basis and a significant portion of our business is conducted in currencies other than the Canadian dollar, which is our financial reporting currency for the Consolidated Financial Statements included herein.  The following table sets forth the principal components of the consolidated balance sheets as of January 31, 2010 and 2009 and the consolidated statements of operations for the two years then ended showing the sensitivity to exchange risk by showing the effect of a 10% hypothetical uniform weakening in the value of the U.S. dollar relative to the Canadian Dollar:
 
 
43

 

   
Denominated in
             
   
 
Canadian
Dollars
   
 
U.S.
Dollars
   
Total Value in
Canadian
Dollars
   
Effect of a 10%
Change in
Exchange
Rate
 
January 31, 2010
                       
Cash and cash equivalents
    5,369,832       314,547       5,704,919       1 %
Accounts receivable
    10,143       5,782       16,303       4 %
Prepaid expenses
    18,776       7,304       26,557       3 %
Accounts payable and accrued liabilities
    147,274       568,904       753,327       8 %
                                 
January 31, 2009
                               
Cash and cash equivalents
  $ 4,421,396     $ 1,294,238     $ 6,021,592       3 %
Marketable securities
    -       170,874       211,268       10 %
Accounts receivable
    11,897       124,863       166,278       9 %
Prepaid expenses
    18,772       16,928       39,702       5 %
Accounts payable and accrued liabilities
    25,042       383,572       499,290       9 %
                                 
Year ended January 31, 2010
                               
General and administrative expenses
    2,370,156       2,099,476       4,696,936       5 %
Other income
    12,837       143,178       174,098       9 %
                                 
Year ended January 31, 2009
                               
General and administrative expenses
    1,266,827       2,266,655       3,726,591       7 %
Other income
    65,005       35,132       104,041       5 %



Interest Rate Risk and Equity Price Risk

The Company has been equity financed and does not have any debt that is subject to interest rate change risks.

Commodity Price Risk

While the value of the Company’s Properties is affected by the price of gold, the Company does not have any operating mines and hence does not have any hedging or other commodity based risk respecting its operations.

Item 12. 
Descriptions of Securities Other than Equity Securities

Not applicable.


PART II

Item 13. 
Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14. 
Material Modifications to the Rights of Security Holders and Use of Proceeds.
 
Not applicable.
 
 
44

 

 
Item 15T. 
Controls and Procedures.
 
(a)  Evaluation of disclosure controls and procedures.
 
The term “disclosure controls and procedures” (defined in SEC rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely dec isions regarding required disclosure. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report.  Based on such evaluation, and the material weakness described below, the Chief Executive Officer and Chief Financial Officer concluded that, as of such date, the Company’s disclosure controls and procedures were not effective.
 
 (b)  Internal control over financial reporting.
 
The management of Brazauro Resources Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed by, or under the supervision of ours Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, through our audit committee, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
The management of Brazauro Resources Corporation has assessed the effectiveness of the Company’s internal control over financial reporting as of January 31, 2010, and this assessment identified the following material weakness in the Company’s internal control over financial reporting:

A deficiency due to a lack of human resources within our finance and accounting reporting functions that could result in material misstatements to financial statements not being detected in a timely manner.  Due to the small size of the Company, a single individual is employed to perform all accounting and reporting functions.  An error by that individual or turnover of that individual could result in a material misstatement to financial statements that may not be detected in a timely manner.  Due to budgetary constraints, the Company does not have plans at the current time to hire additional personnel to remediate this material weakness.

To make our assessment of internal control over financial reporting, we used the criteria described in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our assessment, we believe that, as of January 31, 2010, the company’s internal control over financial reporting was not effective.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by
 
 
45

 
 
the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
 
(c)  Changes in internal controls.
 
There were no changes in internal control over financial reporting that occurred during the period covered by the annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

Item 16A. 
Audit Committee Financial Expert

Mr. Gregory Chorny is a member of the audit committee of the Company who qualifies as an “audit committee financial expert” (as that term is defined in the instructions to Item 16A of Form 20-F) based on his education and experience.  Mr. Chorny is independent, as that term is defined by the rules of the British Columbia Securities Commission and the Securities and Exchange Commission.  

The Securities and Exchange Commission has indicated that the designation of Mr. Chorny as an audit committee financial expert does not make him an “expert” for any purpose, impose on him any duties, obligations or liability that are greater than the duties, obligations or liability imposed on him as a member of the Audit Committee and the Board of Directors in absence of such designation, or affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.


Item 16B. 
Code of Ethics.

A formal code of ethics was adopted by the Company on January 29, 2010. The Code of Ethics as required under Item 16B is attached hereto and found in the exhibits following the text of this Annual Report.   Previously, The Board of Directors of the Company (“the Board”) views good corporate governance as an integral component to the success of the Company and to meet responsibilities to shareholders.  The Board has responsibility for the stewardship of the Company including responsibility for strategic planning, identification of the principal risks of the Company’s business and implementation of appropriate systems to manage these risks.  In addition, the Board is responsible for succession planning and the integrity of the Company’s internal controls.  The Board seeks to fost er a culture of ethical conduct by striving to ensure that the Company conducts its business in line with high business and moral standards and applicable legal and financial requirements.  In that regard, the Board encourages management to consult with legal and financial advisors to ensure that the Company is in compliance with legal and financial requirements; is aware of the Company’s continuous disclosure obligations and reviews prior to their distribution such material disclosure documents including, but not limited to, the interim and annual financial statements and Management’s Discussion and Analysis; relies on the Audit Committee to review and discuss the Company’s systems of financial controls with the external auditor; and actively monitors the Company’s compliance with the Board’s directives to ensure that all material transactions are reviewed and authorized by the Board before being undertaken by management.


Item 16C. 
Principal Accountant Fees and Services


At the annual meeting held on June 12, 2009, the shareholders appointed Morgan & Company, Chartered Accountants (“Morgan”), to serve as the independent auditors for the 2010 fiscal year.  The chart below sets forth the total amount billed by Morgan for services performed in the fiscal years 2010 and 2009, and breaks down these amounts by category of service.
 
 
46

 

Financial Year Ending
 
Audit Fees
   
Audit Related Fees
   
Tax Fees
 
All Other Fees
January 31, 2010
  $ 54,000     $ 7,300     $ 4,530  
Nil
January 31, 2009
  $ 50,000     $ 15,480    
Nil
 
Nil

Audit Committee’s pre-approval policies and procedures

The Audit Committee makes recommendations concerning the engagement of public accountants, reviews the scope and results of the audit engagement, considers the range of audit and non-audit fees and reviews the adequacy of internal controls.  Any services provided by Morgan that are not specifically included within the scope of the audit must be pre-approved by the audit committee prior to any engagement.  In fiscal 2010, all fees paid to Morgan for audit and tax services were approved by the audit committee prior to the services being rendered.

Item 16D. 
Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. 
Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

Item 16F.
Change in Registrant’s Certifying Accountant

Not applicable

Item 16G.
Corporate Governance

Not applicable

Item 17. 
Financial Statements

The Company’s consolidated financial statements are stated in Canadian dollars and are prepared in accordance with Canadian GAAP, the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP, except as disclosed in Note 21 to the consolidated financial statements.

The financial statements and notes thereto as required under Item 17 are attached hereto and found immediately following the text of this Annual Report.  The audit report of Morgan and Company, independent Chartered Accountants, is included herein immediately preceding the consolidated financial statements.

The following is a list of and index to the Consolidated Financial Statements filed as part of this Registration Statement:


BRAZAURO RESOURCES CORPORATION
Index to Consolidated Financial Statements
 
 
  Page
   
Auditors’ Report - Morgan & Company 50
   
Consolidated Financial Statements: 
    Consolidated Balance Sheets - January 31, 2010 and 2009
51
   
Consolidated Statements of Operations and Comprehensive Loss
    for each of the years ended January 31, 2010, 2009 and 2008
52
   
 
 
47

 
 
Consolidated Statements of Shareholders’ Equity 
   for each of the years ended January 31, 2010, 2009 and 2008
53
   
Consolidated Statements of Cash Flows
    for each of the years ended January 31, 2010, 2009 and 2008
54
   
Notes to Consolidated Financial Statements 55
 
 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not required under the related instructions, are not applicable, or the information required thereby is set forth in the Company’s Consolidated Financial Statements or the Notes thereto.

Item 18. 
Financial Statements

The Company has elected to provide financial statements pursuant to Item 17.

Item 19. 
Exhibits Filed as Part of this Registration Statement.

See the Index to Exhibits following the Consolidated Financial Statements of the Company.
 
 
48

 

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

July 9, 2010  BRAZAURO RESOURCES CORPORATION  
  (Registrant)  
       
 
By:
 /s/ Mark E. Jones, III  
  MARK E. JONES, III  
  Chief Executive Officer and Director  
       

 
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 registrant and in the capacities and on the dates indicated.

Signature
Title
Date
     
/s/ Mark E. Jones, III
Mark E. Jones, III*
Chief Executive Officer and Director
July 9, 2010
     
/s/ Patrick L. Glazier
Patrick L. Glazier*
Director
July 9, 2010
     
/s/ Brian C. Irwin
Brian C. Irwin*
Chief Financial Officer and Director
July 9, 2010
     
/s/ Leendert G. Krol
Leendert G. Krol*
Director
July 9, 2010
     
/s/ Gregory Chorny
Gregory Chorny*
Director
July 9, 2010
     
/s/ Dr. Roger David Morton
Dr. Roger David Morton*
Director
July 9, 2010
     
/s/ James J. Komadina
James J. Komadina*
President, COO and Director
July 9, 2010
     
s/ John Segner
John Segner *
Director
July 9, 2010
 
By:  /s/ Mark E. Jones, III
Mark E. Jones, III
Attorney-in-fact
For persons indicated *
   
 
 
49

 
 
 
 
 
INDEPENDENT AUDITORS’ REPORT
 
To the Shareholders of
Brazauro Resources Corporation
 
We have audited the consolidated balance sheets of Brazauro Resources Corporation as at January 31, 2010 and 2009, and the consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for the years ended January 31, 2010, 2009, and 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  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 January 31, 2010 and 2009, and the results of its operations and its cash flows for the years ended January 31, 2010, 2009, and 2008, in accordance with Canadian generally accepted accounting principles.
 
 
Vancouver, Canada “Morgan & Company”
   
May 13, 2010 Chartered Accountants
 
 
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES
 
The reporting standards of the Public Company Accounting Oversight Board (United States) for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the consolidated financial statements.  Our report to the shareholders, dated May 13, 2010, is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditor’s report when these are adequately disclosed in the consolidated financial statements.
 
 
Vancouver, Canada “Morgan & Company”
   
May 13, 2010 Chartered Accountants
 
 
 
 
 
 
 
50

 
 
Brazauro Resources Corporation
 
Consolidated Balance Sheets
 
(In Canadian Dollars)

 
   
January 31,
 
   
2010
   
2009
 
Assets
           
Current assets:
           
   Cash and cash equivalents
  $ 5,704,919     $ 6,021,592  
   Marketable securities (Note 5)
    -       211,268  
   Accounts receivable
    16,303       166,278  
   Prepaid expenses
    26,557       39,702  
Total current assets
    5,747,779       6,438,840  
Property and equipment:
               
  Mineral properties and deferred expenditures (Note 6)
    30,138,894       28,809,952  
  Equipment
    141,756       137,144  
  Accumulated depreciation
    (113,179 )     (78,164 )
Total property and equipment, at cost
    30,167,471       28,868,932  
                 
Other assets
    6,285       7,295  
Total assets
  $ 35,921,535     $ 35,315,067  
                 
Liabilities and shareholders’ equity
               
Current liabilities:
               
   Accounts payable and accrued liabilities
  $ 753,327     $ 499,290  
   Asset retirement obligations
    101,913       118,281  
Note payable, less unamortized discount of $Nil  (2009 - $1,154) (Note 7)
    -       1,235,246  
Total current liabilities
    855,240       1,852,817  
Shareholders’ equity
               
   Common share capital, no par value:
               
     Authorized shares - unlimited
               
     Issued and outstanding shares – 92,897,320
               
       (2009 - 85,237,621) (Note 8)
    86,516,227       82,105,968  
  Contributed surplus
    11,939,724       10,105,066  
  Accumulated other comprehensive income
    -       27,857  
  Deficit
    (63,389,656 )     (58,776,641 )
Total shareholders’ equity
    35,066,295       33,462,250  
Total liabilities and shareholders’ equity
  $ 35,921,535     $ 35,315,067  
                 
 
Subsequent events (Note 22)
 
   
Approved on behalf of the Board of Directors.
Director: “Mark E. Jones, III”
 
Director: “Brian C. Irwin”
See accompanying notes.
 
 
 
51

 
 
Brazauro Resources Corporation
 
Consolidated Statements of Operations and Comprehensive Loss
 
(In Canadian Dollars)
 
   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
Expenses:
                 
  General and administrative (Note 16)
  $ 4,696,936     $ 3,726,591     $ 2,912,367  
  Finance charges
    -       37,407       59,789  
  Write-down of mineral properties (Note 6)
    -       20,922       684,582  
  Interest
    11,563       107,074       177,115  
  Foreign exchange losses (gains)
    78,614       (479,756 )     925,504  
      4,787,113       3,412,238       4,759,357  
Other income:
                       
  Gain on sale of marketable securities
    160,024       -       -  
  Interest income
    14,074       93,151       278,206  
  Gain on sale of equipment
    -       10,890       -  
      174,098       104,041       278,206  
Net loss before other comprehensive income
    (4,613,015 )     (3,308,197 )     (4,481,151 )
Unrealized (loss) income on marketable securities
    (27,857 )     27,857       -  
Comprehensive loss
  $ (4,640,872 )   $ (3,280,340 )   $ (4,481,151 )
 
Basic and diluted net loss per share
  $ (0.05 )   $ (0.04 )   $ (0.06 )
 
Weighted-average number of shares outstanding
    87,126,314       81,054,014       74,836,676  
 
 
 
 
 
 
 
See accompanying notes.
 
 
 
 
52

 

Brazauro Resources Corporation
 
Consolidated Statements of Shareholders’ Equity
 
(In Canadian Dollars)
 
   
Common Shares
   
 
   
Accumulated Other
   
 
   
Total
 
    Number     Amount    
Contributed
Surplus
    Comprehensive Income    
Deficit
   
Shareholders’
Equity
 
Balance at January 31, 2007
    53,259,288     $ 53,729,055     $ 8,176,729     $ -     $ (50,987,293 )   $ 10,918,491  
Issued for cash, net of share issue
  cost
    9,253,333       7,906,430       -       -       -       7,906,430  
Issued for property acquisition
    13,850,000       13,146,552       -       -       -       13,146,552  
Stock-based compensation
    -       -       465,675       -       -       465,675  
Issued on exercise of stock
  options
    75,000       24,691       (11,191 )     -       -       13,500  
Net loss for the year
    -       -       -       -       (4,481,151 )     (4,481,151 )
Balance at January 31, 2008
    76,437,621       74,806,728       8,631,213       -       (55,468,444 )     27,969,497  
Issued for cash, net of share
  issue cost
    8,800,000       8,321,800       -       -       -       8,321,800  
Warrants modification cost
    -       (1,022,560 )     1,022,560       -       -       -  
Stock-based compensation
    -       -       451,293       -       -       451,293  
Unrealized income on marketable securities
    -       -       -       27,857       -       27,857  
Net loss for the year
    -       -       -       -       (3,308,197 )     (3,308,197 )
Balance at January 31, 2009
    85,237,621       82,105,968       10,105,066       27,857       (58,776,641 )     33,462,250  
Issued for cash, net of share issue
  cost
    7,659,699       4,556,623       -       -       -       4,556,623  
Agent’s warrants cost
    -       (146,364 )     146,364       -       -       -  
Stock-based compensation
    -       -       1,688,294       -       -       1,688,294  
Unrealized loss on marketable securities
    -       -       -       (27,857 )     -       (27,857 )
Net loss for the year
    -       -       -       -       (4,613,015 )     (4,613,015 )
Balance at January 31, 2010
    92,897,320     $ 86,516,227     $ 11,939,724     $ -     $ (63,389,656 )   $ 35,066,295  

 
 
 
See accompanying notes.
 
 
53

 
 
Brazauro Resources Corporation
 
Consolidated Statements of Cash Flows
 
(In Canadian Dollars)
 
   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
Operating activities
                 
  Net loss for the year
  $ (4,613,015 )   $ (3,308,197 )   $ (4,481,151 )
  Adjustments to reconcile net loss to net cash used in
    operating activities:
                       
    Depreciation
    37,205       23,688       21,596  
    Gain on sale of equipment
    -       (10,890 )     -  
    Stock-based compensation
    1,688,294       451,293       465,675  
    Write-down of mineral properties
    -       20,922       684,582  
    Gain on sale of marketable securities
    (160,024 )     -       -  
    Interest
    1,161       75,378       144,692  
 Changes in non-cash operating working capital:
                       
    Accounts receivable
    135,874       (138,166 )     1,175  
    Prepaid expenses
    10,835       64,487       (86,631 )
    Deferred stock issuance costs
    -       -       58,250  
    Accounts payable and accrued liabilities
    232,124       (55,356 )     221,545  
Net cash used in operating activities
    (2,667,546 )     (2,876,841 )     (2,970,267 )
Investing activities
                       
  Mineral properties acquisition and exploration
    (1,230,097 )     (3,155,623 )     (4,739,669 )
  Equipment
    (6,803 )     (52,834 )     (15,550 )
  Proceeds from sale of marketable securities
    423,738       -       -  
  Purchase of marketable securities
    (96,844 )     (183,184 )     -  
Net cash used in investing activities
    (910,006 )     (3,391,641 )     (4,755,219 )
Financing activities
                       
  Repayment of notes payable
    (1,235,246 )     (1,005,100 )     -  
  Proceeds from issuances of common shares, net
    4,556,623       8,321,800       7,919,930  
Net cash provided by financing activities
    3,321,377       7,316,700       7,919,930  
Effect of exchange rate changes on cash
    (60,498 )     335,237       (402,665 )
Net (decrease) increase in cash and cash equivalents
    (316,673 )     1,383,455       (208,221 )
Cash and cash equivalents, beginning of year
    6,021,592       4,638,137       4,846,358  
Cash and cash equivalents, end of year
  $ 5,704,919     $ 6,021,592     $ 4,638,137  
 
 
See accompanying notes.
See Note 17 for supplemental cash flow disclosure and non-cash investing and financing activities.
 
 
54

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
 
1. Operations

Brazauro Resources Corporation (“the Company”) was incorporated in 1986 in British Columbia, Canada, and has been engaged in the acquisition and exploration of mineral properties with the potential for economically recoverable reserves.  During fiscal 2010, 2009 and 2008, the Company pursued gold exploration opportunities that have large scale potential, with prospects in South America as the primary focus.  See Note 6 for further discussion of the Company’s mineral property interests.

The nature of the Company’s operations results in significant expenditures for the acquisition and exploration of properties.  None of the Company’s properties have economically recoverable reserves or proven reserves at the current stage of exploration.  The recoverability of the carrying value of mineral properties and deferred expenditures is dependent upon a number of factors including the existence of recoverable reserves, the ability of the Company to obtain financing to renew leases and continue exploration and development and the discovery of economically recoverable reserves.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  The Company anticipates that cash and cash equivalents as of January 31, 2010 will be sufficient to satisfy the Company’s cash needs for general and administrative expenses, to pursue further exploration on its existing properties and to acquire and develop additional exploration prospects during fiscal 2011.  These consolidated financial statements do not include any adjustments that may be required in the event that the Company is unable to realize its assets and settle its liabilities in the normal course of operations.


2. Significant Accounting Policies

The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”).  All amounts are in Canadian dollars unless noted otherwise.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary Brazauro Holdings (Brazil) Ltd. (“Brazauro Holdings”), a Canadian corporation, its wholly owned United States subsidiary, Star U.S. Inc. (“Star”), its wholly owned British Virgin Islands subsidiary, Brazauro Holdings (BVI) Ltd., and its wholly owned British Virgin Islands subsidiary, Resource Holdings 2004 (“RH 2004”) from their respective dates of acquisition.  The consolidated financial statements also include the three wholly-owned subsidiaries of Star, Diamond Operations, Inc. (“DOI”), Diamond Exploration, Inc. (“DEI”) and Continental Diamonds, Inc. (“CDI”).  The Company and Brazauro Holdings own 99.99% and 0.01%, respectively, of the commo n shares of Brazauro Recursos Minerais Ltda. (formerly Jaguar Resources do Brasil Ltda.), a Brazilian corporation. Brazauro Recursos Minerais Ltda. and Brazauro Holdings own 99.99% and 0.01%, respectively, of the common shares of Mineração Cachambix Ltda. (“Cachambix”), a Brazilian corporation.  RH 2004 and the Company own 99.99% and 0.01%, respectively, of the common shares of Empresa Internacional de Mineração do Brasil Ltda. (“EIMB”), a Brazilian corporation.  Significant intercompany balances and transactions have been eliminated.
 
 
55

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
2. Significant Accounting Policies (continued)

Translation of Foreign Currencies

The Company’s subsidiaries are integrated foreign operations. Foreign currency transactions and balances are translated into the Canadian dollar reporting currency using the temporal method as follows:

a) 
Monetary items are translated at the rates prevailing at the balance sheet dates;
b) 
Non-monetary items are translated at historical rates;
c) 
Revenues and expenses are translated at the average rates in effect during applicable accounting periods, except depreciation, which is translated at historical rates;
d) 
Gains and losses on foreign currency translation are reflected in the consolidated statements of operations.

Cash and Cash Equivalents

Cash is comprised of cash on hand and demand deposits.  Cash equivalents are money market instruments with maturity of three months or less.

Fair Value and Classification of Financial Instruments

As of January 31, 2010 and 2009, the fair value of cash and cash equivalents, investments in marketable securities, accounts receivable, and accounts payable and accrued liabilities approximates carrying values because of the short term nature of these instruments.

Marketable Securities

Marketable securities are classified as available-for-sale and are carried at quoted market value, where applicable, or at an estimate of fair value. Unrealized income (loss) on changes in fair values of available-for-sale financial assets are reflected in other comprehensive income, net of applicable future income taxes. Realized gains and losses are included in the consolidated statement of operations in the period in which they occur.

Mineral Properties and Deferred Expenditures

Direct acquisitions, evaluation and exploration expenditures are capitalized, reduced by related sundry income, to be amortized over the recoverable mineral reserves if a property is commercially developed.  When an area is disproved or abandoned, capitalized expenditures are written down to net realizable value.

Equipment

Equipment is recorded at cost and depreciated on a straight-line basis over useful lives ranging from 2 to 5 years.

Long-Lived Assets

Long-lived assets include mineral properties and deferred expenditures, and equipment. Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Carrying amounts are written off to the extent capitalized costs exceed the expected undiscounted net cash flows from their use and eventual disposition proceeds.
 
 
56

 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
2. Significant Accounting Policies (continued)

Asset Retirement Obligations

The Company follows the recommendations under Section 3110, “Asset Retirement Obligations”, of the Canadian Institute of Chartered Accountants Handbook (“Section 3110”).  These recommendations require accounting for the estimated fair value of legal obligations to reclaim and remediate mineral properties in the period incurred, at the net present value of the cash flows required to settle the future obligations. The corresponding amount is capitalized to the related asset and accounted for in accordance with the Company’s accounting policies for mineral properties and deferred expenditures. The liabilities are subject to accretion over time for increases in the fair value of the liabilities.

The operations of the Company may in the future be affected from time to time in varying degree by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable.  The Company’s estimates of its ultimate asset retirement obligations could change as a result of changes in regulations, the extent of environmental remediation required, the means of reclamation or cost estimates. Changes in estimates are accounted for prospectively from the period the estimate is revised.

Remediation and reclamation expenditures are charged against earnings as incurred. At this stage of the Company’s exploration programs, remediation activities are performed immediately upon completion of each phase of exploration activities.

Income Taxes

Income taxes are calculated using the liability method of accounting.  Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets.  The future income tax liabilities or assets are measured using tax rates and laws expected to apply in the periods that the temporary differences are expected to reverse.  Valuation allowances are provided where net future income tax assets are not more likely than not to be realized.

Share Capital – Non-Monetary Consideration

Agent’s warrants, stock options and other equity instruments issued as purchase consideration in non-cash transactions are recorded at fair value determined by management using the Black-Scholes option pricing model.  The fair value of the shares issued as purchase consideration for mineral properties is based upon the trading price of those shares on the TSX Venture Exchange on the date of the agreement to issue shares as determined by the Board of Directors.  Proceeds from unit placements are allocated between shares and warrants issued according to their relative fair value using the residual method.

Loss Per Share

Basic loss per share is calculated using the weighted average number of shares issued and outstanding during the year.  The Company follows the treasury stock method in the calculation of diluted loss per share.  No shares were added to the weighted average number of common shares outstanding during the years ended January 31, 2010, 2009, or 2008 for the dilutive effect of employee stock options and warrants as they were all anti-dilutive.
 
 
57

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
2. Significant Accounting Policies (continued)

Stock Based Compensation

The Company uses the fair-value based method to account for all stock-based payments to employees and non-employees granted by measuring the compensation cost of the stock-based payments using the Black-Scholes option-pricing model.  Stock options which vest immediately are recorded at the date of grant.  Stock options that vest over time are recorded over the vesting period using the straight line method.  Stock options issued to outside consultants that vest over time are valued at the grant date and subsequently re-valued on each vesting date.  The fair value of the stock-based compensation is recorded as a charge to net earnings based on the vesting period with a credit to contributed surplus.  Upon exercise of the stock options, consideration paid by the option holder, together wit h the amount previously recognized in contributed surplus, is recorded as an increase to share capital.

Comprehensive Income (Loss)

Comprehensive income (loss) is the change in the Company’s net assets that results from transactions, events and circumstances from sources other than the Company’s shareholders and includes items that would not normally be included in net earnings, such as unrealized gains or losses on available-for-sale investments. Other comprehensive income (loss) includes the holding gains and losses from available-for-sale securities which are not included in net income (loss) until realized.

Use of Estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to the consolidated financial statements.  Actual results may differ from those estimates.

Measurement Uncertainty

Management’s capitalization of exploration and development costs and assumptions regarding the future recoverability of such costs are subject to significant measurement uncertainty.  Management’s assessment of recoverability is based on, among other things, the Company’s estimate of current mineral reserves and resources which are supported by geological estimates, estimated gold and commodity prices, and the procurement of all necessary regulatory permits and approvals. These assumptions and estimates could change in the future and this could materially affect the carrying value and the ultimate recoverability of the amounts recorded for mineral properties and deferred expenditures.


3. Newly Adopted Accounting Policies

The Company adopted the following provisions of the Canadian Institute of Chartered Accountants (“CICA”) Handbook Sections on a prospective basis.  There was no material impact on the Company’s financial condition or operating results as a result of the adoption of these new standards:
 
 
58

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 

3. Newly Adopted Accounting Policies (continued)

General Standards of Financial Statement Presentation

Section 1400, “General Standards of Financial Statement Presentation”, includes requirements for management to assess and disclose an entity’s ability to continue as a going concern.

Comprehensive Income

Section 1530, “Comprehensive Income”, specifies how comprehensive income is to be reported and presented. Comprehensive income is the change in the Company’s shareholders’ equity that results from transactions and other events from other than the Company’s shareholders and includes items that would not normally be included in net earnings, such as unrealized gains or losses on available-for-sale investments. This standard requires certain gains and losses that would otherwise be recorded as part of net earnings to be presented in other comprehensive income until such items are realized.

This standard requires the presentation of comprehensive income, and its components in a separate financial statement that is displayed with the same prominence as the other financial statements. Accumulated other comprehensive income is presented as a new category in shareholders’ equity.

Accordingly, a consolidated statement of operations and comprehensive loss forms part of the Company’s consolidated financial statements and displays current period net income (loss) and other comprehensive income (loss).  Other comprehensive income consists of unrealized gains on available-for-sale financial assets.  The cumulative changes in other comprehensive income are included in accumulated other comprehensive income within shareholders’ equity on the consolidated balance sheet.

Capital Disclosures

Section 1535, “Capital Disclosures”, establishes standards for disclosing information about an entity’s capital and how it is managed, and requires the disclosure of both qualitative and quantitative information that enables users of financial statements to evaluate the Company’s objectives, policies and processes for managing capital.  Under this standard, the Company is required to disclose the following:

·
qualitative information about its objectives, policies and processes for managing capital;
·
summary quantitative data about what it manages as capital;
·
whether during the period it complied with any externally imposed capital requirement to which it is subject; and
·
when the Company has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

Goodwill and Intangible Assets

In February 2008, the CICA Handbook Section 3064, “Goodwill and Intangible Assets”, replaced Section 3062, “Goodwill and Intangible Assets”, and Section 3450, “Research and Development Costs”.  This section provides guidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria for asset recognition, clarifying the application of the concept of matching revenues and expenses, whether these assets are separately acquired or are developed internally.
 
 
59

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
3. Newly Adopted Accounting Policies (continued)

Financial Instruments - Disclosures

In June 2009, the CICA Handbook Section 3862, “Financial Instruments – Disclosures”, was amended to require disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement.  The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.

The additional disclosure is intended to enable users to evaluate:

·
the significance of financial instruments for the Company’s financial position and performance;
·
the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the balance sheet date; and
·
how the Company manages those risks.

The Company immediately adopted this amended standard in 2010 with no impact on its financial statements.

Financial Instruments - Presentation

Section 3863, “Financial Instruments – Presentation”, enhances financial statement users’ understanding of the significance of financial instruments to an entity’s financial position, performance and cash flows.

Hedges

Section 3865, “Hedges”, specifies the criteria under which hedge accounting is permissible and how hedge accounting may be performed.  As at January 31, 2010 and 2009, the Company had not designated any hedging relationships.

Accounting Policy Choice for Transaction Costs

On June 1, 2007, the Emerging Issues Committee of the CICA issued Abstract No. 166, “Accounting Policy Choice for Transaction Costs” (“EIC-166”).  This EIC addresses the accounting policy choice of expensing or adding transaction costs related to the acquisition of financial assets and financial liabilities that are classified as other than as held-for-trading.  Specifically, it requires that the same accounting policy choice be applied to all similar financial instruments, and permits different policy choices for financial instruments that are not similar.  EIC-166 requires retroactive application to all transaction costs accounted for in accordance with CICA Handbook Section 3855, “Financial Instruments – Recognition and Measurement”.  The Company has e valuated the impact of EIC-166 and determined that no adjustments were required.
 
 
60

 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
3. Newly Adopted Accounting Policies (continued)

Credit Risk and the Fair Value of Financial Assets and Financial Liabilities

In January 2009, the CICA Emerging Issues Committee issued EIC-173, “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities”.  It requires an entity to consider its own credit risk and the credit risk of the counterparty in determining the fair value of financial assets and financial liabilities, including derivative instruments.  This EIC is applicable retrospectively without restatements of prior periods to all financial assets and liabilities measured at fair value in interim and annual financial statements for periods ending on or after January 20, 2009.  Retrospective application with restatement of prior periods is permitted but not required.  The application of incorporating credit risk into the fair value may result in entities re-measuring the financial assets and financial liabilities as at the beginning of the period of adoption, with any resulting difference recorded in retained earnings (deficit), except when derivatives in a fair value hedging relationship are accounted for by the short cut method (the difference is adjusted to the hedged item) and for derivatives in a cash flow hedging relationship (the difference is recorded in accumulated other comprehensive income). The Company has evaluated this new section and has determined that the adoption of these new requirements has not had an impact on the Company’s consolidated financial statements.

Mining Exploration Costs

On March 27, 2009, the CICA approved EIC-174, “Mining Exploration Costs”.  This guidance clarified that an entity that has initially capitalized exploration costs has an obligation in the current and subsequent accounting periods to test such costs for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  The Company immediately adopted the EIC with no impact on its consolidated financial statements.


4.  Recent Accounting Pronouncements in Canada

The following recently issued accounting pronouncements are applicable to future reporting periods.  The Company is currently evaluating the effects of adopting these standards:

Section 1582, Business Combinations

Section 1582 applies prospectively to the Company’s business combinations on or after January 1, 2011.  Early adoption of this recommendation is permitted.  This section replaces Section 1581, “Business Combination”, and harmonizes the Canadian accounting standards with International Financial Reporting Standards (“IFRS”).  Under the new guidance, the purchase price used in a business combination will be the new fair value of the shares exchanged at their market price on the date of the exchange.  Currently, when shares are issued, they are valued based on the market price for a reasonable period before and after the date the acquisition is agreed upon and announced.  Under the new guidelines, all acquisition costs are expensed where currently they are capi talized as part of the acquisition costs.  There are also a number of other differences between the new guidelines and current GAAP.  The Company does not expect the adoption of this pronouncement to impact the consolidated financial statements.
 
 
61

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
4. Recent Accounting Pronouncements in Canada (continued)

Section 1601, Consolidated Financial Statements, and Section 1602, Non-Controlling Interests

Section 1601 and 1602 change the accounting and reporting of ownership in interests in subsidiaries held by parties other than the parent.  Non-controlling interests are to be presented in the consolidated balance sheet within equity, but separately from the parent’s equity.  The amount of consolidated net income attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of operations.  In addition, these pronouncements establish standards for a change in a parent’s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated.  They also establish reporting requirements for providing sufficient disclosures that clearly ident ify and distinguish between the interests of the parent and the interest of the non-controlling owners.  These standards apply prospectively to business combinations from January 1, 2011. The Company has evaluated this new section and has determined that the adoption of these new requirements has not had a material impact on the Company’s consolidated financial statements.

International Financial Reporting Standards

In February 2008, the Accounting Standards Board announced that publicly accountable entities will be required to prepare financial statements in accordance with IFRS for interim and annual financial statements for fiscal years beginning on or after January 1, 2011.  The Company is assessing the impact of the conversion from GAAP to IFRS on the financial statements and will develop a conversion implementation plan.


5. Marketable Securities

   
January 31,
 
   
2010
   
2009
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
IShares Silver Trust
    -       -     $ 81,506     $ 91,555  
SPDR Gold Trust
    -       -       101,678       119,713  
      -       -     $ 183,184     $ 211,268  

As at January 31, 2009, investments in available-for-sale securities consisted of marketable securities, which had a market value of $211,268.  The carrying amount of these securities were subject to revaluation on a mark-to-market basis at the end of each reporting period, and the increases or decreases arising on revaluation were recorded in Accumulated Other Comprehensive Income (“AOCI”), a component of shareholders’ equity.

During the fiscal year ended January 31, 2010, marketable securities were sold for total proceeds of $423,738.
 
 
62

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures

The Company cannot guarantee title to all of its properties as the properties may be subject to prior mineral rights applications with priority, prior unregistered agreements or transfers or native land claims, and title may be affected by undetected defects.  Certain of the mineral rights held by the Company are held under applications for mineral rights and, until final approval of such applications is received, the Company’s rights to such mineral rights may not materialize and the exact boundaries of the Company’s properties may be subject to adjustment.  The Company does not maintain title insurance on its properties.

Brazil Properties

Tocantinzinho Properties

In August 2003, the Company entered into an option to acquire exploration rights to a total of 28,275 hectares in the Tapajós gold district in Pará State, Brazil under an option agreement with two individuals (herein referred to as “optionors”).  The option agreement entitled the Company to acquire a 100% interest in the exploration rights to such area (referred to herein as the “Tocantinzinho Properties”) over a four-year period in consideration for the staged payment of $465,000 (U.S.), the staged issuance of 2,600,000 shares of the Company and the expenditure of $1,000,000 (U.S.) on exploration. The Company has made all payments due under the option agreement and has met the requirement to expend $1,000,000 (U.S.) on exploration.

Additionally, the option agreement required the Company to assume all existing obligations of the optionors to certain Brazilian residents in respect of the mineral rights to the Tocantinzinho Properties (the “Underlying Agreements”) totaling $1,600,000 (U.S.) over a four-year period.  The Company has made all payments due under the Underlying Agreements.

In fiscal 2006, the Company received exploration licenses in respect of the central 4,000 hectare area of the Tocantinzinho Properties on which it has been focusing its exploration efforts as well as for a 9,315 hectare area forming the north eastern and eastern boundary of the Tocantinzinho Properties.  Under the option agreement, the Company also holds rights to acquire two other applications for exploration licenses filed with the regulatory authorities in Brazil:  one covering 4,275 hectares that lies to the south of the central 4,000 hectare area and one (the “Extension Area”) covering 10,000 hectares that lies immediately to the east but continues well south of the central 4,000 hectare area.  The minerali zed zone discovered by the Company on the Tocantinzinho Properties starts on the central 4,000 hectare area and extends eastward beyond the boundary of the central 4,000 hectare area into the Extension Area.  The Company is subject under DNPM regulations related to periodic renewal requirements for its exploration licenses, and certain of those exploration licenses’ initial three year terms expired during fiscal 2009.  The Company has complied with the renewal requirements on the Extension Area and the 4,275 hectare area, and in February 2009, the Company received the renovation on the exploration license in respect of the central 4,000 hectare area.

During fiscal year 2006, the Company became aware that Talon Metals Corp. (“Talon”, formerly BrazMin Corp.) also had applied for exploration licenses to areas of the Tocantinzinho Properties, including all of the area of the mineralized zone discovered by the Company that lies within the Extension Area.  In response, the Company undertook an extensive review of its title position.
 
 
63

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures (continued)

Brazil Properties (continued)

Tocantinzinho Properties (continued)

At the end of fiscal 2006, as a result of a title review by the Company, it came to the Company’s attention that a long dormant application for a mining license that covered the Extension Area had never been processed by the Departamento Nacional de Produção Mineral (“DNPM”) and was still valid.  According to advice from Brazilian counsel, the dormant application carried paramount title to the Extension Area.  The Company, through its subsidiary, Brazauro Recursos Minerais Ltda. (formerly Jaguar Resources do Brasil Ltda.), reached an agreement (“the Extension Area Agreement”) with the holder of such application, Mineração Cachambix Ltda. (“Cachambix”) to acquire its rights to obtain a mining license over the Extension Area, subject to receipt of confirmat ion from the DNPM of the continued validity of the application for the mining license and the completion of the assignment of the mining license to Brazauro Recursos Minerais Ltda. The Company made a payment of $150,000 (U.S.) to Cachambix in fiscal 2007 upon execution of the Extension Area Agreement.

In September 2006, the Company entered into an agreement (“the Title Consolidation Agreement”) with Talon whereby the Company would acquire the shares of Talon’s subsidiaries with interests in the area of the Tocantinzinho Properties, being Resource Holdings 2004 Inc. and its subsidiary, Empresa Internacional de Mineração do Brasil Ltda., in exchange for 13,150,000 shares of the Company.

On December 5, 2006, the DNPM published at the Brazilian Official Gazette that the application to which the Extension Area Agreement relates had been confirmed as the paramount title. The Company and Cachambix reached an agreement to modify the Extension Area Agreement in February 2007.  Under this modified agreement, the Company acquired all of the outstanding shares of Cachambix by payment of $850,000 (U.S.) plus its agreement to make two future payments of $1,000,000 (U.S.) each to be made to the former shareholders of Cachambix in February 2008 and 2009.  The Company’s obligation to make the future payments was secured by the Cachambix shares. The Company has made all the payments under the agreement.

In February 2007, under the terms of the Title Consolidation Agreement, the Company acquired Resource Holdings 2004 Inc. and its wholly-owned subsidiary, Empresa Internacional de Mineração do Brasil Ltda., from Talon in exchange for 13,150,000 common shares of the Company and payment of $50,000 (U.S.).
 
The option agreement provides that the Optionors may be entitled to a sliding scale gross revenues royalty ranging from 2.5% for gold prices below $400 (U.S.) per ounce to 3.5% for gold prices in excess of $500 (U.S.) per ounce from production in respect of the mineral rights relating to the applications subject to the option agreement. Effective December 4, 2009, the Company entered into an amending agreement with the Optionors redefining the NSR royalty.  Under the amending agreement, the parties have agreed that the Company can buy down the royalty from 3.5 per cent to 1.5 per cent in two increments of 1 per cent each. The first payment of $2 million will be triggered by certain events including the exercise, if at all, by Eldorado Gold Corp. under its option/joint-venture agreement with the Company to acquire 60 per cent of the Tocantinzinho project, or failing such exercise, by completion of project financing, the making of a production decision or other specified events. The second payment of $3.5 million will be triggered by the making of a construction decision to proceed with the development of the Tocantinzinho project.  The amended royalty will cover all the ground referred to in the original agreement signed with the royalty holders in 2003, which encompasses the entire Tocantinzinho mineralized deposit.
 
 
64

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures (continued)

Brazil Properties (continued)

Tocantinzinho Properties (continued)

Under a separate option agreement, the Company held exploration permits for an additional 16,052 hectares adjacent to the western border of the above Tocantinzinho Properties.  The Company agreed to make payments totaling $300,000 (U.S.) over a period of approximately four years to an individual as a finder’s fee related to this 16,000 hectare property. This additional property is not subject to the option agreement and therefore is not subject to the royalty.  The Company received an exploration license from the Brazilian regulatory authority with respect to the additional 16,052 hectares in fiscal year 2005, which expired in October 2007.  The Company has applied for a new exploration license.

In July 2008, the Company reached an agreement with Eldorado Gold Corporation (“Eldorado”) and completed a private placement required as part of Eldorado’s earn-in on an option to acquire an initial 60% interest in the Tocantinzinho Properties.  The private placement consisted of the issuance of 8,800,000 units of the Company (the “Units”) to Eldorado at the price of $0.95 per Unit for proceeds of $8,360,000 and is discussed in Note 8 below.

To complete its earn-in of the option to acquire an initial 60% interest in the Company’s Tocantinzinho Properties, Eldorado is required to incur $9.5 million in expenditures on the Tocantinzinho Properties within 24 months or pay the cash equivalent to the Company.  Subject to completing the earn-in, Eldorado will be entitled to exercise the option to acquire an initial 60% in the Tocantinzinho Properties by paying $40 million to the Company. Conditional
upon exercise of the first option, Eldorado will have a second option to acquire a further 10% interest exercisable after a construction decision has been made on the Tocantinzinho Properties by paying an additional $30 million, subject to increase to up to $40 million based on the proven and probable reserves outlined in the feasibility study, and a third option to acquire within two years of the construction decision a further 5% interest (for a total of 75%) by paying a further $20 million.  Eldorado has advised the Company that it has expended in excess of $9.5 million on the Tocantinzinho properties as of September 2009.
 
On February 25, 2009, the DNPM published in the Brazilian Official Gazette the renewal of the exploration license for the 4,000 hectares related to the central area for an additional period of three years. On May 20, 2009, the DNPM announced the issuing of an extra period of two years for the additional exploration at the 10,000 hectares related to the Extension Area.
 
Bom Jardim Properties

In fiscal 2007, the Company applied for exploration licenses with the DNPM for a total of approximately 38,096 hectares in Pará State located approximately 190 kilometers southwest of the city of Itaituba. The exploration licenses were granted by the DNPM in September 2007 for a period of three years.

On May 9, 2008, the Company and a third party entered into a letter of intent (“the LOI”) whereby the Company could acquire, subject to certain conditions including the execution of a definitive agreement, the Bom Jardim property consisting of approximately 22,700 hectares of concessions and application areas in the Tapajós region of Pará State, Brazil, subject to the back-in rights described below.  The Company was to issue $1,000,000 in common shares for the Bom Jardim Property.
 
 
65

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures (continued)

Brazil Properties (continued)

Bom Jardim Properties (continued)

The number of Company shares to be issued to the third party was to be calculated using a deemed price per share equal to the greater of the 30 day Volume-Weighed Average Price prior to closing or the Discounted Market Price (as defined in the TSX Venture Exchange Corporate Finance Manual) on the day prior to the date of the LOI (being $0.48).  The parties agreed to negotiate a definitive agreement governing the terms of the transaction in detail, which was anticipated to be executed during 2009 after the satisfaction of certain conditions of both parties, including board and regulatory approvals of the transaction and satisfactory due diligence.  Completion of the acquisition was conditional on the completion of the reorganization by the third party of the corporate structure within which the Bom Jardim Property is presently held.  On closing, the Company would acquire the subsidiary of the third party that holds all of the outstanding shares (or quotas) of the Brazilian “limitada” in which the Bom Jardim Property was to be held in exchange for the Company shares.

The third party was to have the one-time option, two years after closing the sale of the Bom Jardim Property, to back-in to earn a 60% interest in the Company indirectly holding the Bom Jardim Property by spending on the Bom
Jardim Property, over the next three years, an amount equal to two times the expenditures made by the Company on the Bom Jardim properties from closing to the second anniversary of closing.  If the third party elected not to back-in, the third party was to be entitled to a 2% Net Smelter Return Royalty on the Bom Jardim Property.  If the third party acquired the 60% interest, it would have had the further option to increase its interest to 70% by either completing and delivering a bankable feasibility study in respect of the Bom Jardim Property or by spending a further $10 million on the Bom Jardim Property over the succeeding three year period.  Thereafter, the parties were to contribute proportionately to further expenses.  The Company was to have the option to request the third party to lend t o the Company sufficient funds to meet the Company’s share of the cost of placing the Bom Jardim Property into production, in which case the third party’s interest will be increased to 75%.

In January 2009, after efforts to reach a definite agreement were not successful, the Company notified the third party that as contemplated on the LOI, both parties’ obligations were terminated.

Piranhas Properties

In July 2008, the Company entered into an option agreement under which it may acquire the mineral rights to the 19,899 hectare Piranhas Property, located in Pará State, Brazil.  The Company has an option to earn 100% of the Piranhas Property, with no residual production royalty obligations, by payment of a total of BR$1,800,000 (Brazilian Reals) over three years.  An initial payment of approximately US$11,000 was made in July 2008. Advance payments in the amount of approximately US$8,800 were made during fiscal 2010. The remaining payments under the option agreement total approximately BR$1,770,000 and are due as follows (all amounts are in Canadian dollars based on the exchange rate as of January 31, 2010):  $31,000, $63,000, $91,000 and $727,000, due in fiscal years  2011, 2012,   ;2013 and 2014, respectively.  The Company can terminate the option agreement at any time without further obligation. In November 2009, the Company applied for the exploration licenses to the 19,899 hectare Piranhas Property.
 
 
66

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures (continued)

Brazil Properties (continued)

Piranhas Properties (continued)

In August 2009, the Company entered into another option agreement under which it may acquire the mineral rights to an additional 7,229 hectare property in the Piranhas area. The property has an exploration license granted by the DNPM in September 2009. The Company has an option to earn a 100% interest in this property, with no residual production royalty obligations, by payment of a total of BR$700,000 over three years. An initial payment of BR$20,000 was made in September 2009. The remaining payments under the option agreement are due as follows (all amounts are in Canadian dollars based on the exchange rate as of January 31, 2010): $23,000, $40,000, and $326,000, due in fiscal years 2011, 2012 and 2013, respectively. The Company can terminate the option agreement at any time without further obligation.
 
In December 2009, the Company entered into another option agreement under which it may acquire the mineral rights to an additional 7,404 hectare property in the Piranhas area. The Company has an option to earn a 100% interest in this property, by payment of a total of BR$2,500,000 over three years. An initial payment of approximately $42,000 (BR$75,000) was made in January 2010. The remaining payments under the option agreement are due as follows (all amounts are in Canadian dollars based on the exchange rate as of January 31, 2010): $100,000, $157,000, and $1,128,000, due in fiscal years 2011, 2012 and 2013, respectively. The vendor will retain a 0.5% net smelter royalty, which the Company can repurchase for BR$3,000,000. The Company can terminate the option agreement at any time without further obligation. In December 2009, the Compa ny applied for the exploration licenses to the 7,404 hectare area in the Piranhas Property.
 
Agua Branca Property
 
In August 2009, the Company entered into a non-binding letter of intent with Talon Metals Corp. (“Talon”) to option the Agua Branca property from Talon’s Brazilian subsidiary.  Agua Branca consists of approximately 9,356 hectares of exploration licenses in the Tapajós region of Pará state, Brazil.
 
 
The non-binding letter of intent contemplates that, after due diligence by the Company was completed, the parties will enter into a definitive option agreement under which the Company may acquire 100 per cent of the property in consideration for option payments of US$60,000 on signing of the agreement with an additional US$60,000 due upon publication of the exploration licenses by the Brazilian National Department of Mineral Production (“DNPM”) which was expected on or before February 26, 2010 (extended to June 29, 2010), US$130,000 on or before December 31, 2010, and US$1,870,000 in two years from the date of the definitive agreement. To maintain the option, the Company has to spend at least US$500,000 on the property in each of the first two years which includes at least 2,000 meters of core drilling in the first year. In addition, the Company will assume all existing commercial obligations on the property. The vendor will retain a 2% net smelter royalty, which the Company can repurchase for US$2,000,000.
 
 
Effective December 10, 2009, the Company and Talon entered into a definitive agreement on the terms described above.
 
 
67

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
 
 
 
 
 
6. Mineral Properties and Deferred Expenditures (continued)
 
Brazil Properties (continued)

Crepori Property

In July 2006, the Company entered into an option agreement under which it could acquire the exploration license to the 8,175 hectare Crepori Property, located in Pará State, approximately 220 kilometers from Itaituba.  The Company had an option to earn 100% of the Crepori Property, with no residual production royalty obligations, by payment of a total of $800,000 (Brazilian Reals) over three years.  During fiscal 2008, the Company conducted exploration activities at the Crepori Property, and based upon the results of the exploration results, elected to terminate the option agreement in April 2008.  Accordingly, the capitalized acquisition and exploration costs totaling $576,694 and $20,922 were written off in fiscal 2008 and 2009, respectively, and the Company has no further obligations under the opti on agreement.

Arkansas Properties

The Company maintained interests in several Arkansas Properties during the period from fiscal 1993 through fiscal 2003.  In December 2002, based upon the cumulative exploration results obtained on the Arkansas Properties, the Company made the decision to cease operations in Arkansas.

The Company recorded a reserve for leasehold reclamation costs during fiscal 2004 of approximately $143,000, representing the estimated costs of the Company’s obligation to restore the Arkansas properties to their original condition   prior  to  lease  expiration  and  to  perform  reclamation  activities  as  required  by  Arkansas  regulatory authorities.  The Company performed reclamation activities during fiscal 2004 to 2007 and expects to complete the restoration during fiscal 2011.
 
 
 
 
 
68

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures (continued)

Mineral properties and deferred expenditures were as follows:
 
Balance at
January 31,
2009
   
 
Additions
   
Impaired/
Write-Offs
   
Balance at
January 31,
2010
 
Brazilian Properties
                       
   Tocantinzinho Properties:
                       
        Acquisition costs
  $ 20,633,911     $ 52,715     $ -     $ 20,686,626  
        Exploration costs:
                               
           Drilling
    3,893,127       -       -       3,893,127  
           Field expenses
    2,434,516       37,823       -       2,472,339  
           Geological
    750,145       23,740       -       773,885  
           Assay
    399,414       -       -       399,414  
         Total exploration costs
    7,477,202       61,563       -       7,538,765  
         Total Tocantinzinho Properties
    28,111,113       114,278       -       28,225,391  
                                 
    Bom Jardim Properties:
                               
        Acquisition costs
    72,709       -       -       72,709  
        Exploration costs:
                               
           Field expenses
    232,194       418,574       -       650,768  
           Geological
    270,602       99,240       -       369,842  
           Assay
    18,516       50,475       -       68,991  
         Total exploration costs
    521,312       568,289       -       1,089,601  
Total Bom Jardim Property
    594,021       568,289       -       1,162,310  
                                 
  Piranhas Properties:
                               
        Acquisition costs
    11,468       63,166       -       74,634  
        Exploration costs:
                               
           Field expenses
    459       277,707       -       278,166  
           Geological
    82,352       40,520       -       122,872  
           Assay
    -       17,082       -       17,082  
         Total exploration costs
    82,811       335,309       -       418,120  
Total Piranhas Property
    94,279       398,475       -       492,754  
                                 
   Agua Branca Property:
                               
        Acquisition costs
    -       63,258       -       63,258  
        Exploration costs:
                               
           Field expenses
    -       142,735       -       142,735  
           Geological
    -       9,966       -       9,966  
         Total exploration costs
    -       152,701       -       152,701  
Total Agua Branca Property
    -       215,959       -       215,959  
                                 
   Other:
                               
        Acquisition costs
    10,539       -       -       10,539  
        Exploration costs
    -       31,941       -       31,941  
Total acquisition costs
    20,728,627       179,139       -       20,907,766  
Total exploration costs
    8,081,325       1,149,803       -       9,231,128  
Total costs
  $ 28,809,952     $ 1,328,942     $ -     $ 30,138,894  
 
 
69

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
6. Mineral Properties and Deferred Expenditures (continued)

   
Balance at
January 31,
2008
   
 
Additions
   
Impaired/
Write-Offs
   
Balance at
January 31,
2009
 
Brazilian Properties
                       
   Tocantinzinho Properties:
                       
        Acquisition costs
  $ 20,479,634     $ 154,277     $ -     $ 20,633,911  
        Exploration costs:
                               
           Drilling
    2,484,341       1,408,786       -       3,893,127  
           Field expenses
    1,919,018       515,498       -       2,434,516  
           Geological
    620,282       129,863       -       750,145  
           Assay
    332,001       67,413       -       399,414  
         Total exploration costs
    5,355,642       2,121,560       -       7,477,202  
         Total Tocantinzinho Properties
    25,835,276       2,275,837       -       28,111,113  
                                 
   Bom Jardim Property:
                               
        Acquisition costs
    34,730       37,979       -       72,709  
        Exploration costs:
                               
           Field expenses
    -       232,194       -       232,194  
           Geological
    1,349       269,253       -       270,602  
           Assay
    -       18,516               18,516  
         Total exploration costs
    1,349       519,963       -       521,312  
Total Bom Jardim Property
    36,079       557,942       -       594,021  
                                 
  Piranhas Property:
                               
        Acquisition costs
    -       11,468       -       11,468  
        Exploration costs:
                               
           Field expenses
    -       459       -       459  
           Geological
    -       82,352       -       82,352  
         Total exploration costs
    -       82,811       -       82,811  
Total Piranhas Properties
    -       94,279       -       94,279  
                                 
   Crepori Property:
                               
        Acquisition costs
    -       -       -       -  
        Exploration costs:
                               
           Field expenses
    -       13,086       (13,086 )     -  
           Assay
    -       7,836       (7,836 )     -  
         Total exploration costs
    -       20,922       (20,922 )     -  
Total Crepori Property
    -       20,922       (20,922 )     -  
                                 
   Other:
                               
        Acquisition costs
    692       9,847       -       10,539  
Total acquisition costs
    20,515,056       213,571       -       20,728,627  
Total exploration costs
    5,356,991       2,745,256       (20,922 )     8,081,325  
Total costs
  $ 25,872,047     $ 2,958,827     $ (20,922 )   $ 28,809,952  
 
 
70

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
7. Notes Payable

As discussed in Note 6, in February 2007, the Company entered into an agreement to purchase the shares of Cachambix.  The agreement provides for two payments of $1,000,000 (U.S.) each, to be paid in February 2008 and 2009, to the former shareholders of Cachambix.  The Company paid the first payment of $1,000,000 (U.S.) in February 2008, and the second payment of $1,000,000 (U.S.) in February 2009.  The liabilities due under the Cachambix agreement have been recorded as notes payable as follows (all amounts are in Canadian dollars unless otherwise indicated):
 
January 31,
 
 
2010
 
2009
 
Note payable, $1,000,000 (U.S.) face amount, non-interest bearing, due February 6, 2009
  $ -     $ 1,236,400  
Less unamortized discount based on imputed interest rate of 7.6%
    -       (1,154
Note payable, current, less unamortized discount
  $ -     $ 1,235,246  

8. Share Capital

The Company’s authorized share capital consists of unlimited number of common shares without par value.

In November 2009, the Company closed a private placement of 7,659,699 units at $0.65 per unit for gross proceeds of $4,978,804.  The Company paid brokerage cash commission on the placement of $308,867 plus additional share issuance costs totaling $113,315.  Each unit consists of one common share and one half of one share purchase warrant.  Each of the 3,829,849 warrants would entitle the holder to purchase one additional common share of the Company at $1.00 until May 3, 2011. Additionally, brokerage agents received 475,180 agent’s warrants, entitling the holder to purchase one additional unit of the Company at $0.65 until May 3, 2011; each unit consists of one common share and one half of one share purchase warrant (the “underlying warrant”), entitling the holder to purchase one additiona l common share of the Company at $1.00 until May 3, 2011. The fair value of the 475,180 agent’s warrants and 237,590 underlying warrants, $109,135 and $37,229, respectively, were recorded as an increase to contributed surplus and a decrease to common shares and was calculated using the Black-Scholes model with the following assumptions:  expected dividend yield, 0%; expected volatility, 86%; risk-free interest rate, 1.28%; expected life of warrants, approximately 1.5 years.

As discussed in Note 6, in July 2008, the Company closed a private placement with Eldorado by the issuance of 8,800,000 units of the Company at the price of $0.95 per unit for gross proceeds of $8,360,000.  The Company paid stock issuance costs totaling $38,200.  Each unit consists of one common share and one-half of one non-transferable share purchase warrant.  Each of the 4,400,000 warrants is exercisable to acquire one additional common share at a price of $1.30 per share until January 24, 2010. In January 2009, the Company received approval from the TSX Venture Exchange to amend the 4,400,000 warrants to extend the expiry date to January 24, 2011 and to reduce the exercise price to $1.00. The fair value of the 4,400,000  amended  warrants of $444,738 was recorded as an increase to c ontributed surplus and a decrease to common shares and was calculated using the Black-Scholes model with the following assumptions:  expected dividend yield, 0%; expected volatility, 100%; risk-free interest rate, 1.3%; expected life of warrants, 2 years.
 
 
71

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
8. Share Capital (continued)

In March 2007, the Company closed a private placement of 9,253,333 units at $0.90 per unit for gross proceeds of $8,328,000.  The Company paid brokerage cash commission on the placement of $372,960 plus additional share issuance costs totaling $48,610.  Each unit consists of one common share and one half of one share purchase warrant.  Each of the 4,626,666 warrants would entitle the holder to purchase one additional common share of the Company at $1.60 until March 22, 2008. In February 2008, the Company received approval from the TSX Venture Exchange to amend the 4,626,666 warrants to extend the expiry date to March 22, 2009 and to reduce the exercise price to $1.25. In January 2009, the Company received approval from the TSX Venture Exchange to further amend the 4,626,666 warrants to extend the expiry da te to March 22, 2010 and to reduce the exercise price to $1.00. The fair value of the 4,626,666 amended warrants of $577,822 was recorded as an increase to contributed surplus and a decrease to common shares and was calculated using the Black-Scholes model with the following assumptions:  expected dividend yield, 0%; expected volatility, 97%; risk-free interest rate, 2.2%; expected life of warrants, approximately 1 year.


9. Share Purchase Warrants
During the year ended January 31, 2010, the Company issued 4,542,619 share purchase warrants (2009 – 4,400,000) and as of January 31, 2010, the following share purchase warrants were outstanding:

Number of Share
Purchase Warrants
   
Exercise
Prices
 
Expiry
Date
           
  4,626,666     $ 1.00  
March 22, 2010
  4,400,000     $ 1.00  
January 24, 2011
  3,829,849     $ 1.00  
May 3, 2011
  475,180     $ 0.65  
May 3, 2011
  237,590     $ 1.00  
May 3, 2011
  13,569,285            

The following table summarizes changes in the number of warrants outstanding:

   
Warrants
   
Weighted Average Exercise Price
 
Balance, January 31, 2007
    -       -  
Issued
    4,626,666     $ 1.00  
Balance, January 31, 2008
    4,626,666     $ 1.00  
Issued
    4,400,000     $ 1.00  
Balance, January 31, 2009
    9,026,666     $ 1.00  
Issued
    4,542,619     $ 0.96  
Balance, January 31, 2010
    13,569,285     $ 0.99  
 
 
72

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
10. Shareholder Rights Plan

In November 2008, the Company’s board of directors approved the adoption of a Shareholder Rights Plan (the “Rights Plan”).  By an agreement dated May 14, 2009, the Company amended its Rights Plan, and on June 12, 2009, shareholders ratified the Rights Plan, as amended, to maintain it in full force and effect. The Rights Plan, as amended, has an initial term which expires at the annual general meeting of shareholders of the Company to be held in 2012, unless terminated earlier.  The Rights Plan may be extended beyond 2012 by resolution of shareholders at such meeting.
 
The Rights Plan has been implemented by way of a rights plan agreement (the “Rights Plan Agreement”) which has been designed to protect shareholders from unfair, abusive or coercive take-over strategies including the acquisition of control of the Company by a bidder in a transaction or series of transactions that may not treat all shareholders fairly nor afford all shareholders an equal opportunity to share in the premium paid upon an acquisition of control. The board of directors of the Company (the “Board”) considers that the adoption of the Rights Plan is desirable and in the interests of all of the Company’s shareholders. The Rights Plan Agreement was adopted to ensure equal treatment of shareholders and to provide the Board with sufficient time, in the event of a take-over bid or tender offer for voti ng shares of the Company, to pursue alternatives which could enhance shareholder value. These alternatives could involve the review of other take-over bids or offers from other interested parties to provide shareholders desiring to sell the Company’s common shares with the best opportunity to realize the maximum sale price for their shares. In addition, with sufficient time, the Board would be able to explore and, if feasible, advance alternatives to maximize share value through possible corporate reorganization or restructuring. The directors need time to consider, and if appropriate, pursue such alternatives.


11. Stock Option Plan

The Company maintains a stock option plan for its directors, officers and employees and may issue up to 13,000,000 options. Under the terms of the plan, the exercise price of each option equals the closing market price of the Company’s stock on the date of grant.  Any consideration paid by the optionee on the exercise of options is credited to share capital. Options granted are subject to vesting requirements (generally, 25% on the date of grant and 12.5% on each quarter end thereafter) and have a term of five years.

In April 2009, a total of 2,050,000 options were granted to directors, officers, employees and consultants of the Company with an exercise price of $0.55 and an expiration date of April 24, 2014.  In October 2009, a total of 500,000 options were granted to the president of the Company with an exercise price of $0.70 and an expiration date of October 1, 2014. Additionally, in November 2009, a total of 1,000,000 options were granted to the president of the Company with an exercise price of $0.59 and an expiration date of November 25, 2014. In December 2009, a total of 2,355,000 options were granted to directors, officers, employees and consultants of the Company with an exercise price of $0.75 and an expiration date of December 15, 2014.  As of January 31, 2010, the Company had a total of 10,701,634 common stock optio ns outstanding at prices ranging from $0.50 to $2.00 with expiration dates from February 2010 to December 2014.
 
 
73

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
11. Stock Option Plan (continued)

The activities in common stock option grants outstanding for the prior three fiscal years were as follows:

   
2010
   
2009
   
2008
 
   
 
 
Number
   
Weighted
Average
Exercise
Price
   
 
 
Number
   
Weighted
Average
Exercise
Price
   
 
 
Number
   
Weighted
Average
Exercise
Price
 
Outstanding, beginning of year
    8,967,526     $ 1.15       9,052,000     $ 1.16       8,077,000     $ 1.34  
Granted
    5,905,000       0.65       500,000       0.51       1,900,000       0.65  
Exercised
    -       -       -       -       (75,000 )     0.18  
Forfeited
    (4,170,892 )     1.11       (584,474 )     0.46       (850,000 )     1.39  
                                                 
Outstanding, end of year
    10,701,634     $ 0.88       8,967,526     $ 1.15       9,052,000     $ 1.16  
                                                 

The following table summarizes information about stock options outstanding at January 31, 2010:

 
 
Range of
Exercise
Price
 
 
Number of
Options
Outstanding
 
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life in Years
 
 
Number of
Options
Exercisable
Weighted
Average
Exercise Price
Of Options
Exercisable
$0.50 to $0.55
3,720,000
$0.54
3.7
2,926,250
$0.54
$0.57 to $0.85
4,655,000
$0.69
4.2
3,842,500
$0.70
$1.30 to $2.00
2,326,634
$1.83
0.4
2,326,634
$1.83
 
10,701,634
   
9,095,384
 


12. Stock-Based Compensation

Stock-based compensation related to options granted to employees and non-employees increased the following expenses in the consolidated financial statements of the Company in the three years ending January 31, 2010 as follows:

   
2010
   
2009
   
2008
 
Consulting
  $ 38,833     $ 47,980     $ 122,683  
Salaries
    1,649,461       403,313       342,992  
    $ 1,688,294     $ 451,293     $ 465,675  
 
 
74

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
12. Stock-Based Compensation (continued)

These amounts have also been recorded as contributed surplus on the consolidated balance sheets.  As of January 31, 2010, the fair market value of the total compensation cost related to nonvested stock options to be recognized upon vesting totals $477,883 and is expected to be recognized in fiscal 2011 and 2012.

The fair value of each option granted has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 
2010
2009
2008
Expected dividend yield
 0%
 0%
 0%
Expected volatility
85-89%
72-82%
 69-71%
Risk-free interest rate
1.4 to 2.3%
2.2 to 3.1%
4.0 to 4.5%
Expected life
3.5 years
3.2 to 3.5 years
2.5 to 3.5 years
Weighted average fair value
  of options granted
 
$0.34
 
$0.28
 
$0.33


13. Income Taxes

A reconciliation of the combined Canadian federal and provincial income taxes at statutory rates and the Company’s effective income tax expense (recovery) is as follows:

   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
                   
Statutory rates
    30 %     31 %     34 %
                         
Income tax at statutory rates
  $ (1,384,000 )   $ (1,021,000 )   $ (1,524,000 )
Increase in taxes from:
                       
     Non-deductible items
    512,000       149,000       164,000  
     Differences in foreign tax rates
    275,000       597,000       904,000  
     Effect of change in tax rate
    33,000       100,000       -  
Benefit of losses not recognized
    564,000       175,000       456,000  
    $ -     $ -     $ -  

Future income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The significant components of the Company’s future tax assets as of January 31 are as follows:

   
January 31,
 
   
2010
   
2009
 
Future income tax assets
           
Operating loss carryforwards
  $ 12,170,000     $ 12,663,000  
Property and equipment
    128,000       133,000  
Share issue cost
    140,000       112,000  
Valuation allowance for future tax assets
    (12,438,000 )     (12,908,000 )
    $ -     $ -  
 
 
75

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
 
13. Income Taxes (continued)

The Company has available losses for income tax purposes of approximately $46 million, which may be carried forward and applied against future taxable income when earned.  Brazilian losses are offset by up to 30% of fiscal profits.  United States net operating losses may be limited if more than a 50% ownership change has occurred with respect to any Company included in the consolidated group.  If an ownership change has occurred, such losses are limited on an annual basis to the value of the respective Company on the date of change multiplied by the U.S. federal long-term, tax-exempt rate in effect for the period.  In addition, some U.S. net operating losses may be subject to other limitations based on taxable income from wholly owned subsidiaries on a stand-alone basis.

The losses expire as follows:
 

 
   
Canada
   
United States
   
Brazil
   
Total
 
   
(in Canadian dollars)
 
       
2011
  $ 273,000     $ 1,338,000     $ -     $ 1,611,000  
2012
    449,000       4,181,000       -       4,630,000  
2013
    -       1,263,000       -       1,263,000  
From 2016 to 2031
    3,843,000       18,453,000       -       22,296,000  
Indefinitely
    -       -       16,325,000       16,325,000  
    $ 4,565,000     $ 25,235,000     $ 16,325,000     $ 46,125,000  

At January 31, 2010, the Company has incurred approximately $512,000 (2009 - $512,000) of exploration and development costs which may be deducted against future Canadian taxable income subject to certain limitations.
 

14. Related Party Transactions

During fiscal 2010, 2009 and 2008, the Company paid consulting fees of $132,000, $127,785 and $181,895 respectively to directors for advisory services, and paid directors’ fees of $159,061, $93,500 and $Nil respectively to directors for advisory services.

Related party transactions were in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.


15. Contingencies

There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject.
 
A legal action was filed against the Company in the Supreme Court of British Columbia, Canada, in August 1996 by James M. Cairns relating to a claim by Mr. Cairns for the failure of the Company to make a timely release of escrow shares.  In fiscal 2009, the action was dismissed for lack of prosecution.
 
 
76

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
16. General and Administrative Expenses

General and administrative expenses consist of the following:

   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
                   
Consulting and directors’ fees (Notes 12 and 14)
  $ 516,553     $ 535,856     $ 480,774  
Depreciation
    37,205       23,688       21,596  
Entertainment
    66,578       83,877       67,556  
Insurance
    32,364       32,692       34,402  
Office
    169,518       195,931       145,714  
Professional fees
    488,273       633,156       330,903  
Rent
    72,359       46,717       39,984  
Repairs and maintenance
    5,833       9,310       18,645  
Salaries and benefits (Note 12)
    2,860,010       1,426,820       1,336,694  
Shareholder relations
    167,133       471,169       228,917  
Travel
    281,110       267,375       207,182  
 
Total
  $ 4,696,936     $ 3,726,591     $ 2,912,367  
                         


17. Supplemental Cash Flow and Non-Cash Investing and Financing Disclosure

   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
Supplemental cash flow disclosure:
                 
  Interest paid in cash
  $ -     $ -     $ -  
  Income taxes paid
    -       -       -  
                         
Non-cash investing activities:
                       
  Shares and notes payable issued for mineral properties
  $ -     $ -     $ 15,338,257  


18. Segmented Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operation decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.  All of the Company’s operations are within the mineral exploration sector. The Company’s mining operations are centralized whereby the Company’s head office is responsible for the exploration results and for providing support in addressing local and regional issues.  The Company’s mineral properties are located in Brazil.
 
 
77

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
18. Segmented Information (continued)

Data relating to each of the Company’s reportable segments is presented as follows:

   
2010
   
2009
 
Net loss
           
Canada
  $ 2,339,863     $ 930,187  
USA
    1,307,880       1,335,319  
Brazil
    947,817       1,015,855  
British Virgin Islands
    17,455       26,836  
    $ 4,613,015     $ 3,308,197  
Equipment
               
USA
  $ 6,974     $ 2,117  
Brazil
    21,603       56,863  
    $ 28,577     $ 58,980  
Mineral properties and deferred expenditures
               
Brazil
  $ 30,138,894     $ 28,809,952  

19. Management of Capital

The Company’s objective in managing capital is to maintain adequate levels of funding to support exploration of its mineral property interests, maintain corporate and administrative functions necessary to support organizational management oversight, and obtain funding sufficient for advancing the Company’s interests.

The Company manages its capital structure in a manner that provides sufficient funding for operational activities. Funds are primarily secured through equity capital obtained in private placements.  There can be no assurances that the Company will be able to continue raising capital in this manner.

The Company has in the past invested its capital in liquid investments. This is to ensure working capital is available to meet the Company’s short-term obligations while maximizing liquidity and returns on unused capital.

Although the Company has been successful at raising funds in the past through the issuance of share capital, it is uncertain whether it will be able to continue this form of financing due to the current difficult conditions.


20. Management of Financial Risk

The Company is exposed to potential loss from various risks including currency risk, interest rate risk, liquidity risk, market risk and commodity price risk.

Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, investments in marketable securities, and accounts receivable.  The Company invests any excess capital in short-term, highly liquid and highly-rated financial instruments such as cash and short-term guaranteed deposits, all held within Canadian financial institutions.
 
 
78

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
20. Management of Financial Risk (continued)

Liquidity Risk

The Company manages liquidity risk by maintaining sufficient cash and cash equivalents balances.  Liquidity requirements are managed based on expected cash flow to ensure there is sufficient capital to meet short-term obligations.

Market Risks

The significant market risks to which the Company is exposed include commodity price risk and interest rate risk.

Commodity Price Risk

The Company’s ability to raise capital to fund exploration or development activities is subject to risk associated with fluctuations in the market price of gold. The Company does not have any hedging or other commodity-based risks respecting its operations.

Market prices for gold historically have fluctuated widely and are affected by numerous factors outside of the Company’s control, including, but not limited to, levels of worldwide production, short-term changes in supply and demand, industrial and retail demand, central bank lending, and forward sales by producers and speculators.  The Company has elected not to actively manage its commodity price risk.

Interest Rate Risk

In respect of financial assets, the Company’s policy is to invest cash at fixed rates of interest in cash equivalents, in order to maintain liquidity, while achieving a satisfactory return.  Therefore, interest rate risk is not significant to the Company.

Foreign Exchange Risk

The Company’s property interests in Brazil make it subject to foreign currency fluctuations and inflationary pressures which may adversely affect the Company’s financial position, results of operations and cash flows. The Company is affected by changes in exchange rates between the Canadian Dollar and foreign functional currencies. The Company does not invest in foreign currency contracts to mitigate the risks.
 
 
79

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
20. Management of Financial Risk (continued)

At January 31, 2010, the Company is exposed to currency risk through the following assets and liabilities denominated in U.S. dollars and Brazilian Reals.

   
January 31
   
January 31
 
   
US Dollars
   
Brazilian Reals
 
   
2010
   
2009
   
2010
   
2009
 
                         
Assets
                       
Cash
  $ 262,624     $ 172,503     $ 96,153     $ 2,596,256  
Marketable securities
    -       170,875       -       -  
Accounts receivable
    1,765       2,172       7,440       283,968  
Prepaid expenses
    4,087       14,336       5,957       5,999  
Liabilities
                               
Accounts payable
    (40,226 )     (18,440 )     (979,033 )     (845,098 )
Asset retirement obligation
    (95,666 )     (95,666 )     -       -  
Note payable
    -       (999,067 )     -       -  
Net foreign currency monetary position
  $ 132,584     $ (753,287 )   $ (869,483 )   $ 2,041,125  

Based on the above net exposures at January 31, 2010, and assuming all other variables remain constant, a 10% change in the value of the United States Dollar against the Canadian Dollar would result in an increase/decrease of approximately $14,000 (2009 - $92,000) in net loss from operations and a 10% change in the value of the Brazilian Real against the Canadian Dollar would result in an increase/decrease of approximately $49,000 (2009 - $109,000) in net loss from operations.  During fiscal 2010, the Canadian Dollar strengthened against the United States Dollar by 13% and weakened against the Brazilian Real by 6%.  During fiscal 2009, the Canadian Dollar weakened against the United States Dollar by 23% and strengthened against the Brazilian Real by 6%.


21. Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”)

The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in some respects from United States GAAP (“US GAAP”).  The material differences in respect to these financial statements between Canadian and United States GAAP, and their effect on the Company’s financial statements, are summarized below.

Mineral Properties and Deferred Expenditures

Under Canadian GAAP, companies have the option to defer and capitalize mineral exploration expenditures on prospective properties until such time as it is determined that further work is not warranted, at which point property costs would be written off.  Under United States GAAP, all exploration expenditures are expensed until an independent feasibility study has determined that the property is capable of commercial production.  At this stage, the Company has not yet identified economically recoverable reserves on any of its properties.
 
 
80

 

Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
21. Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (continued)

Mineral Properties and Deferred Expenditures (continued)

The significant differences in the consolidated statements of operations relative to US GAAP were:

   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
 
Net loss in accordance with Canadian GAAP
  $ (4,613,015 )   $ (3,308,197 )   $ (4,481,151 )
                         
Deduct:
                       
Deferred exploration expenditures capitalized during the period
    (1,149,803 )     (2,745,256 )     (2,194,762 )
Add:
                       
Deferred exploration expenditures written off in the period
    -       20,922       569,950  
                         
Net loss in accordance with United States GAAP
  $ (5,762,818 )   $ (6,032,531 )   $ (6,105,963 )
                         
Basic and diluted net loss per share (United States GAAP)
  $ (0.07 )   $ (0.07 )   $ (0.08 )
                         
Weighted average shares outstanding (United States GAAP)
    87,126,314       81,054,014       74,836,676  
 
The significant differences in the consolidated balance sheets relative to US GAAP were:

   
January 31,
 
   
2010
   
2009
 
             
Shareholders’ equity – Canadian GAAP
  $ 35,066,295     $ 33,462,250  
Deferred exploration expenditures
    (9,231,128 )     (8,081,325 )
                 
Shareholders’ equity – United States GAAP
  $ 25,835,167     $ 25,380,925  

   
January 31,
 
   
2010
   
2009
 
             
Mineral properties and deferred exploration expenditures – Canadian GAAP
  $ 30,138,894     $ 28,809,952  
Deferred exploration expenditures expensed per United States GAAP
    (9,231,128 )     (8,081,325 )
                 
Acquisition costs of mineral properties – United States GAAP
  $ 20,907,766     $ 20,728,627  
 
 
81

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
21. Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (continued)

Mineral Properties and Deferred Expenditures (continued)

The significant differences in the consolidated statements of cash flows relative to US GAAP were:

   
Years Ended January 31,
 
   
2010
   
2009
   
2008
 
Net cash used in operating activities
                 
Canadian GAAP
  $ (2,667,546 )   $ (2,876,841 )   $ (2,970,267 )
Deferred exploration expenditures
    (1,149,803 )     (2,745,256 )     (2,194,762 )
US GAAP
    (3,817,349 )     (5,622,097 )     (5,165,029 )
                         
Net cash used in investing activities
                       
Canadian GAAP
    (910,006 )     (3,391,641 )     (4,755,219 )
Deferred exploration expenditures
    1,149,803       2,745,256       2,194,762  
US GAAP
    239,797       (646,385 )     (2,560,457 )
                         
Net cash provided by financing activities
                       
Canadian GAAP and US GAAP
  $ 3,321,377     $ 7,316,700     $ 7,919,930  

Warrants Issued

Under United States GAAP, the fair value of the 3,829,849 (2009 - 4,400,000) warrants issued in the private placement in fiscal 2010 would be recorded as an increase in Warrants of $742,800 (2009 - $340,700) in Shareholders’ Equity as of January 31, 2010, and Common Share Capital would be reduced by $742,800 (2009 - $340,700) as of January 31, 2010.  The fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected dividend yield, 0% (2009 – 0%); expected volatility, 99% (2009 - 84%); risk-free interest rate, 1% (2009 - 3%); expected life of warrants, 1.5 years (2009 – 1.5 years).

As discussed in Note 8, in fiscal 2009, the Company amended the 9,026,666 warrants outstanding.  Under United States GAAP, the fair value of the amended warrants would increase Common Share Capital by $237,000, decrease Contributed Surplus by $1,022,560, and increase Warrants by 785,560.

The cumulative effects under United States GAAP on Shareholders’ Equity are as follows: Common Share Capital would decrease by $1,328,400 (2009 - $585,600) to $85,187,827 (2009 - $81,520,368), Contributed Surplus would decrease by $1,022,560 (2009 - $1,022,560) to $10,917,164 (2009 - $9,082,506), and Warrants would increase by $2,350,960 (2009 - $1,608,160) to $2,350,960 (2009 - $1,608,160).
 
 
82

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
21. Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (continued)

Recent Accounting Pronouncements

1.
In March 2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (the Company’s fiscal year beginning February 1, 2009), with early application encouraged. This statemen t encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of these new requirements has not had an impact on the Company’s consolidated financial statements.

2.
In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”, which sets out the framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with US GAAP. Up to now, the US GAAP hierarchy has been defined in the US auditing literature. Because of the interrelationship with the auditing literature, SFAS 162 will be effective 60 days following the SEC’s approval of the PCAOB’s amendment to their auditing standards. The adoption of these new requirements has not had an impact on the Company’s consolidated financial statements.

3.
In May 2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60”. This Statement clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claim liabilities. This Statement also requires expanded disclosures about financial guarantee insurance contracts. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise’s risk-management activities. This Statement requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period (including interim periods) beginning after issuance of this Statement. Except for those discl osures, earlier application is not permitted. The adoption of these new requirements has not had an impact on the Company’s consolidated financial statements.

4.
In May 2008, FASB issued FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1”). FSP No. APB 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under SFAS 133. FSP No. APB 14-1 specifies that issuers of convertible debt instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP No. APB 14-1 is effective for financial statements issued for f iscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP No. APB 14-1 will be applied retrospectively to all periods presented. The cumulative effect of the change in accounting principle on periods prior to those presented will be recognized as of the beginning of the first period presented. An offsetting adjustment will be made to the opening balance of retained earnings for that period, presented separately.  The adoption of APB 14-1 is not expected to have a material impact upon the Company’s financial position or results of operations.
 
 
83

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
21. Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (continued)

Recent Accounting Pronouncements (continued)

5.
In May 2009, FASB issued SFAS No. 165, “Subsequent Events”. The objective of this Statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: 1. The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2. The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3. The disclosures that an entity should make about events or transactions that occurred after the balance sheet date. In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. The adoption of these new requirements has not had an impact on the Company’s consolidated financial statements.

6.
In June 2009, FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140”, effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”.

7.
In June 2009, FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. The objective of this Statement is to amend certain requirements of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities”, to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to use rs of financial statements. This Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited.

8.
In June 2009, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing” (“EITF 09-1”). This Issue applies to entities that enter into share-lending arrangements on their own shares in contemplation of a convertible debt offering or other financing. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of EITF 09-1 is not expected to have a material impact on the Company’s financial position or results of operations.
 
 
84

 
 
Brazauro Resources Corporation

Notes to Consolidated Financial Statements
(In Canadian Dollars)

Years Ended January 31, 2010, 2009 and 2008
 
21. Differences between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) (continued)

Recent Accounting Pronouncements (continued)
 
9.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification™ (“Codification”) as the single source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants. SFAS 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009, which corresponds to the Company’s third quarter of fiscal 2010. When effective, the Codification will supersede all existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. Following SFAS 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification.  The adoption of SFAS 168 will not have an impact on the Company’s consolidated financial statements.

22. Subsequent Events

On March 22, 2010, a total of 300,000 common shares were issued as a result of exercise of the same number of stock options with an exercise price of $0.51.

On March 22, 2010, a total of 4,626,666 warrants with an exercise price of $1.00 expired unexercised.

On May 12, 2010, the Company entered into an agreement with Eldorado Gold Corporation (“Eldorado”), in which Eldorado would acquire, by way of court approved Plan of Arrangement, all the issued and outstanding shares of the Company; and each share of the Company will be exchanged for 0.0675 of a share of Eldorado plus a share of a new exploration company created to hold certain existing assets of the Company.

Through the transaction, Eldorado would acquire the Company’s flagship Tocantinzinho project as well as the Company’s Agua Branca and Piranhas properties. The remaining exploration assets of the Company will become assets of a newly incorporated company and all holders of the Company’s shares, except Eldorado, would receive one share of the new company for each share held of the Company. In addition, Eldorado will provide $10 million in funding to the new company upon the closing of the transaction.

All of the Company’s unexercised options and warrants will be exercisable for Eldorado shares on identical terms, adjusted in respect of exercise price and number, on the same exchange ratio being offered for the shares of the Company.

The Arrangement is subject to approval by holders of 66 2/3% of the Company’s common shares, options and warrants, voting as a single class; and approval by holders of a majority of the Company’s common share, other than Eldorado, who voted at a special meeting of the Company security holders called to approve the transaction.  The Arrangement is also subject to regulatory approval.
 
 
85

 

Index to Exhibits

1.1
Certificate of Incorporation, Memorandum and Articles of Texas Star Resources Corporation (the “Company”) dated March 12, 1986. (a)
1.2
Amendment to Certificate of Incorporation and Memorandum. (b)
1.3
Certificate of Change of Name dated October 30, 1996.
1.4
Amendment to the Company’s Memorandum, effective November 27, 2001. (h)
1.5
Articles of the Company dated August 11, 2004. (m)
4.1
Agreement dated July 28, 1992, between the Company and certain royalty holders (as set forth therein). (a)
4.2
Stock Purchase Agreement dated July 29, 1992, by and among the Company, DEI, James M. Cairns, Jr., Gandy Baugh and Stewart Jackson (such individuals being collectively referred to as the “DEI Shareholders”), and the Amendment thereto dated January 13, 1993. (a)
4.3
Prospecting Permit and Option to Lease dated November 4, 1992, between DEI and various interest holders. (a)
4.4
Agreement dated December 22, 1992, between the Company and certain royalty interest holders. (a)
4.5
Royalty Interest Agreement dated January 13, 1993, by and between the Company and the DEI Shareholders relating to the properties of the Company and DEI in Arkansas. (a)
4.6
Mining Lease between the Company and certain royalty interest holders dated November 4, 1996. (c)
4.7
Amendment No. 1 to Mining Lease between the Company and certain royalty interest holders dated November 1997. (d)
4.8
Mining Lease between the Company and ABJ Hammett Estate/ Trust dated September 11, 1997.  (d)
4.9
Mining Lease Agreement and Lease Modification and Escrow Agreement dated December 16, 1999. (e)
4.10
Letter Agreement dated October 26, 2000 between the Company and McGeorge Contracting Co. (f)
4.11
Stripping Agreement dated October 31, 2000 between the Company and McGeorge Contracting Co. (f)
4.11
Lease Confirmation Agreement dated effective March 16, 2000. (g)
4.12
Mining Lease between the Company and ABJ Hammett Estate/ Trust dated November 15, 2000.  (g)
4.13
Trust Deed for Debentures dated February 16, 2001 between the Company and Montreal Trust Company of Canada. (g)
4.14
Pledge Agreement for Shares of Star U.S., Inc. between the Company and Montreal Trust Company of Canada dated February 16, 2001. (g)
4.15
Pledge Agreement for Shares of Diamond Operations, Inc. between the Company and Montreal Trust Company of Canada dated February 16, 2001. (g)
4.16
Second Supplemental Indenture between the Company and Computershare Trust Company of Canada dated February 11, 2003. (i)
4.17
Option Agreement, Tocantinzinho Project – Brazil dated July 31, 2003. (j)
4.18
Letter Agreement between BrazMin Corp. and the Company dated September 12, 2006 (k)
4.19
Quota Purchase Agreement, dated February 5, 2007 among Sabino Orlando Conceição Loguercio, Luiz Antonio Gravata Galvão, Jaguar Resources do Brasil, Mineração Cachambix LTDA, and Brazauro Holdings (Brazil) Ltd. (l)
4.20
Letter of Intent between Gold Fields Holdings Company BVI Ltd. and the Company dated May 9, 2008.  (n)
4.21
Option agreement dated July 18, 2008 between Maria Teresa Barbosa Da Silva and the Company relating to the acquisition of the mineral rights to the 20,688 hectare Piranha Property. (s)
4.22
Option Agreement, between the Company and Eldorado Gold Corporation, dated July 8, 2008. (p)
4.23
Shareholder Rights Plan Agreement dated November 28, 2008. (q)
4.24
Amendment to Shareholders Rights Plan Agreement dated May 14, 2009. (r)
4.25
Financial Advisory Engagement Letter between the Company and BMO signed June 19, 2009. (o)
4.26
Option agreement dated August 31, 2009 between Maria Teresa Barbosa Da Silva and the Company relating to the acquisition of  the mineral rights to the 7,229 hectare Piranha Property. (o)
4.27
Agua Branca Gold Project Letter of Intent signed August 31, 2009 between the Company and Talon Metals Corporation. (o)
4.28
Agua Branca Property Option Agreement signed December 10, 2009 between the Company and Brazmin Ltda.and Talon Metals Corporation. (o)
4.29
Agua Branca Royalty Agreement signed December 10, 2009 between the Company and Brazmin Ltda. (o)
4.30
Amending agreement dated December 4, 2009 amending the Option Agreement dated July 31, 2003 between the Company and Dennis Moore and Alan Carter with respect to the Tocantinzinho Property, Brazil. (o)
4.31
Option agreement dated December 22, 2009 between Marlene Soares Tavares and the Company relating to the acquisition of the mineral rights to the 7,404 hectare Piranha Property. (o)
4.32
Arrangement Agreement signed May 11, 2010 between the Company and 0880817 B.C. Ltd. and Eldorado Gold Corporation. (o)
4.33  Amendment Agreement dated June 8, 2010 to the Arrangement Agreement dated May 11, 2010 between the Company, 0880817 B.C. Ltd., Eldorado Gold Corporation and Tristar Gold Inc. (o) 
8.1
Subsidiaries of the Registrant. (o)
11.1
Brazauro Code of Ethics (o)
12.1
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14. (o)
12.2
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14. (o)
13.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (o)
13.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (o)
15.1
Consent of Independent Registered Public Accounting Firm (o)
 
 
 

 
 
________________

(a)
Filed as an exhibit to Registration Statement on Form 10 as filed on June 23, 1993.
(b)
Filed as an exhibit to Form 8 Amendment No. 1 to Form 10 as filed on October 4, 1993.
(c)
Filed as an exhibit to Form 10-K for the fiscal year ended January 31, 1997 as filed on May 13, 1997.
(d)
Filed as an exhibit to Form 10-K for the fiscal year ended January 31, 1998 as filed on April 29, 1998.
(e)
Filed as an exhibit to Form 10-K for the fiscal year ended January 31, 2000 as filed on April 28, 2000.
(f)
Filed as an exhibit to Form 10-Q for the fiscal quarter ended October 31, 2000 as filed on December 13, 2000.
(g)
Filed as an exhibit to Form 10-K for the fiscal year ended January 31, 2001 as filed on April 27, 2001.
(h)
Filed as an exhibit to Form 10-Q for the fiscal quarter ended October 31, 2001 as filed on December 13, 2001.
(i)
Filed as an exhibit to Form 10-Q for the fiscal quarter ended April 30, 2003 as filed on June 16, 2003.
(j)
Filed as an exhibit to Form 10-Q for the fiscal quarter ended July 31, 2003 as filed on September 15, 2003.
(k)
Filed as an exhibit to Form 10-Q for the fiscal quarter ended October 31, 2006 as filed on December 15, 2006.
(l)
Filed as an exhibit to Form 8-K as filed on February 12, 2007.
(m)
Filed as an exhibit to Form 20-F for the fiscal year ended January 31, 2007 as filed on May 25, 2007.
(n)
Filed as an exhibit to Form 20-F for the fiscal year ended January 31, 2008 as filed on May 29, 2008
(o)
Filed herewith.
(p)
Filed as an exhibit to Form 6K as filed on July 21, 2008
(q)
Filed as an exhibit to Form 6K as filed on December 1, 2008
(r)
Filed as an exhibit to Form 6K as filed on May 20, 2009
(s)
Filed as an exhibit to Form 20-F for the fiscal year ended January 31, 2009 as filed on May 29, 2009

All Exhibits referred to in (a) through (s) above were filed with previous Securities and Exchange Commission filings of the Company (File No. 0-21968) and are incorporated herein by reference.

 
 
 
 
 
 
 
 
 

EX-4.25 2 ss95636_ex0425.htm FINANCIAL ADVISORY ENGAGEMENT LETTER
 
EXHIBIT 4.25
 
 
 
Investment & Corporate Banking 
4th Floor, 1 First Canadian Place
Toronto, Ontario  M5X 1H3
 
 
 
 
 
June 19th, 2009
 
 
Brazauro Resources Corp.
16360 Park Ten Place, Suite 217
Houston, Texas 77084
 
Attention:  Mark Jones, Chairman and Chief Executive Officer
 
We are pleased to confirm the appointment of BMO Nesbitt Burns Inc. (“BMO Capital Markets”) to act as financial advisor to Brazauro Resources Corp. (the “Company”) with respect to (a) any proposal to acquire control (as defined below) of the Company by way of an offer to acquire outstanding shares of the Company or otherwise, (b) a sale of all or substantially all of the Company’s assets or a material portion of, or any interest in, the assets of the Company, by way of a negotiated purchase, lease, license, exchange, joint venture transaction or other means, (c) any merger, amalgamation, plan of arrangement, reorganization or other business combination pursuant to which the assets and business of the Company are combined with one or more other persons, (d) the issue by the Co mpany to one or more other persons of securities of the Company in numbers sufficient to constitute an acquisition of control (as defined below) of the Company, (e) any acquisition of control (as defined below) of the Company, directly or indirectly, otherwise than as contemplated by any of the foregoing paragraphs (a) to (d) inclusive, and (f) any other alternative transaction to enhance shareholder value, including, without limitation, a recapitalization of the Company, the payment of a special dividend or other distribution to security holders, but for the avoidance of doubt shall not include any equity offering or equity linked financing other than as set out in (d) (any transaction contemplated in paragraphs (a) to (f) above being referred to in this agreement as a “Transaction”).  For the purposes of this agreement, acquisition of “control” shall mean any transaction or series of transactions in which one or more persons or entities a cquires, directly or indirectly, at least 20% of any of the shares, assets, revenues, income or businesses of the Company or otherwise gains control of the Company, regardless of the structure or form of the transaction.
 
1.         Scope of Engagement.  We will perform such financial advisory and investment banking services for you as are customary and appropriate in engagements of this type and as you may reasonably request.  If requested, we will provide an opinion (the “Opinion”) as to whether the consideration to be received in a proposed Transaction is fair from a financial point of view to you or your shareholders (other than the purchaser(s)), as the case may be, provided that we receive from you a certificate in our customary form executed by the Chief Executive Officer and the Chief Financial Officer of the Company with respect to the business and affairs of the Company and as to the accuracy and completeness of all information provided to us hereunder.  Any such Opinion will be prepared solely for the use of your Board of Directors and will not be disclosed or given to any other person without our prior written consent.  If reference to our Opinion is required by law to be made in an information circular or directors’ circular, we will not unreasonably withhold our consent to such reference provided that the Opinion is reproduced in full in the circular and we approve in advance the text of any accompanying disclosure.
 
2.         Fees and Expenses.  For our services hereunder, you will pay us the following fees
 
 
(a)
Work Fees – A fee of $30,000 payable in cash one month following the date of this agreement, at which time, any additional work fees will be re-assessed.  The Work Fees will be credited against any Completion Fee which becomes payable under this agreement;
 
 
 

 
 
 
(b)
Opinion Fee – A fee of $250,000 per Opinion, payable in cash on the date that we advise you we are prepared to deliver each requested Opinion.  The first Opinion fee will be credited against any Completion Fee or Defence Fee which becomes payable under this agreement;
 
 
(c)
Defence Fee – If, during the term of this engagement or within the period of 9 months following termination of this agreement, an unsolicited offer is made for any of the securities of the Company, you will pay us a defence fee (the “Defence Fee”) in accordance with the fee grid attached hereto as Schedule B which will be determined by straight line interpolation between the two closest thresholds of the Transaction Value (as defined below) whether or not the Transaction is completed.  The Defence Fee will be credited against any Completion Fee which becomes payable under this agreement; and
 
 
(d)
Completion Fee – If, during the term of this engagement or within the period of 12 months following termination of this agreement, a Transaction is completed or you announce, or enter into an agreement in respect of, a Transaction which is subsequently completed, you will pay us a completion fee (the “Completion Fee”) in accordance with the fee grid attached hereto as Schedule B which will be determined by straight line interpolation between the two closest thresholds of the Transaction Value (as defined below).  For greater clarity, a Completion Fee will only be owed by the Company in the event that a Transaction is completed.
 
“Transaction Value” means an amount equal to the sum of (without duplication):
 
 
(i)
the aggregate cash consideration paid or payable to the Company or to its security holders and the aggregate fair market value of any securities or other non-cash consideration paid or payable to the Company or to its security holders (including, any joint venture interest delivered to, or retained by, the Company) in connection with a Transaction;
 
 
(ii)
the amount of all indebtedness and preferred shares of the Company or any subsidiary of the Company which is assumed or acquired by the purchaser or retired, refinanced or otherwise extinguished in connection with the Transaction; and
 
 
(iii)
any dividends or other distributions declared, paid or made by the Company prior to or upon completion of the Transaction.
 
The fair market value of any securities issued, any other non-cash consideration paid, any non-cash dividend or distribution declared, paid or made, and any assets disposed of or retained in connection with a Transaction shall be the value upon the closing date of the Transaction as determined by BMO Capital Markets and the Company in good faith, provided that any publicly-traded securities shall be valued at the volume weighted average of their trading prices on the principal stock exchange on which they trade (as determined by volume) for the five trading days ending on the third trading day prior to the date on which value is being assessed.  Any delayed or subsequent payments forming part of the consideration payable to the Company or its security holders shall be discounted to and valued at the applicable date in a manner determined by the Company and BMO Capital Markets in good faith.  The Transaction Value of a Transaction involving the acquisition of less than 100% of the Company’s equity securities, assets or business shall be the result obtained when the price paid or payable in such Transaction is divided by the percentage of the Company’s equity securities, assets or business that were acquired in the Transaction.
 
 
2

 
 
Any Completion Fee or Defence Fee to which we may become entitled pursuant to clauses (c) and (d) above shall be paid in cash to our legal counsel in trust for us five days prior to the proposed closing date of the Transaction (which in the case of a take-over bid or tender offer shall be the first date on which the offeror may take up securities under the offer) and shall be released from such trust to us upon completion of the Transaction (which in the case of a take-over bid or tender offer shall be the first date on which the offeror takes up securities under the offer) without any further formality.  If the Transaction is not completed we will instruct our legal counsel to return such funds to the Company without delay.
 
You will reimburse us on request from time to time for all reasonable out-of-pocket expenses incurred by us in respect of this engagement, including reasonable travel and document production costs, the reasonable fees and disbursements of counsel, the reasonable fees and disbursements of any consultants engaged by us with your prior consent and other customary expenses for engagements of this type.  We agree that we will not incur expenses exceeding $150,000 without your prior written approval.
 
The fees and expenses referred to above may be subject to goods and services taxes which will be payable by you to us.
 
3.         Disclosure and Use.  All opinions, advice and other materials provided by us hereunder, including any Opinion, are to be used solely by your Board of Directors in considering a proposed Transaction and shall not be quoted from, summarized or otherwise disclosed, nor will any reference to us or to this engagement be made, without our prior consent.  BMO Capital Markets hereby consents to the inclusion of the Opinion and a summary thereof in any information circular or directors’ circular of the Company.
 
4.         Information.  You will arrange for us to have such timely access to your directors, officers, employees and auditors, to your counsel and other consultants, and to your information as we may reasonably request in carrying out this engagement.  In addition, you will keep us fully informed with respect to all negotiations regarding a Transaction and will promptly provide us with copies of all material documents, draft or final, relating to a Transaction.  You agree to provide, or arrange to have provided to, us such information, including any financial forecasts, as we believe appropriate to permit us to perform our services hereunder and you will update such information as appropriate.  You agree that we may rely upon such information and that all such information will be true, accurate and complete in all material respects.  You acknowledge that we will be entitled to rely upon such information, and we are entitled to assume, and are under no obligation to verify independently, the accuracy, completeness or reasonableness of such information.  Further, we are under no obligation to investigate any changes which may occur in such information after the date upon which it is provided to us.  Notwithstanding the foregoing, you will advise us promptly of any material change or change in a material fact, actual or contemplated, and of any material information of which it becomes aware which might reasonably be considered relevant to our engagement.  You will advise us promptly of any communication or notice received by you from, and of any procee ding initiated before or by, any applicable regulatory authority (including any stock exchange) or court relating to the Transaction or which might otherwise be relevant to this engagement.  If requested, we will testify or provide reasonable support services before any regulatory authority or court.  Our testimony or support services will be confined to the services performed under this agreement.  We shall have the right to employ counsel and shall be paid customary fees and reimbursed by you for our reasonable out-of-pocket costs, charges and expenses, including the reasonable fees and disbursements of counsel.
 
5.         Indemnification.  You agree to indemnify us and certain other parties in accordance with the provisions contained in Schedule A hereto, which Schedule forms part of this agreement.
 
6.         Relationship.  You agree that we have been retained to act solely as your financial advisor and not as an advisor to any other party, including your security holders.  We shall act as an independent contractor and any duties that we have arising out of this engagement shall be owed solely to you and not to any other party.  You
 
 
3

 
 
acknowledge and understand that (i) we act as a trader of, and dealer in, securities both as principal and on behalf of our clients and, as such, we may have had, and may in the future have, long or short positions in the securities of one or more parties to a Transaction or any of their respective related entities and, from time to time, may have executed or may execute transactions on behalf of such persons, (ii) we conduct research on securities and may, in the ordinary course of our business, provide research reports and investment advice to our clients on investment matters, including with respect to any such person and/or Transaction, and (iii) we or our controlling shareholder, Bank of Montreal, may, in the ordinary course of business, extend loans or provide other financial services to any such person ( collectively, “BMO Business”).  You agree not to seek to restrict or challenge the ability of BMO Capital Markets, Bank of Montreal or their affiliates to conduct BMO Business that is not directly related to the Transaction.  You acknowledge and agree that if a potential acquirer of the Company or any of its subsidiaries or other assets seeks financing for such an acquisition, we or our controlling shareholder, Bank of Montreal, may act as underwriter, agent or lender in respect of such financing provided that we and any of our affiliates who are involved in such financing implement reasonable procedures to ensure that no confidential information relating to the proposed Transaction or the acquisition financing, as applicable, is exchanged between the respective teams of employees and agents who are involved in the separate engagements.  Neither we nor any of our affiliates will act as mergers and acquisitions adviser to any potential purchaser in respect of a possib le Transaction.
 
7.         Termination and Survival.  This agreement shall terminate on the earliest of (a) the date a Transaction is completed, and (b) the date on which either you or we give written notice of termination to the other party.  The provisions of section 2 (Fees), section 3 (Disclosure and Use), section 5 (Indemnification), section 7 (Termination and Survival) and section 9 (Other Matters) shall survive such termination.
 
8.         Announcements.  You agree that we may, at our own expense, place advertisements or announcements in any newspapers, periodicals or other publications, or otherwise disclose to third parties, that we have acted as your financial advisor in connection with a Transaction.  If requested by us, you will include a reference to BMO Capital Markets as being your financial advisor in any press release or public announcement made with respect to the Transaction.
 
9.         Other Matters.  This agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors.  This agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the parties irrevocably attorn to the non-exclusive jurisdiction of the courts of the Province of Ontario.  All financial references in this agreement are to Canadian dollars unless otherwise expressly indicated.  No waiver, amendment or other modification of this agreement shall be effective unless in writing and signed by each party here to.
 
If the foregoing is in accordance with your understanding, please indicate your agreement by signing and returning the enclosed duplicate copy of this letter.
 
 
4

 

Yours sincerely,
 
BMO NESBITT BURNS INC.  
       
by  /s/ Egizio Bianchini  
  Name:  Egizio Bianchini  
  Title: Managing Director  
 
 
 
 
BMO NESBITT BURNS INC.  
       
by  /s/ Dan Barclay  
  Name:  Dan Barclay  
  Title: Managing Director  
 
 
 
Accepted and agreed to as of the date first set out above.
 
 
BRAZAURO RESOURCES CORP.
 
       
by  /s/ Mark Jones  
  Name:  Mark Jones  
  Title: Chairman and Chief Executive Officer  
 
 
 
 

 

 
5

 
 
Investment & Corporate Banking 
4th Floor, 1 First Canadian Place
Toronto, Ontario  M5X 1H3
 
 
Schedule A – Indemnification
 
As consideration for BMO Nesbitt Burns Inc. (“BMO Capital Markets”) agreeing to provide the services described in the engagement letter to which this Schedule is attached (the “Engagement”), Brazauro Resources Corp. (the “Indemnitor”) agrees to indemnify and hold harmless BMO Capital Markets and its affiliates, and each of their respective directors, officers, employees and agents (collectively, the “Indemnified Parties” and each, an “Indemnified Party”), to the full extent lawful, from and against all expenses, losses, damages and liabilities of any nature (including the reasonable fees and expenses of their respective counsel and other expenses, but not including any amount for lost profits) (collectively, “Losses”) that are incurred in investigating, d efending and/or settling any action, suit, proceeding, investigation or claim that may be made or threatened against any Indemnified Party (collectively, the “Claims”) or to which an Indemnified Party may become subject or otherwise involved in any capacity insofar as the Claims arise out of or are based upon, directly or indirectly, the Engagement together with any Losses that are incurred in enforcing this indemnity.  This indemnity shall not be available to an Indemnified Party in respect of Losses incurred where a court of competent jurisdiction in a final judgment that has become non-appealable determines that such Losses incurred solely from the negligence or willful misconduct of the Indemnified Party.
 
If for any reason (other than a determination as to any of the events referred to above) this indemnity is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party harmless in respect of any Claim, the Indemnitor shall contribute to the Losses paid or payable by such Indemnified Party as a result of such Claim in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnitor on the one hand and the Indemnified Party on the other hand but also the relative fault of the Indemnitor and the Indemnified Party as well as any relevant equitable considerations; provided that the Indemnitor shall in any event contribute to the Losses paid or payable by an Indemnified Party as a result of such Claim, the amount (if any) equal to (i) such amount paid or payable, min us (ii) the amount of the fees received by the Indemnified Party, if any, under the Engagement.
 
The Indemnitor agrees that in case any legal proceeding shall be brought against, or an investigation is commenced in respect of, the Indemnitor and/or an Indemnified Party and an Indemnified Party or its personnel are required to testify in connection therewith or shall be required to respond to procedures designed to discover information regarding, in connection with or by reason of the Engagement, the Indemnified Party shall have the right to employ its own counsel in connection therewith, and the reasonable fees and expenses of such counsel as well as the reasonable costs (including an amount to reimburse the Indemnified Party for time spent by its personnel in connection therewith at their normal per diem rates together with such disbursements and out-of-pocket expenses incurred by the Personnel in connection therewith) shall be paid by the Indemnitor as they occur.
 
BMO Capital Markets will notify the Indemnitor promptly in writing after receiving notice of an action, suit, proceeding or claim against BMO Capital Markets or any other Indemnified Party or receipt of notice of the commencement of any investigation which is based, directly or indirectly, upon any matter in respect of which indemnification may be sought from the Indemnitor, stating the particulars thereof, will provide copies of all relevant documentation to the Indemnitor and, unless the Indemnitor assumes the defence thereof, will keep the Indemnitor advised of the progress thereof and will discuss all significant actions proposed.  The omission to so notify the Indemnitor shall not relieve the Indemnitor of any liability which the Indemnitor may have to an Indemnified Party except only to the extent that any suc h delay in giving or failure to give notice as herein required materially prejudices the defence of such action, suit, proceeding, claim or investigation or results in any material increase in the liability under this indemnity which the Indemnitor would otherwise have incurred had BMO Capital Markets not so delayed in giving, or failed to give, the notice required hereunder.
 
The Indemnitor shall be entitled, at its own expense, to participate in and to the extent it may wish to do so, assume the defence of any Claim, provided such defence is conducted by experienced and competent counsel.  Upon the Indemnitor notifying BMO Capital Markets in writing of its election to assume the defence and retaining counsel, the
 
 
 

 
 
Indemnitor shall not be liable to an Indemnified Party for any legal expenses subsequently incurred by it in connection with such defence.  If such defence is assumed by the Indemnitor, the Indemnitor throughout the course thereof will provide copies of all relevant documentation to BMO Capital Markets, will keep BMO Capital Markets advised of the progress thereof and will discuss with BMO Capital Markets all significant actions proposed.
 
Notwithstanding the foregoing paragraph, any Indemnified Party shall have the right, at the Indemnitor’s expense, to separately retain counsel of such Indemnified Party’s choice, in respect of the defence of any Claim if:  (i) the employment of such counsel has been authorized by the Indemnitor; or (ii) the Indemnitor has not assumed the defence and employed counsel therefor promptly after receiving notice of such action, suit, proceeding, claim or investigation; or (iii) counsel retained by the Indemnitor or the Indemnified Party has advised the Indemnified Party that representation of both parties by the same counsel would be inappropriate for any reason, including for the reason that there may be legal defences available to the Indemnified Party which are different from or in addition t o those available to the Indemnitor (in which event and to that extent, the Indemnitor shall not have the right to assume or direct the defence on such Indemnified Party’s behalf) or that there is a conflict of interest between the Indemnitor and the Indemnified Party or the subject matter of the Claim may not fall within the indemnity set forth herein (in any of which events the Indemnitor shall not have the right to assume or direct the defence on such Indemnified Party’s behalf), provided that the Indemnitor shall not be responsible for the fees or expenses of more than one legal firm in any single jurisdiction for all of the Indemnified Parties.  No admission of liability and no settlement of any Claim shall be made by the Indemnitor without the prior written consent of the Indemnified Parties affected (which consent may not be unreasonably withheld) unless such settlement includes an unconditional release of each Indemnified Party from any liabilities arising out of such Claim with out any admission of negligence, misconduct, liability or responsibility by any Indemnified Party.
 
The Indemnitor hereby acknowledges that BMO Capital Markets acts as trustee for the other Indemnified Parties of the Indemnitor’s covenants under this indemnity and BMO Capital Markets agrees to accept such trust and to hold and enforce such covenants on behalf of such persons.
 
The indemnity and contribution obligations of the Indemnitor hereunder shall be in addition to any liability which the Indemnitor may otherwise have (including under the Engagement), shall extend upon the same terms and conditions to the Indemnified Parties and shall be binding upon and enure to the benefit of any successors, permitted assigns, heirs and personal representatives of the Indemnitor, BMO Capital Markets and any other Indemnified Party.  The foregoing provisions shall survive any termination of the Engagement.
 
 
 
 
 

EX-4.26 3 ss95636_ex0426.htm OPTION AGREEMENT
EXHIBIT 4.26

MINERAL RIGHT PURCHASE
 AND SELLING AGREEMENT
 
 
MARIA TEREZA BARBOSA DA SILVA, Brazilian national, separated, holder of Brazilian ID card 3617073-2 – SSP-GO and CPF 110.808.762-00, resident at Rua Barão do Rio Branco, 699 – Bloco 15A, Ap. 301 – Conj. São Judas Tadeu II, Bairro Flores, Manaus, State of Amazonas, Zip Code 69.058-581, hereinafter referred to as MARIA TEREZA and BRAZAURO RECURSOS MINERAIS LTDA, a limited liability company, registered before the Ministry of Finance under CNPJ 05.943.917/0001-43, with headquarters at Av. Gov. José Malcher, 815, salas 413 e 414, Belém, Pará, Zip Code 66.055-901, hereinafter represented by its director, who undersigns this Agreement, and referred to as BRAZAURO:
 
 
I      WHEREAS
 
 
A)
MARIA TEREZA is the legitimate holder of the EXPLORATION REQUEST part of DNPM process 850.442/2008, located in the municipality of Itaituba, State of Pará. The above mentioned process is being assessed by DNPM’s 5th District in Belém-PA for publication of the corresponding Exploration License, whose process will remain object of this contract, and will be hereinafter referred to as MINERAL RIGHT;
 
 
B)
BRAZAURO is a mining company whose main objectives are to explore, exploit and manage mineral deposits for the economic use of their mineral assets and by-products, and who is interested in acquiring the MINERAL RIGHT;
 
 
C)
The MINERAL RIGHT is free and clear of all liens, charges or limitations of ownership whatsoever;
 
 
D)
MARIA TEREZA is interested in the cession and transfer of the MINERAL RIGHT to BRAZAURO;
 
 
E)
BRAZAURO is interested in undertaking a mineral reserves assessment and exploration program in the area covered by such MINERAL RIGHT.
 
 
F)
BRAZAURO may develop mineral exploration activities at its own discretion and exclusivity during the term of this contract, and may assess, explore and undertake economic feasibility studies of any mineral reserves to be found in the area covered by the MINERAL RIGHT.
 
The Parties have agreed to the following terms and conditions:
 
1. FIRST CLAUSE - OBJECT
 
1.1 The object of this agreement is the establishment of rules and conditions for the acquisition of the mineral right referred to in paragraph A) of this agreement by BRAZAURO.
 
2. SECOND CLAUSE - PRICE AND PAYMENT CONDITIONS
 
2.1 For the acquisition of the above mentioned MINERAL RIGHT, BRAZAURO shall pay to MARIA TEREZA the total amount of R$700,000.00 (seven hundred thousand Brazilian reais) as follows:
 
2.1.1 R$20,000.00 (twenty thousand Brazilian reais) on signing of this agreement.
 
2.1.2 R$15,000.00 (fifteen thousand Brazilian reais) within five working days from the publication in the Brazilian Official Gazette (Diario Oficial da União - DOU) of the exploration license related to the process
 
 
 
 

 
 
object of this agreement, and upon signature of an AGREEMENT FOR MINERAL RIGHT ASSIGNMENT to BRAZAURO.
 
In case the publication referred to above is made before completion of the six-month period from the date of signature of this agreement, the payment of the second installment shall be made six months after the payment of the first installment referred to in paragraph 2.1.1. above.
 
2.1.3 R$25,000.00 (twenty five thousand Brazilian reais) within six months after the payment referred to in paragraph 2.1.2 has been made.
 
2.1.4 R$30.000.00 (thirty thousand Brazilian reais) within twelve months after the payment referred to in paragraph 2.1.2 has been made.
 
2.1.5 R$40,000.00 (forty thousand Brazilian reais) within eighteen months after the payment referred to in paragraph 2.1.2 has been made.
 
2.1.6 R$50,000.00 (fifty thousand Brazilian reais) within twenty four months after the payment referred to in paragraph 2.1.2 has been made.
 
2.1.7 R$520,000.00 (five hundred and twenty thousand Brazilian reais) within thirty months after the payment referred to in paragraph 2.1.2 has been made, provided that DNPM has approved  the MINERAL RIGHT assignment to BRAZAURO.
 
2.2. In case of termination of this agreement, the amounts payable will not be collected and no payments made will be reimbursed.
 
2.3 The payments referred to in Clause 2 above will be made by BRAZAURO at the current account number 0540531-9, branch number 412 which MARIA TEREZA holds at the Bradesco Bank in Rio Grande, State of Rio Grande do Sul, and deposit slips will be considered payment receipts.
 
2.3.1 Any alteration to the above mentioned bank information shall be made in writing by MARIA TEREZA to BRAZAURO, and BRAZAURO will not be deemed accountable for any delay or misplacement of payment resulting from the failure to inform such change.
 
2.3.2 Should the due date for any payment fall on a non-working day, then it will be due on the first working day following the original due date.
 
THIRD CLAUSE – DECLARATIONS AND WARRANTIES OF MARIA TEREZA
 
3.1 MARIA TEREZA hereby declares and warrants that she is the only and exclusive holder of the MINERAL RIGHT object of this agreement and that such MINERAL RIGHT is free and clear of any liens, charges or liabilities whatsoever, and that they are equally free of any irregularity.
 
3.2 MARIA TEREZA hereby declares and warrants on her behalf and on behalf of her successors that she will provide whatever assistance required for the formal transfer of the MINERAL RIGHT object of this agreement, as well as for the granting of the corresponding Mineral Exploration Licenses by DNPM.
 
3.3 MARIA TEREZA declares and warrants that she will keep confidential all information received as a result of this agreement, which will become classified and belonging to BRAZAURO upon signing of this agreement, and that she will not disclose information in part or in total to third parties.
 
3.4 MARIA TEREZA declares and warrants that she will be responsible for all obligations and liabilities of any nature, which were originated prior to the date of signature of this agreement, including those related to non-compliance with the mineral and environmental legislation.
 
 
 
 

 
 
3.5 By the date of payment of the last installment herein agreed to, MARIA TEREZA shall hand over to BRAZAURO the areas object of this agreement, the MINERAL RIGHT free of any small-scale prospecting mining activities, and of third parties who are not bound by this agreement.
 
FOURTH CLAUSE – DECLARATIONS AND WARRANTIES OF BOTH PARTIES
 
4.1. BRAZAURO and MARIA TEREZA hereby declare and warrant that this Agreement is signed in an irrevocably and irretractable manner for all legal purposes, and that they will comply with whatever clauses and conditions herein established, including those related to their successors, except for the provisions regarding termination.
 
4.2 BRAZAURO and MARIA TEREZA hereby declare and warrant that this Agreement and its annexes result from a thorough understanding between the parties.
 
4.3 BRAZAURO and MARIA TEREZA hereby declare and warrant that they attribute binding power over their conduct to the terms of this Agreement in accordance with the provisions of Article 585, Sub-heading II and the provisions of article 639 both of the Brazilian Civil Procedure Code.
 
4.4 BRAZAURO and MARIA TEREZA hereby declare and warrant that whenever required they shall take action, provide information and additional documentation, formalize any agreement required to the sound implementation and undertaking of the terms and conditions set forth in this Agreement.
 
FIFTH CLAUSE – DECLARATIONS AND WARRANTIES OF BRAZAURO
 
5.1 BRAZAURO hereby declares and warrants that it will be responsible for the payment of any liabilities corresponding to the Exploration Licenses until a decision is made regarding the acquisition of this MINERAL RIGHT.
 
5.2 The responsibility of BRAZAURO shall be null and void should it formally desist from the acquisition of the MINERAL RIGHT object of this Agreement in compliance with the provisions of Clause 2.2 above.
 
5.3 BRAZAURO commits itself to pay the annual fees per hectare corresponding to the last year of validity of the MINERAL RIGHT object of this agreement, and in the years to come in case of extension of the Exploration License, as long as this agreement is not terminated per the terms and conditions set forth in Clause Tenth below.
 
SIXTH CLAUSE – DURATION
 
6.1 This agreement is valid from the date of signature until all conditions herein agreed upon have been fulfilled or until BRAZAURO terminates this Agreement.
 
SEVENTH CLAUSE – CONFIDENTIALITY
 
7.1 Unless otherwise required by law, the parties commit themselves to keep strictly confidential the terms and conditions of this agreement, and to not disclose information in any way for whatever objective other than the objective herein stated. Nevertheless, BRAZAURO may, if deemed necessary and at its own discretion, disclose the results of the exploration work in the Toronto-Canada Stock Exchange and in its website.
 
7.2 The parties hereby bind themselves and their employees, representatives, and service providers to strict observance of said confidentiality and of any geological, economic or business related information that may be disclosed to them.
 
EIGHTH CLAUSE – ASSIGNMENT OF CONTRACT TO THIRD PARTIES
 
 
 
 

 
 
8.1 BRAZAURO may transfer at its sole discretion, at any time, in part or in total, the rights and obligations set forth in this agreement to third parties, provided that MARIA TEREZA receives prior notice of such transfer.
 
NINTH CLAUSE – COMMUNICATION
 
9.1 All notices, communication, or documents which shall be exchanged between the Parties must be in written form and delivered personally or by letter (AR receipt) at the addresses informed below. The Parties are responsible for informing any change in their addresses:
 
MARIA TEREZA BARBOSA DA SILVA
Address: Av. Barão do Rio Branco, 699 – Bloco 15ª Ap. 301
Conj. São Judas Tadeu II, Bairro Flores
69.058-581 - Manaus – AM
 
BRAZAURO RESOURCES DO BRASIL LTDA.
Address: Av. Gov. José Malcher, 815, salas 413 e 414
66,055-901 - Belém - - PA
 
TENTH CLAUSE – TERMINATION
 
10.1 BRAZAURO detains the exclusive right to unilaterally terminate this Agreement at its own discretion provided written notice is given to MARIA TEREZA.
 
10.2 The Parties herein agree that upon termination of this Agreement, BRAZAURO will no longer be liable to pay any installment that have not fallen due provided that MARIA TEREZA or her legal successors are notified by BRAZAURO (personally or by letter) at least thirty days before the due date of the next installment. BRAZAURO shall be freed from the obligation to pay any form of compensation to MARIA TEREZA, and shall have no right to the reimbursement of installments duly paid prior to the termination of this Agreement.
 
10.3 Should BRAZAURO make use of its right to terminate this Agreement in accordance with the provisions herein established, BRAZAURO must hand over to MARIA TEREZA all data and results from the exploration work associated with the MINERAL RIGHT within ninety days from the date of termination.
 
10.4 Should BRAZAURO decide to terminate this Agreement, BRAZAURO shall be legally bound to transfer the MINERAL RIGHT object of this contract back to MARIA TEREZA by signing a new Agreement for the Mineral Right Transfer on the date of termination.
 
10.5 MARIA TEREZA will not have the right to terminate this contract except in the case of defaulting on payment by BRAZAURO, which declares itself to be incapable of solving.
 
ELEVENTH CLAUSE – CONCURRENCE OF THE DNPM
 
11.1 It is hereby agreed and understood between the Parties that for the fulfillment of the terms set forth in this Agreement, and the respective payment of the final installment established in Clause 2 above, namely R$520,000.00 (five hundred and twenty thousand Brazilian reais), final legal approval must have been formally granted for the definitive concession of the MINERAL RIGHT to BRAZAURO, and said approval must have been published in the Official Gazette (DOU). The Parties further agree that:
 
11.1.1 Both Parties commit themselves to making every effort before the DNPM to ensure the regular administration and approval of the process for the concession of the MINERAL RIGHT object of this Agreement.
 
 
 
 

 
 
11.1.2 The Parties further commit themselves to make due efforts before the DNPM to ensure that the definitive concession of the MINERAL RIGHT is approved in such a way to become effectively transferred to BRAZAURO.
 
TWELVETH CLAUSE – PARTIAL INVALIDITY
 
12.1 The eventual nullity, invalidity or unfeasibility of any or more provisions set out in this Agreement shall not affect the validity and enforceability of the other terms, which shall remain in force. The Parties hereby declare their willingness to negotiate consensual adjustments to ensure the validity and feasibility of such terms or provisions.
 
THIRTEENTH CLAUSE – ACTS OF GOD OR FORCE MAJEURE
 
13.1 Should BRAZAURO or its contractors be prevented from getting access to the areas to which the MINERAL RIGHT are associated due to acts of God or force majeure, then the fulfillment of the obligations taken under the terms of this Agreement shall be suspended.
 
FOURTHEENTH CLAUSE – COURTS
 
14.1 The Parties agree to designate the Courts of Itaituba, State of Pará, for the purpose of deciding any issue resulting from this Agreement. In witness whereof the authorized representatives of the parties hereto have signed three copies of this Agreement as of the date below.
 
 
Manaus - AM, August 31, 2009
 
 
 
MARIA TEREZA BARBOSA DA SILVA BRAZAURO RECURSOS MINERAIS LTDA.
 
 
 
 
 
 
 
Witnesses:
 
Gilmara da Silva Sousa                                                               Emerson Cordeiro de Araújo
Address: Rua Barão do Rio Branco, 699       Address: Rua Teófilo Condurú
Identity Card # 4681937                                                    Identity Card # 5015547
CPF: 004.440.111-61                                                               CPF: 823.445.312-20

 
 
 
 
 

EX-4.27 4 ss95636_ex0427.htm AGUA BRANCA GOLD PROJECT LETTER OF INTENT
 
EXHIBIT 4.27
 
 
 
 
 
August 31, 2009.
 
TALON METALS CORPORATION
Avenida Jornalista Ricardo Marinho n° 360 salas 111, 112 e 113
Barra da Tijuca - Rio de Janeiro - RJ - Brazil
CEP 22631-350
 
 
 
Re: 
ÁGUA BRANCA GOLD PROJECT
 
This non-binding letter of intent (LOI) serves to outline the terms and conditions upon which Brazauro Resources Corporation or its subsidiary (Brazauro), is prepared to enter into a definitive agreement with Talon Metals Corporation or its subsidiary (Talon) granting to Brazauro the exclusive option to purchase Talon’s Água Branca mineral property (the Property or Água Branca):
 
Brazauro will have a period of 30 days to conduct due diligence on the Property and if completed to the satisfaction of Brazauro, Brazauro is prepared to sign a definitive option agreement according the following:
 
 
1)
Pay to Talon, upon agreement’s signing, an amount of US$ 120,000.
 
 
2)
Brazauro will be commited to spend in exploration at Água Branca, a minimum of US$ 500,000 including at least 2,000 metres of core drilling, in the first year and, if Brazauro wishes to extend the option to the second year, to spend a minimum of additional US$ 500,000 during the second year.
 
 
3)
To maintain the option in good standing, Brazauro will pay to Talon US$ 130,000 on or before December 31, 2010.  If Brazauro abandons the option and returns the Property to Talon before this date and the minimum budget of the first year has not been expended, Brazauro is obligated to pay the US$ 130,000.
 
 
4)
To complete the exercise of the option, Brazauro will pay to Talon, two (2) years after the agreement’s signing, an amount of US$ 1,870,000.
 
 
5)
The definitive agreement will provide that Brazauro will pay to Talon a NSR royalty of 2%, with Brazauro being able to buyout the NSR royalty for a payment of US$ 2 million.
 
 
 

 
 
 
6)
During the term of the option, Brazauro will also:
 
 
a.
Assume the payments due under the underlying agreement with the original owner of the mineral rights;
 
b.
Assume the payment of any taxes due to the DNPM;
 
c.
Assume the costs of the rental of the office/house in Água Branca village;
 
d.
Assume the rental of the use of the land at Camãro Hill;
 
e.
Conduct its operations in a good and miner-like manner;
 
f.
Indemnify Talon for any liability arising from Brazauro’s operations on the Property.
 
The definitive agreement will contain terms and conditions customary for agreements of this nature including, but not limited to, those relating to representations and warranties and indemnities and must be satisfactory to both Talon and Brazauro.
 
We look forward to your response to the foregoing so that we can arrange the due dilligence and the preparation of a definitive agreement.
 
Please confirm your agreement with the foregoing by signing a copy of this letter and returning it to us by fax or email.
 
Yours truly,
 
 
/s/ Elton L.S. Pereira
 
Elton L.S. Pereira
V.P. Exploration
Brazauro Resources Corp.
elspereira@terra.com.br
Fax:  55 (91) 3212.7345
 
 
 
Agreed and accepted, this 1 day of September, 2009
 
Talon Metals Corporation
Per:

 
 
 / Signature /  
 

 
 

EX-4.28 5 ss95636_ex0428.htm AGUA BRANCA PROPERTY OPTION AGREEMENT
EXHIBIT 4.28
 
 
 
 
 
 
 
MINERAL RIGHTS PURCHASE OPTION AGREEMENT
AND OTHER PACTS
 

 
Entered into by and between
 

 
BRAZMIN LTDA.,
 
TALON METALS CORP.,
 
BRAZAURO RECURSOS MINERAIS LTDA.
 
and
 
BRAZAURO RESOURCES CORP.

 

 

 
December 10, 2009
 
 
 
 
 
 
 
 

 


MINERAL RIGHTS PURCHASE OPTION AGREEMENT AND OTHER PACTS
 
PARTIES
 
On one side, as PROMISOR:
 
BRAZMIN LTDA., a limited liability company, with registered office at Avenida Jornalista Ricardo Marinho, 360, sala 11, Barra da Tijuca, Rio de Janeiro, RJ, ZIP CODE (CEP):  22631- 350, registered with the National Registry of Legal Entities (CNPJ) under no. 04.566.109/0001- 41, herein represented by its manager Luis Mauricio Ferraiuoli de Azevedo, Brazilian, single, registered with the Brazilian Bar Association/Rio de Janeiro Chapter (OAB/RJ) under no. 80.412, and with the Brazilian Registry for Individual Taxpayers/Ministry of Finance (CPF/MF) under no. 753.468.697-00;
 
and, as TALON
 
TALON METALS CORP., a company incorporated under the laws of the British Virgin Islands, with registered office at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands, hereby represented by its President, Stuart Comline.
 
and, on the other side, as PROMISEE:
 
BRAZAURO RECURSOS MINERAIS LTDA., a limited liability company, with registered office at Avenida Gov. José Malcher, 815 - Sala 413/414, Bairro Nazaré, Belém, PA, CEP 66.055.901, registered with the National Registry of Legal Entities (CNPJ) under no. 05.943.917/0001-43 represented by its General Director, Elton Luiz da Silva Pereira, Brazilian, geologist, single, registered with the Regional Counsel of Engineers chapter Rio Grande do Sul (CREA-RS) under no. 62.145, and with the Brazilian Registry for Individual Taxpayers/Ministry of Finance (CPF/MF) under no. 408.000.590-34,
 
and, as PARENT:
 
BRAZAURO RESOURCES CORPORATION, hereby represented by its Chairman, Mark Jones.
 
Whereas:
 
A.  PROMISOR is the registered holder of the Research License rights set forth in proceedings DNPM nos. 853.223/93, 853.374/93, 851.134/94 and 851.095/94 (the “Mineral Rights”) and has made applications for Research License rights set forth in proceedings DNPM nos. 850.502/06 and 850.741/06 (the “Applications”) relating to such area known as the Agua Branca Property whose coordinates are set forth in Annex A (the “Property”);
 
B.  PROMISOR holds the sole and exclusive right to acquire an undivided one-hundred (100%) percent legal and beneficial right, title and interest in and to the Mineral Rights, the Applications and the Property, pursuant to the terms of the Underlying Agreement, as hereinafter defined and as applicable, and subject to the Underlying Owner Royalty, as hereinafter defined; and
 
C.  PROMISOR offers to PROMISEE the sole and exclusive right and option to acquire an undivided one-hundred (100%) percent legal and beneficial right, title and interest in and to the
 
 
 

 
2
 
Mineral Rights, the Applications and the Property, subject to the Royalty and the Underlying Owner Royalty (both as hereinafter defined).
 
Therefore, the parties hereto enter into this mineral rights purchase option agreement and other pacts as of December 10, 2009, which shall be governed by the following terms and conditions:
 
1.
CONSTRUCTION
 
1.1       Definitions. Whenever used in this Agreement or in any of its annexes, except if the context requires otherwise, the following terms shall have the meaning established in this clause:
 
Affiliate” means, with respect to any party hereto, any company, corporation or other legal entity in which that party, directly or indirectly, holds a majority voting interest or any company, corporation or other legal entity which holds, directly or indirectly, a majority voting interest in that party and for PROMISEE it shall also mean the entity contemplated in subclause 2.6.1(c);
 
Agreement” means this mineral rights purchase option agreement;
 
Annex” means any annex to this Agreement;
 
Applications” has the meaning attributed to it in preamble A hereof;
 
Business Day” means any day whereupon banks are open to the public in the City of Rio de Janeiro;
 
Commercial Production” has the meaning given to it in the Royalty;
 
Confidential Information” has the meaning attributed to it in clause 6;
 
Damages” has the meaning attributed to it in clause 3.5;
 
Defaulting Party” has the meaning attributed to it in clause 3.5;
 
DNPM” means the National Department of Mineral Production (Brazil) or such successor governmental authority from time to time performing substantially the same function as the National Department of Mineral Production (Brazil);
 
Effective Date” means the date the DNPM issues and publishes in the official Gazette the exploration licenses for the Mineral Rights, in a form and substance reasonably acceptable to PROMISEE, which date shall be not later than the 26th day of February, 2010 for the purposes of this Agreement;
 
Encumbrance” includes a caveat, mortgage, charge, lien, pledge, bill of sale, hypothecation or other security interest, adverse equity, royalty, warrant or claim or interest of any person, except for any interest as may exist pursuant to the Underlying Agreement;
 
Environmental or Mining Law” includes any act of government, ordinance or legislative instrument (state or federal) which is designed to or has the purpose of regulating the activities of exploration, mining, processing or ancillary matters or protecting the environment from
 
 
 

 
3
 
pollution or which requires the rehabilitation of any exploration, mining, processing or ancillary site and any regulations, ordinances, by-laws or requirement made or imposed thereunder;
 
Expenditures” includes all costs, expenses and charges relating to or in connection with exploration and development of the Mineral Rights (and any mineral rights resulting from the Applications) during the Option Period, including without limitation on-site costs, costs for prospecting, claim staking, tenure obligations, taxes, mapping, surveying, permitting, geochemical surveys, geophysical surveys, sampling, assaying, trenching, drilling, geochemical analyses, metallurgical testing and development engineering, road building, drill site preparation, drafting, report writing and related consultants’ fees;
 
Facilities” means all mines and plant, including, without limitation, all pits, shafts, haulage ways and other underground workings and all buildings, plants and other structures, fixtures and improvements and all other property, whether fixed or moveable, as the same may exist at any time in or on the Property;
 
Insolvency Event” means in relation to PROMISOR any of the following:
 
(a)
an order of the court that PROMISOR be wound up;
(b)
an order is made appointing a liquidator or provisional liquidator of PROMISOR;
(c)
a resolution is passed to appoint an administrator of PROMISOR;
(d)
except to reorganize or amalgamate while solvent, PROMISOR enters into, or resolves to enter into, a scheme of arrangement with or composition with, assignment for the benefit of creditors or proposes a reorganization, moratorium or other administration involving any of them;
(e)
a resolution is passed to wind up or dissolve PROMISOR; or
(f)
a receiver or manager is appointed over the whole or part of the assets of PROMISOR;
 
Mineral Products” means the end products derived from operating the Mineral Rights (and any mineral rights resulting from the Applications) and Property as a mine;
 
Mineral Rights” has the meaning attributed to it in preamble A hereof;
 
Option” has the meaning attributed to it in clause 2.1;
 
Option Period” is the period commencing on the date hereof and ending on the earlier of:  (i) the date of the exercise of the Option pursuant to clause 2.2, (ii) a Termination, and (ii) the second anniversary of the Effective Date (or such later date as may apply hereunder);
 
Parties” are PROMISOR, PROMISEE and PARENT and “Party” means any one of them;
 
Royalty” means the 2% net smelter return royalty payable to PROMISOR in accordance with Annex C;
 
Termination” has the meaning attributed to it in clause 2.4;
 
Transfer Instrument” means the Mineral Rights Assignment and Transfer Private Instrument set forth in Annex B, whereby PROMISOR shall transfer to PROMISEE the ownership of the Mineral Rights;
 
 
 

 
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Underlying Agreement” means the agreement dated August 9, 2004 between PROMISOR and Raimundo Nonato dos Santos, as amended March 27, 2006 and May 18, 2009, attached as Annex F;
 
Underlying Owner” means Raimundo Nonato dos Santos; and
 
Underlying Owner Royalty” means the 2% net revenue interest royalty payable to the Underlying Owner pursuant to the Underlying Agreement.
 
1.2       Annexes.  The following annexes are integral parts to this Agreement:
 
Annex A:
Description of the Mineral Rights, Applications and Property
Annex B:
Draft of the Mineral Rights Assignment and Transfer Private Instrument and Official Letter to DNPM
Annex C:
Royalty
Annex D:
Morro do Camarão Agreement
Annex E:
Underlying Agreement
 
1.3       Expiry, Payment, Notice Dates, etc.  In the event any notice date, payment date, expiry date or deadline set out in this Agreement is a day other than a Business Day, such date shall be extended to 5:00 p.m. (Rio time) on the next Business Day.
 
1.4       English Language Paramount.  This Agreement shall be executed in English and, in case it is necessary to file it with a court of law, it will be translated by a sworn translator into Portuguese.  The Parties acknowledge that the official version of this Agreement is that in the English language, and shall govern any non-English translation of this Agreement, including without limitation any arbitration procedures initiated hereunder.
 
2.
ACQUISITION OF MINERAL RIGHTS
 
2.1       Grant of Option and Payment for the Acquisition of Mineral Rights
 
Subject to the other terms and conditions contained herein, PROMISOR hereby grants to PROMISEE the sole and exclusive right and option (the “Option”) to earn an undivided one hundred (100%) percent legal and beneficial right, title and interest in and to the Mineral Rights (and any mineral rights resulting from the Applications) and the Property, free and clear of all Encumbrances.  Concurrently with the execution of this Agreement, PROMISOR shall execute and deliver to PROMISEE a transfer of an undivided one hundred (100%) percen t legal and beneficial right, title and interest in and to the Mineral Rights and the Property, free and clear of all Encumbrances in accordance with the terms of the Transfer Instrument, attached hereto in Annex B, save and except for the obligation to pay (i) the Royalty to PROMISOR and (ii) the Underlying Owner Royalty to the Underlying Owner, and grants PROMISEE the right and option to remain the owner of the Mineral Rights (and any mineral rights resulting from the Applications) and the Property by satisfying in full by the specified time each of the requirements of subclauses 2.1.1, 2.1.2, 2.1.3 and 2.1.4.
 
2.1.1     Initial Payment. Within five (5) days of the date hereof, PROMISEE shall pay to PROMISOR sixty thousand US Dollars (US$ 60,000) and, within five (5) Business Days of the
 
 
 

 
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Effective Date, PROMISEE shall pay to PROMISOR sixty thousand US Dollars (US$ 60,000) failing which this Agreement will terminate and be of no further force and effect.
 
2.1.2    Optional Payments.  To maintain the Option and this Agreement in good standing during the Option Period, PROMISEE, at its option, shall make the following additional payments to PROMISOR:
 
(a)        one hundred thirty thousand US Dollars (US$130,000.00) on or before December 31, 2010; and
 
(b)        one million eight hundred seventy thousand US Dollars (US$1,870,000.00) on or before September 30, 2011.
 
2.1.3     Work Commitments.  Subject to subclause 2.1.4, PROMISEE shall incur Expenditures of not less than:
 
(a)        five hundred thousand US Dollars (US$500,000), including without limitation completing two thousand (2,000) meters of core sample drilling, on or before the first anniversary of the Effective Date; and
 
(b)        an additional five hundred thousand US Dollars (US$500,000) in Expenditures on or before the second anniversary of the Effective Date.
 
It is understood that the amounts required to be spent within the periods referred to in this subclause 2.1.3 are cumulative, aggregate amounts and that, accordingly, all Expenditures incurred in a particular period, including any excess in the amount of Expenditures required to be incurred to maintain the Option during such period, shall be carried over and included in the aggregate amount of Expenditures for the subsequent period.
 
In the event PROMISEE fails to perform its obligation under subclause 2.1.3(a), PROMISEE shall pay PROMISOR the Damages Amount set out in subclause 3.5.3, following which the Option and this Agreement shall terminate in accordance with clause 2.4.
 
2.1.4    Curing Deficiencies and Statement of Expenditures.  Notwithstanding subclause 2.1.3;
 
(a)        if PROMISEE has not incurred the requisite Expenditures to maintain the Option in good standing within any of the time periods as specified in subclause 2.1.3, PROMISEE may pay to PROMISOR, within 45 days following the expiry of such period, the amount of the deficiency and such amount shall thereupon be deemed to have been Expenditures incurred by PROMISEE during such period;
 
(b)        within 45 days following the expiry of each of the periods referred to in subclause 2.1.3, PROMISEE shall deliver PROMISOR a statement showing in reasonable detail the Expenditures incurred by PROMISEE during the period and the aggregate Expenditures incurred to the end of such period (together with the payment by PROMISEE of any deficiency, if applicable) and PROMISOR shall have 45 days from the from the time of receipt of such sta tement to question the accuracy thereof in writing, failing which such statement shall be deemed to be correct and unimpeachable thereafter; and
 
 
 

 
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(c)        if a statement delivered pursuant to subclause 2.1.4(b) is questioned by PROMISOR, PROMISOR shall have twelve (12) months from the time of delivery of the statement to have such statement audited by an independent third party chartered accounting firm; PROMISEE covenants to make all books and records available to PROMISOR and the party conducting the audit in connection therewith promptly following any written request therefor submitted by PROM ISOR to PROMISEE; the audited results shall be final and determinative of the amount of Expenditures incurred for the audited period; provided that if such audit discloses a deficiency in the amount of Expenditures required to be incurred to maintain the Option in good standing, PROMISEE may pay to PROMISOR the amount of such deficiency within 15 days following receipt of notice of such audited results, whereupon such amount shall be deemed to have been Expenditures incurred during the audited period; and the costs of the audit shall be borne by PROMISOR if PROMISEE’S statement was accurate within 5% and shall be borne by PROMISEE if such statement was not accu rate within 5%.
 
2.1.5     Other Obligations.  Unless the Agreement is terminated in accordance with the terms hereof, PROMISEE hereby agrees with and undertakes to PROMISOR to perform and assume full liability for:
 
(a)        any and all costs and expenses related to the Mineral Rights (and any mineral rights resulting from the Applications) and the Property (including under the Underlying Agreements) and any and all research works developed in respect of the Mineral Rights or the Property;
 
(b)        any and all taxes or other amounts which are or become due and payable to the DNPM;
 
(c)        any and all rental costs for the office/house in Agua Branca village and use of the land at Camarao Hill;
 
(d)        any and all costs related to maintaining the Mineral Rights (and any mineral rights resulting from the Applications) in good standing, including any annual or renewal fees and other costs or expenses related thereto (with proof of payment thereof to be provided by PROMISEE to PROMISOR immediately thereafter), and executing and delivering to appropriate government authorities all necessary filings in relation thereto;
 
(e)        any works on the Property and all related risks and responsibilities, to be performed strictly in accordance with all applicable laws, including without limitation full compliance with Environmental or Mining Laws, as well as any regulations, rules and procedures required thereunder, and in full compliance with all required or recommended practices and procedures pursuant to good mining industry practices; and
 
(f)         the performance of all obligations under the agreements set forth in Annexes D and E, including without limitation paying any and all costs and expenses incurred thereunder.
 
2.2       Exercise of Option.  Upon incurring aggregate Expenditures of one million US dollars (US$1,000,000) and making aggregate cash payments to PROMISOR of two million one hundred and twenty thousand US dollars (US$2,120,000), and fulfilling its other obligations hereunder, as provided for herein, PROMISEE will have exercised the Option and will have hereby earned an undivided 100% right, title and interest in and to the Mineral Rights, any mineral rights resulting from the Applications, and the Property, free and clear of all Encumbrances, save and except for the obligation to pay (i) the Royalty to PROMISOR and (ii) the Underlying Owner Royalty to the Underlying Owner.
 
 
 

 
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2.3       Access to Mineral Rights and Property.  During the Option Period, PROMISEE and its employees and agents and any person duly authorized by PROMISEE shall have the sole and exclusive right and option to:
 
2.3.1     access the Mineral Rights and enter upon the Property;
 
2.3.2     have exclusive and quiet possession thereof;
 
2.3.3     do such prospecting, exploration, development or other mining work thereon and thereunder as PROMISEE in its sole discretion may consider advisable;
 
2.3.4     bring upon and erect upon the Property such mining facilities as PROMISEE may consider advisable; and
 
2.3.5     remove from the Property or otherwise dispose of reasonable quantities of any mineral products derived therefrom, for the purpose of obtaining assays or making other tests.
 
2.4       Termination
 
2.4.1     Subject to (x) completion by PROMISEE of any requirements in order for the termination of this Agreement to take effect and (y) performance by PROMISEE of any continuing obligations thereafter, this Agreement shall terminate on the earliest to occur of the following (each, a “Termination”):
 
(a)        so long as PROMISEE is not in default of any of its obligations under this Agreement, upon delivery of written notice by PROMISEE to PROMISOR at any time (the “Voluntary Termination Notice”);
 
(b)        automatically if PROMISEE does not fully satisfy the requirements of subclauses 2.1.1, 2.1.2, 2.1.3 and 2.1.4, as applicable, the Option shall, subject to clause 4.2, immediately terminate and shall be of no further force or effect;
 
(c)        by a Party other than the Affected Party or the Parent in accordance with clause 9.2; and
 
(d)        by PROMISOR in accordance with clause 11.1.
 
2.4.2     Upon a Termination, the Option shall immediately terminate and be of no further force or effect and PROMISEE shall be required to promptly transfer, convey and return all right, title and interest in and to the Mineral Rights, any Applications (and any mineral rights resulting therefrom) and the Property to PROMISOR and comply with such other requirements as specified under clause 4.2.
 
2.4.3     If a Termination occurs after the initial payment is made in subclause 2.1.1 but prior to satisfaction in full by PROMISEE of the requirements of subclause 2.1.3(a), PROMISEE shall make the payment under subclause 2.1.2(a) to PROMISOR as liquidated damages as described in subclause 3.5.3 within five (5) days of the event referred to in subclause 2.4.1(a), (b) or (c), as applicable.
 
2.4.4     Upon a Termination, each Party shall be released from any and all obligations under this Agreement save for those that survive as described in clauses 2.4, 3.5, 4 and 6.
 
 
 

 
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2.5       Royalty.  PROMISEE hereby grants PROMISOR the Royalty which shall be paid in accordance with the provisions of Annex C.
 
2.5.1     The Parties agree that PROMISEE may acquire at any time from time to time from PROMISOR the Royalty for payment of the amount of two million US dollars (US$2,000,000.00), subject to payment of any amounts under the Royalty which have become due and payable and have not been paid to PROMISOR.
 
2.6       Assignment
 
2.6.1     Assignment During the Option Period.  During the Option Period and prior to exercise by PROMISEE of the Option, PROMISEE shall not, directly or indirectly, transfer, sell, dispose of or encumber its interest in and to the Mineral Rights, the Applications (or any mineral rights resulting therefrom), the Property or any of its rights under this Agreement (in this clause 2.6 defined as the “Interests”), save and except as follows:
 
(a)        if PROMISEE transfers the Interests to an Affiliate, provided that such Affiliate executes and delivers to the other parties an agreement to be bound by, and comply with, the terms of this Agreement; provided, however, if the transferee ceases to be an Affiliate it shall transfer the Interests back to PROMISEE;
 
(b)        if PROMISEE sells, transfers or assigns the Interests to an arm’s length third party at any time hereafter (a “Third Party Sale”), PROMISEE shall pay to PROMISOR (or as the Parties may otherwise agree) the aggregate of any amounts remaining unpaid under subclauses 2.1.2(a) and 2.1.2(b) (the “Buyout Payment”) at the same time as or prior to completion of the Third Party Sale, and the buyer of the Interests shall e xecute and deliver an agreement (the “Buyout Agreement”) to be bound by the terms hereof as if it was PROMISEE.  Upon delivery of the Buyout Payment and the executed Buyout Agreement to PROMISOR and subject to subclause 3.5.4, PROMISEE will automatically be released and discharged from its obligations and liabilities hereunder to the extent of such transfer or assignment, without the necessity of any further or other writing or documentation whatsoever; or
 
(c)        if PROMISEE intends to amalgamate, undertake a corporate reorganization or otherwise reorganize its assets for the purpose of creating a company to which PROMISEE’s assets are transferred and which remains as a wholly owned subsidiary of PROMISEE or whose shares are issued pursuant to an arrangement provided further that any company to which those assets are transferred executes and delivers to PROMISOR an agreement pursuant to which the transferee shall be bound by, and comply with, the terms of this Agreement.
 
2.6.2     Assignment after the Option is Exercised. If PROMISEE has exercised the Option by expiry of the Option Period, PROMISEE may transfer, sell, assign or otherwise dispose of all or any part of its Interests:
 
(a)        provided that the assignee will assume and agree to be bound by the terms of this Agreement; and
 
(b)        whereupon, subject to subclause 3.5.4, PROMISEE will automatically be released and discharged from its obligations and liabilities hereunder to the extent of such transfer or assignment, without the necessity of any further or other writing or documentation whatsoever.
 
 
 

 
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2.6.3     Power to Mortgage after the Option Period.  At any time after PROMISEE has exercised the Option, PROMISEE may grant mortgages, security interests, charges or liens (each of which is herein called a “mortgage”) of the Interests or any portion thereof, any mill or other fixed assets located thereon, and any or all of the tangible personal property located on or used in connection with the Interests to secure financing of development of the Interests, provided that, unless otherwise agreed to by PROMISOR, it shall be a term of each mortgage that the mortgagee or any Person acquiring title to the Interests upon enforcement of the mortgage shall hold the same subject to the Royalty and the Underlying Owner Royalty as if the mortgagee or any such person had executed this Agreement as PROMISEE.
 
2.6.4     Limitation on Transfer.  PROMISOR may sell, transfer, convey, assign, mortgage or grant an option in respect of or grant the right to purchase or in any manner whatsoever alienate any and all of its Interests including, subject to subclause 2.5.1, the Royalty upon notice to PROMISEE.
 
3.
REPRESENTATIONS, WARRANTIES AND OBLIGATIONS
 
3.1       Mutual Representations and Warranties. Each of the Parties hereby mutually represent and warrant to the others, as at the date of this Agreement and as at the Effective Date, as follows:
 
(a)        it is a company duly organized and validly existing under the laws of its jurisdiction of organization;
 
(b)        it has the power, capacity and authority to execute and perform this Agreement, as well as perform all acts required in order to execute and perform this Agreement;
 
(c)        no provision or objects of any other agreement to which it is a party prevents the execution and/or performance of this Agreement;
 
(d)        the execution of this Agreement shall not conflict with, result in a violation or constitute a breach of any law, governmental rule, regulation, judgment, decree or order to which such Party may be subject or to any provision concerning mortgage, lease, contract or other instrument to which it is a party; and
 
(e)        it has performed all acts necessary to authorize the execution of this Agreement, and it represents a valid and binding obligation of the Party, enforceable against it in accordance with its terms.
 
3.2       PROMISOR’S Representations and Warranties.  PROMISOR and TALON jointly and severally represent and warrant to PROMISEE, as at the date of this Agreement and as at the Effective Date as follows:
 
(a)        PROMISOR, directly or indirectly, is entitled to acquire up to a 100% interest in and to the Mineral Rights and the Applications and PROMISOR has not sold, assigned or transferred all or any portion of its right to acquire up to a 100% interest in and to the Applications and the Mineral Rights (other than to PROMISEE under this Agreement);
 
 
 

 
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(b)        each party to the Underlying Agreement has duly performed all of its obligations under the Underlying Agreement and PROMISOR has not received notice of any default under the Underlying Agreement nor does it know of any condition which would permit the Underlying Owner to give it notice of default;
 
(c)        the Underlying Agreement is the only agreement related to the Mineral Rights, and it has not been amended and remains in full force and effect;
 
(d)        except for the payments and the Underlying Owner Royalty contemplated in the Underlying Agreement, there are no Encumbrances registered or existing against or relating to the Mineral Rights, the Property or any part thereof;
 
(e)        there is no litigation or proceedings of any nature whatsoever concerning the Mineral Rights or the Property pending or threatened against PROMISOR of which PROMISOR has had notice and which may impair in any way rights relevant to the Underlying Agreement or this Agreement nor has PROMISOR made any agreements which are still in force and effect regarding the Mineral Rights;
 
(f)         to the best of PROMISOR’S knowledge the Mineral Rights and the Property have been duly and validly located and recorded in accordance with the applicable laws of the jurisdiction in which they are located, are valid and subsisting as of the date of execution and delivery of this Agreement and the Mineral Rights and the Property are accurately described in preamble A and Annex A, respectively;
 
(g)        the Mineral Rights are in full force and effect and good standing pursuant to the laws of the jurisdiction in which they are located and to the best of PROMISOR’S knowledge, after due inquiry, none of the Mineral Rights are, nor will they in the future, be liable to forfeiture due to any failure on the part of PROMISOR to comply with any provisions of such legislation up to the date of this Agreement and to the extent that expenditure obligations in respect of the Mineral Rights have not been met in full, PROMISOR has obtained all necessary waivers or extensions from the applicable governmental authority having jurisdiction and have been met and complied with;
 
(h)        except as otherwise described herein, there are no consents authorizations, licenses, permits, approvals or orders of any person or governmental authority required to permit PROMISOR to complete the transactions contemplated by this Agreement;
 
(i)         no notices have been issued in respect of the Mineral Rights which require PROMISOR or the Underlying Owner to undertake or desist from any action including but not limited to any requirement pursuant to an Environmental or Mining Law;
 
(j)         PROMISOR has obtained all necessary approvals from its shareholders or any other applicable party or parties to enable it to implement the provisions of, and enter into, this Agreement;
 
(k)        PROMISOR is not the subject of an Insolvency Event; and
 
(l)         PROMISOR has provided all factual information which is in its possession to it including maps, geological logs, analyses, data and other drill hole information which relate to the Mineral Rights and the Property which information, to the best of its knowledge and belief, is accurate.
 
 
 

 
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3.3       Underlying Agreement.  In addition to the representations and warranties set out above regarding the Underlying Agreement, PROMISOR covenants and agrees, which TALON agrees to procure:
 
(a)        to promptly provide PROMISEE with copies of any correspondence received by PROMISOR concerning the Underlying Agreement; and
 
(b)        not to amend or terminate the Underlying Agreement or grant any consents or waivers under the Underlying Agreement without the prior written consent of PROMISEE.
 
3.4       PROMISEE Covenants.  Until the occurrence of a Termination, PROMISEE hereby agrees to:
 
3.4.1     during the Option Period:
 
(a)        deliver to PROMISOR once every three (3) months after the Effective Date brief written updates of all activities relating to the Mineral Rights, especially with respect to any material changes that may affect the nature, timing or costs of PROMISEE’s proposed work programs or other projected activities related thereto, and shall no less than once during every year (as determined by PROMISEE) following the Effective Date provide detailed written reports describing all of PROMISEE’s acti vities on the Property in relation to the Mineral Rights, the level of current investment and status of current Expenditures, any changes proposed to such activities of any sort, and all results thereof, and shall include all relevant technical, geological, geographical and other information, data and analyses related thereto.  In addition to the detailed information concerning the works developed on the Property, such reports shall also include information regarding any other matters related to relevant social, environmental and safety measures undertaken (or required to be undertaken) by PROMISEE in relation to the Mineral Rights or the Property and shall set out any expected changes, whether positive or negative, in respect of any such requirements or planned undertakings; and
 
(b)        permit PROMISOR at its own risk to inspect all areas and works relating to the Mineral Rights and the Property at any time during regular business hours on seven (7) days’ advance written notice, provided that PROMISOR shall indemnify PROMISEE against and save it harmless from all costs, claims, liabilities and expenses that PROMISEE may incur or suffer as a result of any injury (including injury causing death) to any director, officer, employee, consultant, agent, representative or advisor of PROMISOR while on the Property, provided however that PROMISEE will not be indemnified nor held harmless for any costs, claims, liabilities or expenses resulting from PROMISEE’s gross negligence or willful misconduct; and
 
3.4.2     following the date hereof:
 
(a)        subject to 2.1.4 and the confidentiality provisions of this Agreement, give PROMISOR or a third party independent auditor appointed by the PROMISOR full access (upon prior delivery of written notice to PROMISEE) to audit any reports prepared by or on behalf of PROMISEE as well as all data, results and information upon which such reports are based, including any documents or other items containing data on which preparation of these reports was based; and
 
(b)        assume any and all obligations, responsibilities and liabilities related to the Mineral Rights or the Property, including any obligations owed under the Underlying Agreement, as previously disclosed in detail by PROMISOR to PROMISEE and which PROMISEE has agreed
 
 
 

 
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to assume in writing, or any agreements with public bodies which PROMISOR has previously disclosed in detail to PROMISEE prior to the execution of this Agreement and which PROMISEE has agreed to assume in writing prior to the execution of this Agreement.
 
3.5       Indemnification and Liquidated Damages
 
3.5.1     In the event of any material breach by a Party of any representation, warranty, covenant or agreement in this Agreement or otherwise assumed by a Party under this Agreement (the “Damages Event”), the Party in default (“Defaulting Party”) hereby undertakes to indemnify and save and hold harmless the non-defaulting Party (“Non-Defaulting Party”), its shareholders, officers, directors, employees and agents, from any and all claims, demands, costs, obligations, damages, liabilities, orders, fees, fines, penalties, imposts, taxes, duties, legal and other expenses, in connection with or relating to or arising from the Damages Event.  Defaulting Party agrees to and shall hereafter pay the full amount of any negative variations, losses, damages or pecuniary obligations of any kind (but excluding indirect or consequential damages) and any interest, fines, court costs, attorneys’ fees and other related expenses (collectively called “Damages”) resulting, directly or indirectly, from the Damages Event.  This provision shall survive indefinitely.  In the event of any default hereunder by PROMISOR, TALON shall be treated as a Defaulting Party and shall be jointly and severally liable with PROMISOR to provide the indemnity to the Non-Defaulting Party under this clause 3.5.1 and, in the event of any default hereunder by PROMISEE, PARENT shall be treated as a Defaulting Party and shall be jointly and severally liable with PROMISEE to provide the indemnity to the Non-Defaulting Party under this clause 3.5.1.
 
3.5.2    PROMISEE and PARENT further jointly and severally agree to indemnify and save and hold harmless PROMISOR and TALON, and their respective shareholders, subsidiaries, affiliates, officers, directors, employees, consultants, agents, representatives or advisors, from any and all claims, demands, costs, obligations, damages, liabilities, orders, fees, fines, penalties, imposts, taxes, duties, legal and other expenses, in connection with or relating to or arising from any activities or works carried out by or on behalf of or for the benefit of PROMISEE, its shareholders, subsidiaries, affiliates, officers, directors, employees, consultants, agents, representatives or advisors, relating to, in connection with or arising from the Mineral Rights (or any mineral rights resulting from the Applications) or the Property, including with respect to any contracts, agreements or understandings entered into by or on behalf of PROMISEE or the acts or omissions of PROMISEE.  PROMISEE and PARENT jointly and severally agree to and shall hereafter pay the full amount of any claims, orders, negative variations, losses, damages, liabilities, or pecuniary obligations of any kind (but excluding indirect or consequential damages) and any interest, fines, court costs, at torneys’ fees and other related expenses, directly or indirectly resulting therefrom; provided that neither PROMISEE nor PARENT shall incur any liability or obligation hereunder to PROMISOR or TALON after expiry of the Option Period or a Termination in respect of claims arising or damages suffered by PROMISOR or TALON solely as a result of PROMISOR’s or TALON’s gross negligence or willful misconduct.  This provision shall survive indefinitely.
 
3.5.3     If PROMISEE does not comply with the requirements of subclause 2.1.3 (a) in full by the time required (the “Investment Default”), PROMISEE shall be required to pay to PROMISOR the amount set out in subclause 2.1.2(a), being one hundred thirty thousand US Dollars (US$130,000.00), as liquidated damages (the “Damages Amount”), and the Parties acknowledge that the Damages Amount (or the maximum amount permitted by law, if recovery of the entire Damages Amount is prohibited) is a genuine pre-estimate of the damages suffered by PROMISOR for the Investment Default, and not as a penalty. Payment of such amount to
 
 
 

 
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PROMISOR by PROMISEE shall constitute full satisfaction of all damages, losses, costs and expenses incurred by PROMISOR in respect of the Investment Default and PROMISOR shall have no other remedy or claim against PROMISEE as a result of, arising from or in connection with the Investment Default.  PROMISEE agrees to pay all reasonable legal fees and all costs and expenses, if any, incurred by PROMISOR in enforcing its claim for the Damages Amount hereunder.  The remedies herein provided shall be cumulative and in addition to all other remedies under applicable law.  No remedy for the enforcement of the rights of PROMISOR under this subclause 3.5.3 shall be exclusive of or dependent on any other such remedy.
 
3.5.4     Notwithstanding any conveyance, transfer or assignment of their respective rights hereunder, PROMISEE and PARENT jointly and severally agree to indemnify and save and hold harmless PROMISOR, and each of their respective shareholders, subsidiaries, affiliates, officers, directors, employees, consultants, agents, representatives or advisors, from any and all claims, demands, costs, obligations, damages, liabilities, orders, fees, fines, penalties, imposts, taxes, duties, legal and other expenses, in connection with or relating to or arising from any breach, default or non-pe rformance by PROMISEE, PARENT or any transferee or assignee of their respective rights hereunder of any obligations owed to the Underlying Owner or any other party pursuant to the Underlying Agreement. PROMISEE and PARENT jointly and severally agree to and shall hereafter pay the full amount of any claims, orders, negative variations, losses, damages, liabilities, or pecuniary obligations of any kind (whether direct, indirect or consequential damages) and any interest, fines, court costs, attorneys’ fees and other related expenses, directly or indirectly resulting therefrom.  This provision shall survive indefinitely.
 
3.6       Effective Term of Warranties.  Except as may otherwise be provided herein, the representations and warranties of the Parties hereunder shall survive the execution of this Agreement for two (2) years.
 
4.
TRANSFER OF MINERAL RIGHTS
 
4.1       Transfer Instrument.  Transfer of the Mineral Rights and filing of the official document requesting to register such instrument shall be effected in accordance with the Transfer Instrument.  PROMISOR hereby agrees to use all commercially reasonable efforts to take such steps and meet such requirements necessary to transfer the Mineral Rights including any registrations with the DNPM, and PROMISOR shall provide all information and prepare and present all other documents as required.  Upon completio n of such transfer, PROMISOR shall promptly deliver to PROMISEE all original documents relating to the Mineral Rights in its possession.
 
4.2       Return of Mineral Rights upon Termination.  In the event of a Termination, PROMISEE shall be required to promptly re-convey, transfer, assign and return its entire right, title and interest in and to the Mineral Rights to PROMISOR and any and all original documents it has been provided relating thereto in accordance with the Transfer Instrument within fifteen (15) days following any Termination.  PROMISEE shall vacate and clear and remove any and all personnel, equipment and materials from the Property and leave the Property in a safe and orderly condition and in accordance with Environmental or Mining Laws and all applicable pollution control and reclamation laws, regulations and permits within ninety (90) days following any Termination.  PROMISEE shall execute and deliver all such other agreements, instruments and documents necessary or desirable as reasonably requested by PROMISOR to give full effect to this clause 4.2.
 
 
 

 
14
 
5.
OPTION ONLY
 
Except with respect to the requirements pursuant to subclauses 2.1.3(a) and clauses 3.5 and 4, the Option is an option only and nothing herein contained shall be construed as obligating PROMISEE to do any acts or make any payments hereunder, and any acts or payments as shall be made hereunder shall not be construed as obligating PROMISEE to do any further acts or make any further payment.  If this Agreement is terminated following the date hereof in accordance with the terms hereof, PROMISEE shall not be bound thereafter in debt, damages or otherwise under this Agreement, save and except as provided for in clauses 3.5 and 4 hereof, and w ith respect to obligations arising from termination; and all payments theretofore paid by PROMISEE shall be retained by PROMISOR in consideration for entering into this Agreement and for the rights conferred on PROMISEE thereby.
 
6.
CONFIDENTIALITY
 
6.1       Confidential Information.  During the term hereof, all data, financial books, records, information, reports, feasibility studies and tests concerning the Mineral Rights, as well as the terms of this Agreement, (collectively, the “Confidential Information”) shall be deemed as confidential and shall be the exclusive property of PROMISEE and when delivered by PROMISEE to PROMISOR, or otherwise obta ined by PROMISOR, shall not be publicly disclosed or used by PROMISOR other than for the activities contemplated hereunder, as required by law or by the rules and regulations of any regulatory authority, or with the written consent of PROMISEE.
 
6.2       Consent to Disclosure.  Consent to disclosure will not be unreasonably withheld where PROMISOR wishes to disclose the Confidential Information to its auditors, lawyers, or agents, provided that such people are informed of such information’s confidential nature and agree to be bound by the obligations not to disclose contained herein and provided such parties agree to be liable to PROMISEE for negligent or fraudulent disclosure.
 
6.3       Part of Public Domain.  Any Confidential Information that becomes of public domain through an act or omission that is not in violation of the terms hereof, shall no longer be deemed as Confidential Information.
 
6.4       Press Releases.  Each Party will consult with the other prior to issuing any press release or other public statement regarding the Property or the activities of PROMISEE with respect thereto.  In addition, each Party will obtain prior approval from the other before issuing any press release or public statement using such Party’s name or the names of any of such Party’s assignees or of any of the officers, directors, employees or consultants of such Party or of its assignees.
 
7.
TEMPORARY AND PERMANENT CESSATION OF OPERATIONS
 
7.1       Temporary Cessation of Operations.  After the commencement of Commercial Production from the Mineral Rights and the Property, PROMISEE may work, mine and operate the Mineral Rights and the Property during such time or times as PROMISEE in its sole judgment considers such operations to be profitable.  PROMISEE may suspend or curtail operations (both before and after commencement of Commercial Production) during periods when the products derived from the Property cannot be profitably sold at prevailing prices or if an unreasonable inventory thereof, in PROMISEE’s sole judgment, has accumulated or would otherwise accumulate.
 
 
 

 
15
 
7.2       Permanent Cessation of Operations.  PROMISEE may permanently discontinue mining operations on the Mineral Rights and the Property at any time after the commencement of Commercial Production when in its sole opinion no further mining operations can be economically carried out thereon.  At such time PROMISEE shall sell or otherwise dispose of all mining plant and equipment used on the Mineral Rights and the Property, effect all reclamation work as required by law, and sell or otherwise dispose of the Mineral Rights and the Property as it thinks fit.  Any purchaser of the Mineral Rights and the Property after the permanent termination of mining operations shall take the Mineral Rights and the Property subject to the rights and obligations relating to the Royalty and the Underlying Owner Royalty set out herein.
 
8.
APPLICABLE LAW AND JURISDICTION
 
8.1       Governing Law. This Agreement shall be construed and governed according to the Laws of the Federative Republic of Brazil.
 
8.2       Arbitration.  It is hereby agreed upon by the Parties that any dispute or claim arising from or concerning this Agreement shall be settled by arbitration, according to the rules of the Business Arbitration Chamber - Brazil (CAMARB), by three arbiters appointed according to such rules.  The arbitration place shall be the City of Rio de Janeiro, State of Rio de Janeiro.  The award shall be final and binding to the Parties hereto, and it may be enforced in any court of competent jurisdiction.  The Parties hereby waive any other right to appeal; to the extent such right may be legally waived.
 
8.3       Remedies.  Notwithstanding the provisions above, each Party remains entitled to resort to legal measures:  (a) to compel the arbitration; (b) to obtain preliminary injunctions for protection of rights prior to the inception or during the arbitration proceeding, and such measure shall not be construed as a waiver of the arbitration proceeding by the Parties; and (c) to enforce any arbitration decision, including the final court’s decision.
 
8.4       Venue.  For the purposes of disputes unwilling to be settled through arbitration it is hereby elected the jurisdiction of the City of Rio de Janeiro.
 
8.5       Judgment Debt. The Parties represent and warrant that they will treat this Agreement and its annexes as a judgment debt and a determinate obligation under the provisions set forth in item II of article 585 and article 621 of the Code of Civil Procedure, with the wording provided by Law no. 8.953/94.
 
9.
FORCE MAJEURE
 
9.1       Occurrence.  If a Party is prevented or delayed in complying with any provisions of this Agreement by reason of strikes, lockouts, labour shortages, power shortages, fires, wars, acts of God, governmental regulations restricting normal operations or any other reason or reasons beyond the control of such Party (the “Affected Party”), the time limited for the performance of the various provisions of this Agreement as set out above shall be extended by a period of time equal in length to the period of such prevention and delay.  The Affected Party shall promptly give written notice to the other Party of the existence of and details relating to any prevention or delay occurring under this clause, and shall take all reasonable steps to remove the cause of such prevention or delay and shall give written notice to the other Party as soon as such cause ceases to subsist.  Notwithstanding the foregoing, no extension of the time shall be granted
 
 
 

 
16
 
under this clause due to PROMISEE’s inability to obtain funds required for making any payment to PROMISOR hereunder.
 
9.2       Termination.  If a delay under this clause continues uninterrupted for a period of six (6) months or more, the party other than the Affected Party may serve written notice on the Affected Party and the other Parties in order to terminate this Agreement in accordance with subclause 2.4.1(c).
 
10.
ABANDONMENT
 
10.1      Election to Abandon.  PROMISEE may at any time either before or after the exercise of the Option, elect to abandon any one or more of the Mineral Rights by giving notice to PROMISOR of such intention.  For a period of 30 days after the date of delivery of such notice, PROMISOR may elect to have any or all of the Mineral Rights in respect of which such notice has been given transferred to it by delivery of a request therefor to PROMISEE and payment of US$1.00, whereupon PROMISEE shall deliver to PROMISOR a bill of sale or other appropriate deed or assurance in registrable form transferring such Mineral Rights to PROMISOR and the provisions of clause 4.2 shall apply with respect thereto, mutatis mutandis.  If PROMISOR fails to make a request for the transfer of any Mineral Rights as aforesaid within such 30 day period, PROMISEE may then abandon such Mineral Rights without further notice to PROMISOR.  Upon any such transfer or abandonment, the Mineral Rights so transferred or abandoned sh all for all purposes of this Agreement cease to form part of the Mineral Rights.
 
11.
DEFAULT
 
11.1      Ability to Cure Certain Defaults.  Notwithstanding anything in this Agreement to the contrary, if PROMISEE should be in default in performing any requirement herein set forth (except for the requirement to make the option payments or work commitments or other payments set out in subclauses 2.1.1, 2.1.2 or 2.1.3 by the time required), PROMISOR shall give written notice to PROMISEE specifying the default and PROMISE E shall not lose any rights granted under this Agreement unless, within thirty (30) days after the giving of a notice of default by PROMISOR, PROMISEE has failed to cure the default by the appropriate payment or performance, (PROMISEE hereby agreeing that should it so commence to cure any defect, it will prosecute the same to completion without undue delay); and if PROMISEE fails to cure any such default, PROMISOR shall be entitled thereafter to terminate this Agreement and the provisions of subclause 3.5.1 shall then be applicable, and to seek any remedy it may have on account of such default.
 
12.
MISCELLANEOUS
 
12.1      Communications.  Any notice or other communication under or in connection with this Agreement shall be in writing and shall be delivered personally or sent by air mail, courier, by fax or by email, to the Party due to receive the notice or communication at the following address, or at such other address as such Party may specify by notice in writing to the other Party from time to time:
 
 
 
 
 

 
17
 
PROMISOR:
 
BRAZMIN LTDA.
Avenida Jornalista Ricardo Marinho, 360, sala 112
Barra da Tijuca, Rio de Janeiro, RJ
CEP:  22631-350
c/o Luis Mauricio Ferraiuoli de Azevedo
FAX:  55 21 3418.4579
Email:  lazevedo@ffalegal.com.br
 
With Copy to:
TAU CAPITAL CORP.
110 Sheppard Avenue East, Suite 610
Toronto, Ontario, Canada
M2N 6Y8
Attention:  Sean Werger
FAX:  416 361 0330
Email:  swerger@taucapital.com
 
TALON:
 
TALON METALS CORP.
Craigmuir Chambers, P.O. Box 71,
Road Town, Tortola, British Virgin Islands
Attention:  Stuart Comline
FAX:  416 361 0330
Email:  comline@icon.co.za
 
PROMISEE:
 
BRAZAURO RECURSOS MINERAIS LTDA.
Avenida Gov. José Malcher, 815 – Salas 413/414
Bairro Nazaré - Belém – PA
CEP 66.055.901
c/o Elton Luiz da Silva Pereira
Fax 55 91 3212.7345
E-mail:  elspereira@terra.com.br
 
With Copy to:
BRAZAURO RESOURCES CORPORATION
Suite 217, 16360 Park Ten Place
Houston, Texas, 77084
Attention:  Jim Komadina, President and Chief Operating Officer
FAX:  281-579-9799
Email:  jkom77@aol.com
 
12.2      In the absence of evidence of earlier receipt, any notice or other communications shall be deemed to have been duly given:
 
12.2.1   if delivered personally, when left at the address referred to in clause 12.2;
 
 
 

 
18
 
12.2.2   if sent by courier when a delivery receipt is recorded by the courier company;
 
12.2.3   if sent by air mail, six (6) days after posting it; and
 
12.2.4   if sent by fax or email, on the date of transmission, provided that if such transmission has been made after business hours (at recipient’s address) it shall be considered to have been received the next Business Day.
 
12.3     Entire agreement.  This Agreement and its annexes represent and comprise all understandings and commitments assumed by the Parties, superseding and prevailing to any and all previous, verbal or written, understandings, negotiations and agreements, with respect to the matters regulated herein.
 
12.4     Payment
 
12.4.1   All payments hereunder shall be made by PROMISEE by wire transfer to a bank account whose details are provided in writing by PROMISOR, to PROMISEE, whether in Brazil (by adopting the dollar closing rate, according to the sale PTAX disclosed by the Brazilian Central Bank, on the day before the maturity date) or in a foreign jurisdiction.  The documents issued by the financial institution evidencing the wire transfer being made to the account designated by PROMISOR shall be evidence of the payment being initiated, subjec t to eventual receipt by PROMISOR.
 
12.4.2   The payments of the obligations set forth in this Agreement shall be deemed as valid and effective if they are made to PROMISOR, by PROMISEE or by any company affiliated to or controlled by PROMISEE.
 
12.5     Successors.  This Agreement and its annexes shall ensure to the benefit of the Parties and their respective successors and permitted assignees.
 
12.6     Amendments. This Agreement and its annexes shall not be amended, whether in the whole or in part, unless by the Parties as recorded in a written document.
 
12.7     Performance of obligations.  Each Party hereto agrees to use all reasonable commercial efforts to perform its obligations hereunder.
 
12.8     Specific performance. Considering the nature of this Agreement, the Parties hereto acknowledge that, in the event of default with respect to any of the obligations herein stipulated, any indemnification for losses and damages may not be a sufficient remedy and thus, without prejudice to any indemnification provisions or other remedies provided for herein, any obligation to do or enter into a juristic act established in this instrument that is not complied with by a Party shall be subject to specific performance, by means of an order to perform the activity or replacement of the juristic act that has not been executed contrary to the provisions est ablished herein.
 
12.9     Independent Legal Advice.  Each Party acknowledges and agrees that it has had a reasonable opportunity to obtain or has obtained independent legal advice with respect to this Agreement, that it has read and fully understands the provisions of this Agreement, that the terms and conditions of this Agreement are reasonable, and that it is signing this Agreement freely, voluntarily and without duress.
 
 
 

 
19
 
12.10    Regulatory Approval.  If required:
 
(a)        this Agreement shall be subject to acceptance for filing by the TSX Venture Exchange;
 
(b)        PROMISEE covenants and agrees to file for acceptance of the TSX Venture Exchange within five (5) Business Days of execution of this Agreement; and
 
(c)        PROMISEE will use its reasonable commercial efforts to obtain any such acceptance for filing.
 
If any such required acceptance for filing has not been obtained on or before thirty (30) days from the date hereof, PROMISEE may, at its discretion, terminate this Agreement and PROMISEE will be released and discharged from all of its obligations and liabilities under this Agreement.
 
[signature page follows]
 
 
 
 
 
 
 
 
 

 
20
 
IN WITNESS WHEREOF the parties hereto execute this instrument as a free expression of their will, in four (4) counterparts with equal content and form before the undersigned witnesses.
 
Rio de Janeiro, December 10, 2009
 
 
  BRAZMIN LTDA.  
         
  Per:     
    Name:     
    Title:    
    ID:    
    Individual Taxpayer Registry (CPF):   
 
 
 
TALON METALS CORP.
 
         
  Per:     
    Name:     
    Title:    
    ID:    
    Individual Taxpayer Registry (CPF):   
 
 
  BRAZAURO RECURSOS MINERAIS LTDA.  
         
  Per:     
    Name:     
    Title:    
    ID:    
    Individual Taxpayer Registry (CPF):   
 
 
  BRAZAURO RESOURCES CORP.  
         
  Per:     
    Name:     
    Title:    
    ID:    
    Individual Taxpayer Registry (CPF):   
 
 
 
 
 
 


EX-4.29 6 ss95636_ex0429.htm AGUA BRANCA ROYALTY AGREEMENT
 
EXHIBIT 4.29
 
NSR ROYALTY AGREEMENT
 
THIS NSR ROYALTY AGREEMENT is hereby entered into as of December 10, 2009 between the following parties (each, a “Party” and, collectively, the “Parties”):
 
On one side (as the “Recipient”):
 
BRAZMIN LTDA., a limited liability company, with registered office at Avenida Jornalista Ricardo Marinho, 360, sala 11, Barra da Tijuca, Rio de Janeiro, RJ, ZIP CODE (CEP): 22631-350, registered with the National Registry of Legal Entities (CNPJ) under no. 04.566.109/0001-41, herein represented by its manager Luis Mauricio Ferraiuoli de Azevedo, Brazilian, single, registered with the Brazilian Bar Association/Rio de Janeiro Chapter (OAB/RJ) under no. 80.412, and with the Brazilian Registry for Individual Taxpayers/Ministry of Finance (CPF/MF) under no. 753.468.697-00;
 
and, on the other side (as the “Owner”):
 
BRAZAURO RECURSOS MINERAIS LTDA., a limited liability company, with registered office at Avenida Gov. José Malcher, 815 - Sala 413/414, Bairro Nazaré, Belém, PA, CEP 66.055.901, registered with the National Registry of Legal Entities (CNPJ) under no. 05.943.917/0001-43 represented by its General Director, Elton Luiz da Silva Pereira, Brazilian, geologist, single, registered with the Regional Counsel of Engineers chapter Rio Grande do Sul (CREA-RS) under no. 62.145, and with the Brazilian Registry for Individual Taxpayers/Ministry of Finance (CPF/MF) under no. 408.000.590-34.
 
ARTICLE 1
INTERPRETATION
 
1.1       Defined Terms.  Unless the context otherwise requires, the following words and terms set forth in this Article 1 shall have the meanings respectively assigned to them.  The meanings of certain words and expressions used herein which are defined in the Option Agreement are incorporated by reference and have the same meaning herein.
 
 
(a)
Commercial Production” means the commercial exploitation of Product from the Properties, or any part, as a mine, but does not include milling for the purpose of testing or milling by a pilot plant.  Commercial Production shall be deemed to have commenced:
 
 
(i)
if a plant is located on the Properties, on the first day following the first period of 30 consecutive days during which Product has been produced from the Properties, or
 
 
(ii)
if no plant is located on the Properties, on the first day of the month following the first period of 30 consecutive days during which Product has been shipped from the Properties on a reasonably regular basis for the purpose of earning revenue.
 
 
 

 
- 2 -
 
 
(b)
Facilities” means all mines, plants and facilities including, without limitation, all pits, shafts, haulageways, and other underground workings, and all buildings, plants, facilities and other structures, fixtures and improvements, and all other property, whether fixed or moveable, as the same may exist at any time in, or on the Properties and relating to the operation of the Properties as a mine or outside the Properties if for the exclusive benefit of the Properties only.
 
 
(c)
Net Smelter Returns” or “NSR” means:
 
 
(i)
For gold: any and all amounts received by the Owner (as defined below) as sale or other proceeds for any and all gold recovered, extracted, produced and marketed from the Properties (and for the avoidance of doubt the Parties hereby acknowledge and confirm that the Recipient will be entitled to receive two percent (2.0%) of such Net Smelter Returns), after deducting therefrom all taxes (excluding income taxes), arm’s length transport expenses (from the mine to any Processor), arm’s length refinery costs and insurance related to the gold’s sale. With respect to any gold produced from the Properties, the actual amount of payment received by the Owner from a Processor shall be deemed to be an amount equal to the product of (x) the relevant number of ounces received by the Owner from producing operations and (y) the gold pri ce per ounce as quoted by the London Bullion Brokers’ P.M. Gold fixing (or equivalent quotation), on the date the relevant Processor credits the Owner’s account with respect to any processed gold.
 
 
(ii)
For any Product other than gold: any and all amounts received by the Owner as sale or other proceeds for any and all Product recovered, extracted, produced and marketed from the Properties (and for the avoidance of doubt the Parties hereby acknowledge and confirm that the Recipient will be entitled to receive two percent (2.0%) of such Net Smelter Returns), after deducting therefrom:
 
 
(A)
for any Product treated by an arm’s-length Processor, all reasonable expenses directly relating to such processing, including all costs, charges and expenses for the treatment, tolling, smelting or milling of such Product and all reasonable costs associated therewith (e.g., shipping, handling, weighing, insurance, sampling, assaying, storage, government royalties, production taxes, severance taxes, import or export taxes, sales taxes, or other taxes levied (other than income taxes) on such Product or on the value of such Product), but excluding any capital costs incurred in the mining of such Product; or
 
 
(B)
for any Product treated by a Processor owned, operated or controlled by the Owner, all reasonable costs, charges, and expenses directly relating thereto, excluding any capital costs
 
 
 

 
- 3 -
 
 
 
incurred in the mining of such Product but including the expenses in paragraph (A).
 
For the purposes of paragraph (B) above, such charges, costs and expenses shall not exceed the prevailing rates charged by a similar Processor in an arm’s-length transaction for the treatment of a like quantity and quality of Product.  For greater certainty, the net smelter returns realized, after deducting the expenses in the case paragraph (B) applies, shall be deemed to be equal to the fair market value of such Product F.O.B. the mine head or concentrator, as the case may be, which shall be determined using the prices and terms quoted by Processors dealing at arm’s-length with the Owner after making due allowances for the cost of delivering such Product from the mine head or concentrator, as the case may be, to such Processor.
 
With respect to any Product (other than gold) recovered, extracted or produced from the Properties, the sale or other proceeds received by the Owner shall be deemed to be an amount equal to the product of (x) the relevant weight of such Product delivered by the Owner to the Processor and (y) the relevant London Metal Exchange closing spot quotation (or other equivalent or generally accepted quotation) for such Product on the date prior to the date of delivery of such Product to the Processor.
 
 
(d)
Option Agreement” means the mineral rights purchase option agreement and other pacts dated December 10, 2009 among the Recipient and the Owner, among others.
 
 
(e)
Owner” means Brazauro Recursos Minerais Ltda. and any assignees thereof.
 
 
(f)
Processor” means a smelter, refinery, mill or mint or any purchaser or user other than the Owner.
 
 
(g)
Product” means any and all ores, concentrates or mineral products mined, extracted, recovered or produced from the Properties.
 
 
(h)
Properties” means the areas covered by the Mineral Rights and any other areas that the Owner may acquire from time to time and which would form part of the Mineral Rights under the Option Agreement.
 
 
(i)
Recipient” means Brazmin Ltda. and any assignees thereof.
 
1.2       General.
 
 
(a)
English Language Paramount.  This Agreement shall be executed in English and, in case it is necessary to file it with a court of law, it will be translated by a sworn translator into Portuguese.  The Parties acknowledge that the official version of this Agreement is that in the English language, and shall govern any
 
 
 

 
- 4 -
 
 
 
non-English translation of this Agreement, including without limitation any arbitration procedures initiated hereunder.
 
 
(b)
Communications.  Any notice or other communication provided hereunder shall be in writing and delivered personally or sent by air mail, courier, fax or email to the Party due to receive such notice or communication at the following address, or at such other address as such Party may specify by notice in writing to the other Party from time to time:
 
 
(i)
The Recipient:
 
Brazmin Ltda.
Avenida Jornalista Ricardo Marinho, 360, sala 112
Barra da Tijuca, Rio de Janeiro, RJ
CEP: 22631-350
c/o Luis Mauricio Ferraiuoli de Azevedo
Fax:  +55-21-3418-4579
Email: lazevedo@ffalegal.com.br
 
With a copy to:
 
Tau Capital Corp.
110 Sheppard Avenue East, Suite 610
Toronto, Ontario, Canada
M2N 6Y8
Attention: Sean Werger
Fax: +1-416-361-0330
Email: swerger@taucapital.com
 
 
(ii)
The Owner:
 
Brazauro Recursos Minerais Ltda.
Avenida Gov. José Malcher, 815 – Salas 413/414
Bairro Nazaré - Belém – PA
CEP 66.055.901
c/o Elton Luiz da Silva Pereira
Fax: +55-91-3-212-7345
E-mail: elspereira@terra.com.br
 
With a copy to:
 
Brazauro Resources Corporation
Suite 217, 16360 Park Ten Place
Houston, Texas, 77084
Attention: Jim Komadina, President and Chief Operating Officer
Fax: +1-281-579-9799
Email: jkom77@aol.com
 
 
 

 
- 5 -
 
In the absence of evidence of earlier receipt, any notice or other communication shall be deemed to have been duly given:
 
 
(A)
if delivered personally, when left at the address referred to in this clause 1.2(b);
 
 
(B)
if sent by courier, when a delivery receipt is recorded by the courier company;
 
 
(C)
if sent by air mail, six (6) days after posting it; or
 
 
(D)
if sent by fax or email, on the date of transmission, provided that if such transmission has been made after business hours (at the Recipient’s address), it shall be considered to have been received on the next Business Day.
 
 
(c)
Entire agreement.  This Agreement represents and comprises all understandings and commitments assumed by the Parties, superseding and prevailing to any and all previous, verbal or written, understandings, negotiations and agreements, with respect to the matters regulated herein.
 
 
(d)
Payment.  All payments hereunder shall be made by the Owner to the Recipient by wire transfer of immediately available U.S. funds to a bank account (whose details are provided in writing by the Recipient to the Owner) whether in Brazil (by reference to the US Dollar – Real exchange rate, as disclosed by the Brazilian Central Bank, at the close of business on the day before any payment is due) or in a foreign jurisdiction.  The documents issued by the financial institution evidencing the wire transfer being made to the account designated by the Recipient shall be evidence of the payment being initiated, subject to eventual receipt by the Recipient.  Payment of any amounts required pursuant to this Agreement shall be valid and effective if they are made to the Recipient in accordance herewith by the Owner or any other perso n on behalf of the Owner.
 
 
(e)
Successors.  This Agreement shall enure to the benefit of the Parties and their respective successors and permitted assignees.
 
 
(f)
Amendments.  This Agreement may not be amended unless agreed to by the Parties in writing.
 
 
(g)
Performance of Obligations.  Each Party agrees to use all reasonable commercial efforts to perform its obligations hereunder.
 
 
(h)
Governing Law.  This Agreement shall be construed and governed according to the Laws of the Federative Republic of Brazil.
 
 
(i)
Arbitration.  It is hereby agreed upon by the Parties that any dispute or claim arising from or concerning this Agreement shall be settled by arbitration,
 
 
 

 
- 6 -
 
 
 
according to the rules of the Business Arbitration Chamber - Brazil (CAMARB), by three arbiters appointed according to such rules.  The arbitration place shall be the City of Rio de Janeiro, State of Rio de Janeiro.  The award shall be final and binding to the Parties hereto, and it may be enforced in any court of competent jurisdiction.  The Parties hereby waive any other right to appeal, to the extent such right may be legally waived.
 
 
(j)
Other Legal Actions.  Notwithstanding the provisions above, each Party remains entitled to resort to legal measures: (a) to compel the arbitration; (b) to obtain preliminary injunctions for protection of rights prior to the inception or during the arbitration proceeding, and such measure shall not be construed as a waiver of the arbitration proceeding by the Parties; and (c) to enforce any arbitration decision, including the final court’s decision.
 
 
(k)
Jurisdiction.  For the purposes of disputes unwilling to be settled through arbitration it is hereby elected the jurisdiction of the City of Rio de Janeiro, with the express waiver of any other, the most privileged it is or may be.
 
 
(l)
Judgment Debt.  The Parties covenant and agree that they will treat this Agreement as a judgment debt and a determinate obligation in accordance with the provisions set forth in item II of article 585 and article 621 of the Code of Civil Procedure, with the wording provided by Law no. 8.953/94.
 
 
(m)
Independent Legal Advice.  Each Party acknowledges and agrees that it has had a reasonable opportunity to obtain or has obtained independent legal advice with respect to this Agreement, that it has read and fully understands the provisions of this Agreement, that the terms and conditions of this Agreement are reasonable, and that it is signing this Agreement freely, voluntarily and without duress.
 
ARTICLE 2
GRANT OF ROYALTY
 
2.1       Grant of Royalty.  Subject to the terms set forth herein, and in connection with Clause of the Option Agreement, the Owner hereby grants and agrees to pay to the Recipient a royalty equal to two percent (2.0%) of the Net Smelter Returns in the event that the Owner (or its assignee or successor) brings the Properties or any portion thereof into Commercial Production (the “NSR Royalty”).
 
2.2       Assignment of Royalty.  The Recipient may assign its rights and interest hereunder to any party if it provides written notice thereof to the Owner.  The Owner hereby covenants and agrees that the obligations of the Owner to grant and make all payments pursuant to the NSR Royalty provided for hereunder may only be assigned as part of, and must always be assigned as part of, any sale, transfer, assignment or other disposition by the Owner (directly or indirectly) of the Mineral Rights (collectively, a “Sale”), including by lease or other similar transaction, to any other party (including any affiliate) and that the Owner shall ensure that such other party becomes bound to perform the obligations set out hereunder as if such party were the original obligor under this Agreement as a condition precedent to the completion of such Sale.
 
 
 

 
- 7 -
 
2.3       Acquisition of NSR Royalty.  The Parties agree that the Owner may acquire from the Recipient, at any time, all of the Recipient’s right, title and interest in and to the NSR Royalty herenuder upon payment to the Recipient of the amount of two million US dollars (US$2,000,000.00), subject to payment by the Owner to the Recipient of any other amounts which have become due and payable hereunder and which have not been paid to the Recipient.  Each of the Recipient and the Owner shall execute all such other agreements, instruments and documens necessary to reflect the acquisition by the Owner of the NSR Royalty from the Recipient in accordance with th is clause 2.3.
 
ARTICLE 3
RIGHTS AND OBLIGATIONS
 
3.1       Owner’s Rights and Obligations.  The Owner shall have the unfettered right to conduct mining operations on the Properties, at its sole and exclusive discretion, and the Owner shall have the right to commingle ores mined from any orebody located on the Properties, or concentrates derived therefrom with ores or concentrates produced from other lands, provided that the Owner shall:
 
 
(a)
adopt and employ best mining industry practices and procedures for weighing, determination of moisture content, sampling and assaying such ores or concentrates;
 
 
(b)
utilize best mining industry practices and/or procedures to collaborate recovery factors in order to determine the amount of economically recoverable minerals contained in such ores or concentrates; and
 
 
(c)
use the same practices and procedures, in respect of ores mined from any orebody located adjacent to the Properties with ores from the Properties which are commingled, or in respect of which a unitized mining operation is conducted by the Owner.
 
3.2       Recipient’s Access and Inspection Rights.  The Owner shall keep separate books and records consistent with good mining practice relating to its production on the Properties and, to the extent reasonably possible, the processing of such ores through a Processor, whether or not such Processor is owned by the Owner.  Upon providing five (5) days written notice to the Owner, the Recipient or its duly authorized representatives shall be granted access to such records relating to the determination of the NSR Royalty payable to the Recipient for the purpose of confirming any information contained in any statement delivered to the Recipient, provide d always that such access shall not interfere with the Owner’s operations production plan.  The Recipient shall have the right to make copies of or to take extracts from such records for its own use.
 
ARTICLE 4
ROYALTY PAYMENTS
 
4.1       NSR Calculation and Payment.  The NSR shall be calculated by the Owner at the end of the calendar quarter in which any Product is sold or otherwise disposed of (or deemed to be disposed of), and payments of the NSR Royalty shall be made within thirty (30) days after the
 
 
 

 
- 8 -
 
end of such calendar quarter.  Each NSR Royalty payment shall be accompanied by a statement containing comprehensive details concerning the basis on which the NSR for the immediately preceding quarter was calculated (the “Statement”).  The amount of any quarterly NSR Royalty payment may be estimated; provided that payment for the final quarter of the calendar year shall be reconciled to the annual production figures for Product exploited from the Properties, and the aggregate NSR Royalty payment for the calendar year shall be adjusted accordingly.  Subject to resolution of any objection to the Audited Statement (as defined below) in accordance with Section 4.2, such adjustment shall be made (i) by the Owner mak ing such further payment of any shortfall calculated as being owing to the Recipient within thirty (30) days following the date the Audited Statement is delivered to the Owner and the Recipient, or (ii) by the Owner setting-off the amount of any excess NSR Royalty actually paid to the Recipient against any subsequent scheduled quarterly NSR Royalty payment(s) following the date the Audited Statement is delivered to the Owner and the Recipient.
 
4.2       NSR Statement.  The Statement of the NSR Royalty for the calendar year shall be audited (the “Audited Statement”) at the expense of the Owner within ninety (90) days of the calendar year end by a firm of nationally recognized chartered accountants, which may be a firm used otherwise by the Owner.  The Recipient shall have ninety (90) days after the receipt of the Audited Statement to object thereto, and failing such objection the Audited Statement shall be final and binding.  In the event any objection so raised by the Recipient cannot be amicably resolved with in sixty (60) days, the Recipient shall have the right to conduct, at its expense, an independent audit by another firm of chartered accountants, and if any objection remains after such audit has been conducted, the matter in dispute shall be submitted to arbitration as provided in the Option Agreement.  Any shortfall in payment of the NSR Royalty required to be made to the Recipient shall be made immediately by the Owner and any excess in payment of the NSR Royalty actually made to the Recipient shall be set off by the Owner against the amount of any subsequent quarterly payment(s) of the NSR Royalty to the Recipient.
 
4.3       Tax.  All payments made to the Recipient by the Owner pursuant to this Agreement are subject to all applicable taxes, which taxes, if required to be withheld or paid by the Owner on behalf of the Recipient, shall be deemed to be included in and considered part of any payment of the NSR Royalty payable hereunder to the Recipient.
 
ARTICLE 5
HEDGING TRANSACTIONS AND STOCK PILING
 
5.1       Hedging Transactions.  All profits and losses resulting from the Owner engaging in any commodity futures trading, option trading, metals trading or any combination thereof, and any other hedging transactions (collectively, “hedging transactions”) shall be specifically excluded from calculations of the Recipient’s NSR Royalty payments pursuant to this Agreement.  All hedging transactions by the Owner and all profits or losses associated therewith, if any, shall be strictly for the Owner’s account.  The Owner may enter into hedging transactions in respect of the Pro duct as long as at least two percent (2.0%) of all Product processed by it or delivered to any Processor is not subject to hedging transactions (which shall include without limitation as security for any hedging transaction) and shall be available to satisfy any NSR Royalty payment.  With respect to Product which is the subject of any hedging transactions arranged by the Owner, the NSR Royalty shall be determined without reference to such hedging transactions and shall be
 
 
 

 
- 9 -
 
determined as set out in clause 1.1(c).  If for any reason the London Metal Exchange closing spot quotation is no longer in operation or the spot price of a particular Product is not quoted on the London Metal Exchange closing spot quotation, the spot price of such Product shall be determined by reference to the price of such Product on another similar commercial exchange entity having the largest volume of trading in such Product on such day.
 
5.2       Stockpiling.  The Owner or any Processor shall be entitled to stockpile, store or place Products or ores in any location owned by the Owner or the Processor; provided it is properly secured in accordance with good industry practice.
 
ARTICLE 6
CONDUCT OF OPERATIONS
 
6.1       Decisions.  All decisions concerning methods, the extent, times, procedures and techniques of any exploration, development, mining, leaching, milling, minting, processing, extraction, treatment, if any, and the materials to be introduced into the portion of the Properties from which the Product is mined, recovered, extracted or produced, and all decisions concerning the sale or other disposition of any Product and/or ore (including, without limitation, decisions as to buyers, times of sale, or whether to store or stockpile Products for a reasonable length of time without selling the same) shall be made by the Owner, acting reasonably and in accordance with good mining and engineering practices in the circumstances; the Owner shall notify the Recipient as soon as possible of any material change proposed in respect of the foregoing.  The Owner shall not be responsible for nor obliged to make any NSR Royalty payments for any Product values lost during extraction, recovery, mining or processing of the ores and/or Product.  The Owner shall not be required to mine or to preserve or protect the Products which under customary mining practices cannot be mined, processed or shipped at a reasonable profit by the Owner at the time mined.
 
[Execution page follows]
 
 
 
 
 

 
10
 
IN WITNESS WHEREOF the Parties execute this instrument as a free expression of their will, in two (02) counterparts with equal content and form before the undersigned witnesses.
 
Rio de Janeiro, December 10, 2009.
 
Recipient:
 
BRAZMIN LTDA.
 
OWNER
 
BRAZAURO RECURSOS
MINERAIS LTDA.
             
Name:
     
Name:
   
             
             
ID:
     
ID:
   
             
Individual Taxpayer Registry (CPF):
     
Individual Taxpayer Registry (CPF):
   
             
             
Witnesses:
     
 
   

 
 
 
 
 
 

 
 

EX-4.30 7 ss95636_ex0430.htm AMENDING AGREEMENT
 
EXHIBIT 4.30
 
 
 
 

 
DENNIS MOORE AND ALAN CARTER
 
AND
 
BRAZAURO RESOURCES CORPORATION
 
 
 
 


AMENDING AGREEMENT
TOCANTINZINHO PROJECT - BRAZIL
 
 


 

 
December 4, 2009
 

 
 
 
 

 
 
 

 
 
AMENDING AGREEMENT
 
THIS AMENDING AGREEMENT is dated effective December 4, 2009
 
BETWEEN:
 
DENNIS MOORE of Largo de Senhora da Alegria #1, Castelo de Vide 7320-187, Portugal
 
and
 
ALAN CARTER, of 4638 West 5th Avenue, Vancouver, British Columbia, V6R 1S8, Canada
 
(hereinafter referred to as the “Optionors”)
 
 
AND:
 
BRAZAURO RESOURCES CORPORATION, a company duly incorporated under the laws of the British Columbia and having its registered office at 595 Burrard Street, 7th Floor, Vancouver, British Columbia, V7X 1S8
 
(hereinafter referred to as the “Optionee or Brazauro”)
 
 
WHEREAS:
 
A.                   The Optionee was formerly known as Star Resources Corp. (“Star”).  Star changed its name to Jaguar Resources Corporation (“Jaguar”) on September 18, 2005.  Jaguar changed its name to Brazauro Resources Corporation on September 8, 2006;
 
B.                    The Optionors were the owners of claims located in Brazil, as more particularly described in Schedule “A” and Schedule “B” hereto (the “Property”);
 
C.                    The Optionee acquired all the interest of the Optionors in and to the Property, subject to a Royalty, by the performance of Qualified Expenditures upon the Property, the making of payments to the Optionors, and completing share issuances to the Optionors as provided in an Option Agreement dated July 31, 2003 (the “Option Agreement”);
 
 
 

 
 
D.                    Issues have arisen with respect to the Property ownership and the right of the Optionors to a Royalty; and
 
E.                    The Parties have agreed to resolve these issues by amending certain provisions of the Option Agreement.
 
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the sum of $10 now paid by the Optionee to the Optionors and for other good and valuable consideration, the receipt and sufficiency whereof is by the Optionors hereby acknowledged, the parties agree as follows:
 
1.                     The Optionors and Optionee (the “Parties”) agree to the following definitions:
 
Commencement of Commercial Production” means, and is deemed to have commenced, when the concentrator processing ores, for other than testing purposes, has operated for a period of 30 consecutive production days at an average rate of not less than 60% of mining rate specified in a Feasibility Study recommending placing the Properties in commercial production or, if a concentrator is not erected on the Properties, when ores have been produced for a period of 30 consecutive production days at the rate of not less than 60% of the mining rate specified in a Feasibility Study recommending placing the Properties in commercial production as such term is defined in such Feasibility Study. Notwithstanding this definition any payment received by the Optionee for the sales of gold will be subject to payment of the Royalty to the Optionors.  It is agreed that the Royalty shall apply to all mineral products and not only gold and that the Royalty payment provisions for gold will also apply mutatis mutandis to such mineral products save and except for pricing provisions which shall be determined by “Metals Weekly” or a similar publication using the average of such prices during such fiscal quarter.
 
2.                     The Optionee shall make a payment of $50,000 to the Optionors upon execution of this Agreement.
 
3.                     The Parties agree to delete Section 3.1 of the Option Agreement and substitute the following:
 
 
2

 
 
 
“3.1.
Upon completion of the payments pursuant to paragraph 2.1(a), completion of the exploration work specified in paragraph 2.1(b) and delivery of the shares pursuant to paragraph 2.1(c), the Optionee shall have earned 100% of the Optionors’ interest in and to the Mineral Claims subject to the royalty (the “Royalty”) described in Schedule “C” attached hereto, any ongoing obligations under the underlying agreement and any ongoing obligations under the Amending Agreement between Dennis Moore and Alan Carter and Brazauro Resources Corporation dated December 4, 2009.”
 
4.                     The Parties agree to renumber Section 1.01 of Schedule “C” of the Option Agreement as Section 1.01(a) and to amend 1.01(a) by deleting variable references to Z being equal to 2.5, 2.75, and 3.0 such that Z may only be equal to 3.5 and add Section 1.01(b) and Section 1.01(c) as follows:
 
 
“1.01(b)
Notwithstanding the Average Gold Price, the Optionee has the option to:
 
(i)             reduce Z, as described in Section 1.01(a) above, by one percent (1%) upon payment to the Optionors of $2,000,000 within 30 days of Eldorado Gold Corporation exercising its option with the Optionee to acquire a 60% interest in the Property.  Should Eldorado not elect to earn a 60% interest then the option to reduce Z by one percent (1%) will be deferred until the earlier of:
 
(A)          the completion of project financing or;
 
(B)           Brazauro enters into an agreement with a Third Party respecting the Property whereby Brazauro receives greater than $25,000,000, and Brazauro will pay the Optionors within 30 days of Brazauro receiving payment; or
 
(C)           the decision referred to in clause 1.01(b)(ii) is made; and
 
 
(ii) 
reduce Z by a further one percent (1%) upon payment to the Optionors of an additional $3,500,000 within 30 days of a construction decision to proceed with development of the Property.
 
 
1.01(c)
The gold Royalty is payable in cash or in kind at the election of the Optionors.  Notwithstanding the right of the Optionee to reduce the gold Royalty by the amounts set out in Section 1.01(b), in no circumstance may the Royalty be reduced to less than one and one-half percent (1½%). 
 
 
3

 
 
 
 
If the Optionors wish to take the gold Royalty in kind they will provide written notice to the Optionee at least 90 days prior to any calendar year in which they wish to take the Royalty in kind.”
 
5.                     The Parties agree that the Royalty shall run with and form part of the Property and not be merely contractual in nature.
 
6.                     The Optionors may request an audit of the sales and related financial records maintained by Brazauro be conducted to verify the calculation of the Royalty for a particular calendar quarter.  The audit shall be conducted by an independent auditor acceptable to the Parties.  The Optionors shall bear the full cost and expense of the audit unless it is determined that the Royalty calculated by Brazauro understated the actual amount due by more than 3%, in which case Brazauro shall pay all costs and expenses of the audit.  Brazauro shall forthwith pay any deficiency to the Optionors and the Optionors shall forthwith repay any overpayment to Brazauro.
 
7.                     The Optionee hereby permits the Optionors and designated consultants of the Optionors, at their own risk and cost, access at all reasonable times to the Property and to all technical records and other drill hole, geochemical assay and engineering data relating to the Property which is in the possession of the Optionee.  All information and data supplied to the Optionors shall be kept confidential except where disclosure is required by law.
 
8.                     All terms shall be as set out in the Option Agreement unless otherwise defined herein.
 
9.                     The Parties confirm the application of Section 13.1 of the Option Agreement to the amounts referred to under this Amending Agreement.
 
10.                   In all other respects the parties confirm the terms of the Option Agreement.
 
11.                   This agreement may be executed in any number of counterparts and may be delivered by facsimile or email, all of which when taken together shall be deemed to be one and
 
 
4

 
 
the same document and notwithstanding the actual date of each such counterpart, this agreement shall be deemed to be dated as of December 4, 2009.
 
IN WITNESS WHEREOF the corporate seals of the Optionors and the Optionee have been hereunto affixed in the presence of their duly authorized officers in that behalf.
 
SIGNED, SEALED AND DELIVERED in the presence of;
     
       
 / Signature /      
Signature
     
       
       
Address
     
       
     /s/ Dennis Moore  
Occupation
 
DENNIS MOORE
 
       
       
SIGNED, SEALED AN DELIVERED in the presence of
     
       
 / Signature /      
Signature
     
       
       
Address
     
       
     /s/ Alan Carter  
Occupation
 
ALAN CARTER
 
       
 
 
BRAZAURO RESOURCES CORPORATION
 
 
Per:  /Signature/  
  Authorized Signatory  
 
 
 
 
 
5


EX-4.31 8 ss95636_ex0431.htm OPTION AGREEMENT
EXHIBIT 4.31
MINERAL RIGHTS PURCHASE
 AND SELLING AGREEMENT


MARLENE SOARES TAVARES, Brazilian national, widow, accountant, holder of Brazilian ID card 1.787.273 – SSP/PA and CPF 127.229.012-34, resident at Conjunto Stélio Maroja, Travessa WE-1, Quadra H, Bloco 3, Ap. 101, Bairro Coqueiro, Ananindeua, State of Pará, Zip Code 67.140-300, hereinafter referred to as MARLENE and represented by her attorney-in-fact ANTONIO CARLOS DA PENHA, Brazilian national, married, geologist, holder of CREA ID 1.366-D and CPF 042.256.192-49, resident at Rua Aires Saldanha, no. 13, ap. 608, Copacabana, Rio de Janeiro, RJ, Zip Code 22.060-030, and BRAZAURO RECURSOS MINERAIS LTDA, a limited liability company, registered before the Ministry of Finance under CNPJ 05.943.917/0001-43, with headquarters at Av. Gov. José Malcher, 815, salas 413 e 414, Belém, Pará, Zip Code 66.055-901, hereinafter represented by its director, who undersigns this Agreement, and referred to as BRAZAURO:


I      WHEREAS

 
A)
MARLENE is the legitimate holder of the REQUEST FOR PROSPECTING MINING LICENSES covered by DNPM processes 859.127/1995 to 859.275/1995, located in the municipality of Itaituba, State of Pará. The conversion of the above mentioned processes into exploration licenses is being assessed by DNPM’s 5th District in Belém-PA, and the resulting processes will remain object of this contract, and will be hereinafter referred to as MINERAL RIGHTS;

 
B)
BRAZAURO is a mining company whose main objectives are to explore, exploit and manage mineral deposits for the economic use of their mineral assets and by-products, and who is interested in acquiring the MINERAL RIGHTS;

 
C)
The MINERAL RIGHTS are free and clear of all liens, charges or limitations of ownership whatsoever;

 
D)
MARLENE is interested in the cession and transfer of the MINERAL RIGHTS to BRAZAURO;

 
E)
BRAZAURO is interested in undertaking a mineral reserves assessment and exploration program in the area covered by such MINERAL RIGHTS.

 
F)
BRAZAURO may develop mineral exploration activities at its discretion and exclusivity during the term of this contract, and may assess, explore and undertake economic feasibility studies of mineral reserves found in the area covered by the MINERAL RIGHTS.

The Parties have agreed to the following terms and conditions:

1. FIRST CLAUSE - OBJECT

1.1 The object of this agreement is the establishment of rules and conditions for the acquisition by BRAZAURO of the mineral rights referred to in paragraph A) of this agreement.

2. SECOND CLAUSE - PRICE AND PAYMENT CONDITIONS

2.1 For the acquisition of the above mentioned MINERAL RIGHTS, BRAZAURO shall pay to MARLENE the total amount of R$2,500,000.00 (two million five hundred thousand Brazilian reais) as follows:

2.1.1 R$75,000.00 (seventy five thousand Brazilian reais) on signing of this agreement.

 
 
 

 
 
2.1.2 R$75,000.00 (seventy five thousand Brazilian reais) within six months after the date of signature of this agreement, upon publication in the Brazilian Official Gazette (Diario Oficial da União - DOU) of the exploration license that resulted from the conversion of the mining licenses object of this agreement, and also by the signature of an AGREEMENT FOR ASSIGNMENT OF MINERAL RIGHTS to BRAZAURO. In case the publication referred to above is made after six months from the date of signature of this agreement, the payment of such installment shall be made five days after publication of the license in the DOU.

2.1.3 R$50,000.00 (fifty thousand Brazilian reais) within three months after the payment referred to in paragraph 2.1.2 has been made.

2.1.4 R$50,000.00 (fifty thousand Brazilian reais) within six months after the payment referred to in paragraph 2.1.2 has been made.

2.1.5 R$62,500.00 (sixty two thousand, five hundred Brazilian reais) within nine months after the payment referred to in paragraph 2.1.2 has been made.

2.1.6 R$62,500.00 (sixty two thousand, five hundred Brazilian reais) within twelve months after the payment referred to in paragraph 2.1.2 has been made.

2.1.7 R$75,000.00 (seventy five thousand Brazilian reais) within fifteen months after the payment referred to in paragraph 2.1.2 has been made.

2.1.8 R$75,000.00 (seventy five thousand Brazilian reais) within eighteen months after the payment referred to in paragraph 2.1.2 has been made.

2.1.9 R$150,000.00 (one hundred and fifty thousand Brazilian reais) within twenty four months after the payment referred to in paragraph 2.1.2 has been made.

2.1.10 R$1,825,000.00 (one million, eight hundred and twenty five thousand Brazilian reais) within thirty months after the payment referred to in paragraph 2.1.2 has been made, upon approval by the DNPM of the MINERAL RIGHTS assignment to BRAZAURO.

2.1.11 BRAZAURO shall guarantee to MARLENE the payment related to the results sharing of mining activities undertaken in the area object of this agreement in an amount equivalent to 0,5% over the net smelter return (NSR), after deduction of taxes on production and sales as applicable.

2.1.12 The right granted to MARLENE for the results sharing referred to in item 2.1.11 above may be acquired by BRAZAURO at any time and at its own discretion, for which a single payment of R$3,000,000.00 (three million Brazilian reais) will be made.

2.2. In case of rescission by BRAZAURO, the amounts payable will not be collected and no payments made will be reimbursed.

2.3 The payments referred to in Clause 2 above will be made by BRAZAURO to MARLENE’s  attorney-in-fact SOLANGE SIQUEIRA DA PENHA (CPF 690.373.292-68), at the current account number 24.080-X, branch number 4247-1 of Banco do Brasil in Santarém, State of Pará, and the corresponding deposit slips will serve as payment receipts.

2.3.1 Any alteration to the above mentioned bank information shall be made in writing to BRAZAURO, and BRAZAURO will not be deemed accountable for any delay or misplacement of payment resulting from the failure to inform such change.

 
 
 

 
 
2.3.2 Should the due date for any payment fall on a non-working day, then it will be due on the first working day following the original due date. Any delays in the payments herein specified will imply the payment of a fine corresponding to 2% of the overdue payment and a daily interest rate of 0.25%.

THIRD CLAUSE – DECLARATIONS AND WARRANTIES OF MARLENE

3.1 MARLENE hereby declares and warrants that she is the only and exclusive holder of the MINERAL RIGHTS object of this agreement and that such MINERAL RIGHTS are free of any legal or extra-legal burden or hindrance or any other liability, and that they are equally free of any irregularity.

3.2 MARLENE hereby declares and warrants on her behalf and on behalf of her successors that she will provide whatever assistance is required for the formal transfer of the MINERAL RIGHTS object of this agreement, as well as for the granting of the corresponding Mineral Licenses by DNPM.

3.3 MARLENE declares and warrants that she will keep confidential all information received as a result of this agreement, which will be deemed restricted and owned by BRAZAURO upon signing of this agreement, and that she will not disclose information in part or in total to third parties.

3.4 MARLENE declares and warrants that she will be responsible for all obligations and liabilities of any nature, which were originated prior to the date of signature of this agreement, including those related to non-compliance with the mineral and environmental legislation.

3.5 By the date of payment of the last installment herein agreed to, MARLENE shall have transferred to BRAZAURO the areas object of this agreement, the MINERAL RIGHTS free of any small-scale prospecting mining activities, and of third parties who are not bound by this agreement.

FOURTH CLAUSE – DECLARATIONS AND WARRANTIES OF BOTH PARTIES

4.1. BRAZAURO and MARLENE hereby declare and warrant that this Agreement is signed in an irrevocably and irretractable manner for all legal purposes, and that they will comply with whatever clauses and conditions herein established, including those related to their successors, except for the provisions regarding termination.

4.2 BRAZAURO and MARLENE hereby declare and warrant that this Agreement and its annexes result from the full understanding between the parties.

4.3 BRAZAURO and MARLENE hereby declare and warrant that they attribute binding power over their conduct to the terms of this Agreement in accordance with the provisions of Article 585, Sub-heading II of the Brazilian Civil Procedure Code.

4.4 BRAZAURO and MARLENE hereby declare and warrant that they will take action, provide information and additional documentation, formalize any agreement required to the good implementation and undertaking of the terms and conditions of this Agreement.

FIFTH CLAUSE – DECLARATIONS AND WARRANTIES OF BRAZAURO

5.1 BRAZAURO hereby declares and warrants that it will be responsible for the payment of any liabilities corresponding to the mineral rights licenses until a decision is made regarding the acquisition or not of these MINERAL RIGHTS.

5.2 The responsibility of BRAZAURO shall be null and void should it formally desist from the acquisition of the MINERAL RIGHTS object of this Agreement in compliance with the provisions of Clause 2.2 above.
 
 
 

 
 
5.3 BRAZAURO commits itself to pay the annual fees per hectare, after publication of the exploration license and its possible extension, as long as this agreement is in force per the terms and conditions of Clause Tenth below.

5.4 BRAZAURO commits itself to invest a minimum of R$350,000.00 (three hundred and fifty thousand Brazilian reais) in exploration activities in the area during the first year of contract. In case the contract is renewed for another year, BRAZAURO commits itself to invest a minimum of R$500,000.00 (five hundred thousand Brazilian reais) in the second year of the contract. And, if the contract is renewed for yet another year, BRAZAURO commits itself to invest a minimum of R$750,000.00 (seven hundred and fifty thousand Brazilian reais) in the third year.

5.5 The termination of this agreement by BRAZAURO is conditioned to the payment of the investments foreseen in Clause 5.4, year by year. In case they are not fulfilled, BRAZAURO commits itself to pay MARLENE in cash the remaining or the total amount payable regarding the exploration activities described in Clause 5.4 above.

SIXTH CLAUSE – DURATION

6.1 This agreement is valid from the date of signature until all conditions herein agreed upon have been fulfilled or until BRAZAURO rescinds this Agreement.

SEVENTH CLAUSE – CONFIDENTIALITY

7.1 Unless otherwise required by law, the parties shall keep the terms and conditions of this agreement as strictly confidential, and shall not disclose information in any way for whatever objective other than the objective herein stated. Nevertheless, BRAZAURO may, if deemed necessary and at its own discretion, disclose the results of the exploration work in the Toronto-Canada Stock Exchange and in its website.

7.2 The parties hereby bind themselves and their employees, representatives, or service providers to strict observance of said confidentiality and any geological, economic or business related information that may be disclosed to them.

EIGHTH CLAUSE – ASSIGNMENT OF CONTRACT TO THIRD PARTIES

8.1 BRAZAURO may transfer at its sole discretion, at any time, in part or in total, the rights and obligations set forth in this agreement to third parties, however, MARLENE must be notified by BRAZAURO of such transfer.

NINTH CLAUSE – COMMUNICATION

9.1 All notices, communication, or documents which shall be transmitted between the Parties must be in written form and delivered personally or by letter (AR receipt) at the addresses informed below. The Parties are responsible for informing any change in their addresses:

ANTÕNIO CARLOS DA PENHA – ATTORNEY-IN-FACT
Rua Aires Saldanha, no. 13, AP. 608 – Copacabana
22.060-030 Rio de Janeiro – RJ

BRAZAURO RECURSOS MINERAIS LTDA.
Av. Gov. José Malcher, 815, salas 413 e 414
Belém - PA

TENTH CLAUSE – TERMINATION

 
 
 

 
 
10.1 BRAZAURO detains the exclusive right to unilaterally terminate this Agreement at its own discretion provided written notice is given to MARLENE.

10.2 The Parties herein agree that upon termination of this Agreement, BRAZAURO will no longer be liable to pay any installment that have not fallen due provided that MARLENE or its legal successors receives from BRAZAURO (by hand or by AR) the accounting report on the investments made in mineral exploration and on the mineral exploration activities effectively undertaken, at least thirty days before the due date of the next installment. BRAZAURO shall be freed from the obligation to pay any form of compensation to MARLENE, and shall have no right to the reimbursement of installments duly paid prior to the termination of this Agreement.

10.3 Should BRAZAURO make use of its right to terminate this Agreement in accordance with the provisions established in this clause, BRAZAURO will be obliged to hand over to MARLENE a written report containing all data, information and results obtained from the exploration work associated with the MINERAL RIGHTS within ninety days from the date of termination.

10.4 Should BRAZAURO decide to terminate this Agreement, BRAZAURO shall be legally bound to transfer the MINERAL RIGHTS object of this contract to MARLENE by signing an Agreement for the Transfer of Mineral Rights on the date of termination.

10.5 MARLENE will not have the right to terminate this contract except in the case of defaulting on payment by BRAZAURO, which declares itself to be incapable of solving.

ELEVENTH CLAUSE – CONCURRENCE OF THE DNPM

11.1 It is hereby agreed and understood between the Parties that on the fulfillment of the terms set out in this Agreement, the respective payment of the final installment established in Clause 2 above, namely R$1,825,000.00 (one million eight hundred and twenty five thousand Brazilian reais) shall only be made provided final legal approval is formally granted for the definitive concession of the MINERAL RIGHTS to BRAZAURO and said approval is published in the Official Gazette (DOU). The Parties further agree that:

11.1.1 Both Parties commit themselves to making every effort before the DNPM to ensure the regular administration and approval of the process for the concession of the MINERAL RIGHTS object of this Agreement.

11.1.2 The Parties further commit themselves to make due efforts before the DNPM to ensure that the definitive concession of the MINERAL RIGHTS is approved in such a way to become effectively transferred to BRAZAURO.

TWELVETH CLAUSE – DA INVALIDADE PARCIAL

12.1 The eventual nullity, invalidity or unfeasibility of any or more provisions set out in this Agreement shall not affect the validity and the enforceability of the other terms, which shall remain in full force and the Parties hereby declare their willingness to negotiate consensual adjustments to ensure the validity and feasibility of such terms or provisions.

THIRTEENTH CLAUSE – DO CASO FORTUITO E FORÇA MAIOR

13.1 Should BRAZAURO or its contractors be prevented from getting access to the areas to which the MINERAL RIGHTS are associated due to unforeseeable or unavoidable circumstances or force majeure, then the fulfillment of the obligations taken under the terms of this Agreement shall be suspended.

FOURTHEENTH CLAUSE – COURTS

 
 
 

 
 
14.1 The Parties agree to designate the Courts of Belém, State of Pará, for the purpose of deciding any issue resulting from this Agreement.

IN WITNESS WHEREOF the authorized representatives of the parties hereto have signed this Agreement as of the date below.


Belém-PA, December 22, 2009



MARLENE SOARES TAVARES
 
BRAZAURO RESOURCES DO BRASIL LTDA.
Elton Luiz da Silva Pereira – General Manager





ANTONIO CARLOS DA PENHA
Attorney-in-fact



Witnesses:

Raimundo Siqueira da Penha
Address: Aires Saldanha 13/608
Identity Card # 1427885
CPF: 254.206.902-68
Raquel Siqueira da Penha
Address: Rua Aires Saldanha 13/608
Identity Card # 324589-0
CPF: 697.396.762-00


 
 
 
 
 
 
 
 

EX-4.32 9 ss95636_ex0432.htm ARRANGEMENT AGREEMENT
 
EXHIBIT 4.32
 
 
 
 
ELDORADO GOLD HOLDINGS (BC) LTD.
 

 
AND
 

 
ELDORADO GOLD CORPORATION
 

 
AND
 

 
BRAZAURO RESOURCES CORPORATION
 

 

 
ARRANGEMENT AGREEMENT

 

 

 

 
DATED May 11, 2010
 
 
 

 
 
TABLE OF CONTENTS

Page
  
ARTICLE 1
INTERPRETATION
1
 
1.1
Definitions
1
 
1.2
Interpretation Not Affected by Headings
13
 
1.3
Number and Gender
13
 
1.4
Date for Any Action
13
 
1.5
Currency
14
 
1.6
Accounting Matters
14
 
1.7
Knowledge
14
 
1.8
Schedules
14
       
ARTICLE 2
THE ARRANGEMENT
14
 
2.1
Arrangement
14
 
2.2
Court Orders
14
 
2.3
U.S. Securities Law Matters
15
 
2.4
Brazauro Meeting
16
 
2.5
Brazauro Circular
17
 
2.6
Final Order
19
 
2.7
Court Proceedings
19
 
2.8
Effect on the Arrangement and Effective Date and Payment of Consideration
19
 
2.9
Preparation of Filings
19
 
2.10
Announcement and Shareholder Communications
20
 
2.11
Withholding Taxes
20
 
2.12
Canadian Tax Matters
20
 
2.13
U.S. Tax Matters
21
       
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BRAZAURO AND NEW BRAZAURO
21
 
3.1
Representations and Warranties or Brazauro
21
 
3.2
Survival of Representations and Warranties
37
       
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SUBCO AND ELDORADO
37
 
4.1
Representations and Warranties
37
 
4.2
Survival of Representations and Warranties
40
       
ARTICLE 5
COVENANTS OF BRAZAURO AND ELDORADO
41
 
5.1
Covenants of Brazauro Regarding the Conduct of Business
41
 
5.2
Covenants of Brazauro Relating to the Arrangement
44
 
5.3
Covenants of Eldorado Regarding the Performance of Obligations
45
 
5.4
Mutual Covenants
47
 
5.5
Pre-Acquisition Reorganization
47
 
5.6
Employment Agreements
49
 
5.7
Eldorado Guarantee
49
       
ARTICLE 6
CONDITIONS
49
 
6.1
Mutual Conditions Precedent
49
 
6.2
Additional Conditions Precedent to the Obligations of Subco and Eldorado
50
 
6.3
Additional Conditions Precedent to the Obligations of Brazauro
51
 
6.4
Satisfaction of Conditions
52
       
 
 
 

 
  
TABLE OF CONTENTS
(continued)
Page
ARTICLE 7
ADDITIONAL AGREEMENTS
52
 
7.1
Notice and Cure Provisions
52
 
7.2
Non-Solicitation
53
 
7.3
Right to Match
55
 
7.4
Expenses and Termination Fees
56
 
7.5
Spin-Off
57
 
7.6
Option Extension
58
 
7.7
Access to Information; Confidentiality
58
 
7.8
Insurance and Indemnification
58
       
ARTICLE 8
TERM, TERMINATION, AMENDMENT AND WAIVER
59
 
8.1
Term
59
 
8.2
Termination
59
 
8.3
Amendment
61
 
8.4
Waiver
61
       
ARTICLE 9
GENERAL PROVISIONS
62
 
9.1
Privacy
62
 
9.2
Notices
62
 
9.3
Governing Law; Waiver of Jury Trial
63
 
9.4
Injunctive Relief
63
 
9.5
Time of Essence
64
 
9.6
Entire Agreement, Binding Effect and Assignment
64
 
9.7
Severability
64
 
9.8
Counterparts, Execution
64

SCHEDULE A
PLAN OF ARRANGEMENT
66
     
SCHEDULE B
ARRANGEMENT RESOLUTION
67
     
SCHEDULE C
KEY REGULATORY APPROVALS
68
     
SCHEDULE D
KEY THIRD PARTY CONSENTS
69
     
SCHEDULE E
CONCESSIONS
70
     
SCHEDULE F
LANDS
73
     
SCHEDULE G
NEW BRAZAURO REPRESENTATIONS, WARRANTIES AND COVENANTS
74


 
-ii-

 
 
ARRANGEMENT AGREEMENT
 

 
THIS ARRANGEMENT AGREEMENT dated May 11, 2010,
 
BETWEEN:
 
ELDORADO GOLD HOLDINGS (BC) LTD., a corporation incorporated under the laws of British Columbia (“Subco”)
 
- and -
 
ELDORADO GOLD CORPORATION, a corporation continued under the laws of Canada (“Eldorado”)
 
- and -
 
BRAZAURO RESOURCES CORPORATION, a corporation incorporated under the laws of British Columbia (“Brazauro”)
 
WHEREAS:
 
A.           Eldorado wishes to acquire, indirectly through its wholly-owned subsidiary, Subco, all of the outstanding securities of Brazauro which it does not already own, in exchange for common shares of Eldorado;
 
B.           The Parties have agreed, in connection with Eldorado’s acquisition of all of the securities of Brazauro, to effect the transfer of the Spin-Off Property (as hereinafter defined) to New Brazauro, such that New Brazauro shall be owned by and in the same proportion as held by Brazauro Shareholders (as hereinafter defined), other than Eldorado, immediately prior to the Effective Time (as hereinafter defined); and
 
C.           The Parties have determined that the transactions contemplated by this Agreement will be effected by means of a Plan of Arrangement under the BCBCA (as hereinafter defined) and Brazauro has agreed to submit the Plan of Arrangement and other transactions contemplated by this Agreement for approval by the Brazauro Securityholders (as hereinafter defined) and the Supreme Court of British Columbia.
 
THIS AGREEMENT WITNESSES THAT in consideration of the recitals and the covenants and agreements herein contained and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto covenant and agree as follows:
 
ARTICLE 1
INTERPRETATION
 
1.1
Definitions
 
In this Agreement, unless the context otherwise requires:
 
Acquisition Proposal” means, other than the transactions contemplated by this Agreement, any offer, proposal, expression of interest, or inquiry from any person (other than Eldorado or any of its affiliates) after the date hereof relating to:
 
 
 

 
 
2
 
 
 
(a)
any acquisition or sale, direct or indirect (including by way of option or joint venture), of:
 
 
(i)
the assets of Brazauro and/or one or more of its subsidiaries that, individually or in the aggregate, constitute 20% or more of the fair market value of the consolidated assets of Brazauro and its subsidiaries; or
 
 
(ii)
20% or more of any voting or equity securities of Brazauro or any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the fair market value of the consolidated assets of Brazauro and its subsidiaries;
 
 
(b)
any take-over bid, tender offer or exchange offer for any class of voting or equity securities, or any securities exchangeable for or convertible into voting or equity securities, of Brazauro; or
 
 
(c)
a plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Brazauro or any of its subsidiaries;
 
affiliate” has the meaning ascribed to it in the Securities Act;
 
Agreement” means this arrangement agreement, together with the Disclosure Letter, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof;
 
Agua Branca” means Brazauro’s project consisting of approximately 9,356 hectares of exploration licenses in the Tapajos region of Para state, Brazil;
 
Approvals” means the approvals listed on Schedule 5.15.1(r) to the Disclosure Letter;
 
Acquired Interest” has the meaning ascribed to it in Schedule G hereto;
 
Arrangement” means the arrangement under section 288 of the BCBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 8.3 hereof or the Plan of Arrangement or made at the direction of the Court in the Final Order with the consent of Brazauro and Eldorado, each acting reasonably;
 
Arrangement Resolution” means the special resolution of the Brazauro Securityholders approving the Plan of Arrangement which is to be considered at the Brazauro Meeting and is to be substantially in the form and content of Schedule B hereto;
 
Assumed Spin-off Liabilities” means all liabilities of Brazauro directly related to the Spin-off Property and pursuant to Section 5.3(e);
 
BCBCA” means the Business Corporations Act (British Columbia) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;
 
 
 

 
 
3
 
 
BCSC means the British Columbia Securities Commission, and includes any successor thereto;
 
Brazauro 2008 Warrants” means the outstanding warrants to purchase Brazauro Shares issued to Eldorado in July 2008, each entitling the holder thereof to acquire, upon due exercise and payment of the exercise price of $1.00, one Brazauro Share on or prior to January 24, 2011;
 
Brazauro 2009 Warrants” means the outstanding warrants to purchase Brazauro Shares issued on November 3, 2009, each entitling the holder thereof to acquire, upon due exercise and payment of the exercise price of $1.00, one Brazauro Share on or prior to May 3, 2011, other than the Brazauro Agent’s Warrants but including any warrants issued upon the exercise of the Brazauro Agent’s Warrants;
 
Brazauro Agent’s Warrants” means the outstanding warrants to purchase units of Brazauro issued to M Partners Inc. and Industrial Alliance Securities Inc. on November 3, 2009, each entitling the holder thereof to acquire, upon due exercise and payment of the exercise price of $0.65, one unit of Brazauro, each unit consisting of one Brazauro Share and one half of one Brazauro 2009 Warrant and each whole Brazauro 2009 Warrant entitling the holder thereof to acquire one Brazauro Share;
 
Brazauro Benefit Plans” has the meaning ascribed to it in Section 3.1(aa)(i);
 
Brazauro Board” means the board of directors of Brazauro as the same is constituted from time to time;
 
Brazauro Circular” means the notice of the Brazauro Meeting and accompanying management information circular, including all schedules, appendices and exhibits thereto, to be sent to the Brazauro Securityholders in connection with the Brazauro Meeting, as amended, supplemented or otherwise modified from time to time;
 
Brazauro Convertible Securities” means the Brazauro Options, the Brazauro 2008 Warrants and the Brazauro Warrants;
 
Brazauro Counsel” means legal counsel to Brazauro;
 
Brazauro Financial Statements” has the meaning ascribed to it in Section 3.1(k);
 
Brazauro Meeting” means the special meeting of Brazauro Securityholders, including any adjournment or postponement thereof, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution;
 
Brazauro Option” means an option to purchase Brazauro Shares granted under the Brazauro Stock Option Plan;
 
Brazauro Optionholders” means the holders of Brazauro Options;
 
Brazauro Public Disclosure Record” means all documents and information filed by Brazauro under applicable Securities Laws on the System for Electronic Document Analysis Retrieval (SEDAR) and with the SEC, during the three years prior to the date hereof;
 
 
 

 
 
4
 
 
Brazauro Securityholders” means the Brazauro Shareholders, Brazauro Optionholders and Brazauro Warrantholders;
 
Brazauro Securityholder Approval” has the meaning ascribed to it in Section 2.2(a)(ii);
 
Brazauro Shareholder Rights Plan” means the Shareholder Rights Plan Agreement dated November 28, 2008 between Brazauro and Computershare Investor Services Inc., as amended May 14, 2009;
 
Brazauro Shareholders” means the holders of Brazauro Shares;
 
Brazauro Shares” means the common shares in the capital of Brazauro, as currently constituted;
 
Brazauro Stock Option Plan” means the 2003 Stock Option Plan, as most recently amended on August 8, 2008;
 
Brazauro Warrants” means the Brazauro 2009 Warrants and the Brazauro Agent’s Warrants;
 
Brazauro Warrantholders” means the holders of Brazauro Warrants;
 
business day” means any day, other than a Saturday, a Sunday or a statutory or civic holiday in Toronto, Ontario, or Vancouver, British Columbia;
 
Change in Recommendation” has the meaning ascribed to it in Section 8.2.1(c)(i);
 
Code” means the U.S. Internal Revenue Code of 1986, as amended;
 
Competition Act” means the Competition Act (Canada), as amended from time to time;
 
Concessions” means any mining concession, claim, lease, licence, permit or other right to explore for, exploit, develop, mine or produce minerals or any interest therein which Brazauro or any of its subsidiaries owns or has a right or option to acquire or use, all as listed in Schedule E hereto;
 
Confidentiality Agreement” means the letter agreement between Brazauro and Eldorado dated May 9, 2010;
 
Contract” means any contract, agreement, license, franchise, lease, arrangement or other right or obligation to which Brazauro or any of its subsidiaries is a party or by which Brazauro or any of its subsidiaries is bound or affected or to which any of their respective properties or assets is subject;
 
 “Converted Eldorado Options” means the options to purchase Eldorado Shares issued to each of the Brazauro Optionholders in exchange for and on substantially the same terms as their original Brazauro Options, with their exercise price and number adjusted with reference to the Share Exchange Ratio, as set out in the Plan of Arrangement;
 
Converted Eldorado Warrants” means the warrants to purchase Eldorado Shares issued to each of the Brazauro Warrantholders in exchange for and on substantially the
 
 
 

 
 
5
 
 
same terms as their Brazauro Warrants, with their exercise price and number adjusted with reference to the Share Exchange Ratio, as set out in the Plan of Arrangement;
 
Court” means the Supreme Court of British Columbia;
 
Depositary” means any trust company, bank or financial institution agreed to in writing between Eldorado and Brazauro for the purpose of, among other things, exchanging certificates representing Brazauro Shares for certificates representing Eldorado Shares;
 
Disclosure Letter” means the disclosure letter executed by Brazauro and delivered to Subco and Eldorado in connection with the execution of this Agreement;
 
Dissent Rights” means the rights of dissent in respect of the Arrangement described in the Plan of Arrangement;
 
Effective Date” means the date upon which the Arrangement becomes effective as provided in the Plan of Arrangement;
 
Effective Time” means the time on the Effective Date that the Arrangement becomes effective, as set out in the Plan of Arrangement;
 
Eldorado Counsel” means legal counsel to Eldorado;
 
Eldorado Financial Statements” has the meaning ascribed to it in Section 4.1(h);
 
Eldorado Option” means an option to purchase Eldorado Shares granted under the Eldorado Option Plans;
 
Eldorado Public Disclosure Record” means all documents and information filed by Eldorado under applicable Securities Laws on the System for Electronic Document Analysis Retrieval (SEDAR) and EDGAR, during the three years prior to the date hereof;
 
Eldorado Shareholders” means the holders of Eldorado Shares;
 
Eldorado Shares means common shares in the capital of Eldorado as currently constituted;
 
Eldorado Option Plans” means collectively, the Incentive Stock Option Plan Officers and Directors, amended and restated as of May 7, 2009 and the Incentive Stock Option Plan Employees, Consultants and Advisors, amended and restated as of May 7, 2009;
 
Environmental Laws” means all applicable federal, provincial, state, local and foreign Laws, imposing liability or standards of conduct for or relating to the regulation of activities, materials, substances or wastes in connection with or for or to the protection of human health, safety, the environment or natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation) and under common law;
 
Environmental Liabilities” means, with respect to any person, all liabilities, obligations, responsibilities, responses, remedial and removal costs, investigation costs, capital costs, operation and maintenance costs, losses, damages, punitive damages,
 
 
 
 

 
 
6
 
 
property damages, consequential damages, treble damages, costs and expenses, fines, penalties and sanctions incurred as a result of or related to any claim, suit, action, administrative order, investigation, proceeding or demand by any person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, relating to any environmental matter arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Substance whether on, at, in, under, from or about or in the vicinity of any real or personal property;
 
Environmental Permits” means all permits, licenses, written authorizations, certificates, approvals, program participation requirements, sign-offs or registrations required by or available with or from any Governmental Entity under any Environmental Laws;
 
Exchanges means the TSX, NYSE and the TSX-V;
 
Final Order” means the final order of the Court pursuant to section 291 of the BCBCA, in a form acceptable to the Parties, acting reasonably, approving the Arrangement as such order may be amended by the Court (with the consent of both Brazauro and Eldorado, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both Brazauro and Eldorado, each acting reasonably) on appeal;
 
GAAP” means Canadian generally accepted accounting principles;
 
Governmental Entity” means:
 
 
(a)
any multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign;
 
 
(b)
any subdivision, agent, commission, board or authority of any of the foregoing;
 
 
(c)
any quasi-governmental or private body, including any tribunal, commission, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing; or
 
 
(d)
any stock exchange, including the Exchanges;
 
Hazardous Substance” means any pollutant, contaminant, waste or chemical or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous or deleterious substance, waste or material, including petroleum, polychlorinated biphenyls, asbestos and urea-formaldehyde insulation, and any other material or contaminant regulated or defined pursuant to, or that could result in liability under, any Environmental Law;
 
HSR Act” means the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time;
 
 
 

 
 
7
 
 
including” means including without limitation, and “include” and “includes” have a corresponding meaning;
 
Intellectual Property” means any licenses for or other rights to use, any inventions, patent applications, patents, trade-marks (both registered and unregistered), trade names, copyrights, trade secrets and other proprietary information of Brazauro as set out in the Disclosure Letter;
 
Interim Order” means the interim order of the Court, in a form acceptable to the Parties, acting reasonably, providing for, among other things, the calling and holding of the Brazauro Meeting, as the same may be amended by the Court with the consent of Brazauro and Eldorado, each acting reasonably;
 
Investment Canada Act” means the Investment Canada Act, as amended from time to time;
 
Key Regulatory Approvals” means those sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities as set out in Schedule C hereto;
 
Key Third Party Consents” means those consents, approvals and notices required from any third party, including from customers, to proceed with the transactions contemplated by this Agreement and the Arrangement pursuant to the Plan of Arrangement and in respect of any Contracts of Brazauro or any of its subsidiaries and as set out in Schedule D hereto;
 
Lands” means all interests in real and immoveable property interests, including licenses, leases, rights of way, surface rights, easements, permits permitting the use of land or other real property interests (but excluding the Concessions) which Brazauro or any of its subsidiaries owns or has an interest in or has an option or other right to acquire, all as indicated in Schedule F hereto;
 
Law” or “Laws” means all laws (including common law), by-laws, statutes, rules, regulations, principles of law and equity, orders, rulings, ordinances, judgements, injunctions, determinations, awards, decrees or other requirements, whether domestic or foreign, and the terms and conditions of any grant of approval, permission, authority or license of any Governmental Entity or self-regulatory authority (including the Exchanges), and the term “applicable” with respect to such Laws and in a context that refers to one or more Parties, means such Laws as are applicable to such Party or its business, undertaking, property or securities and emanate from a person having jurisdiction over the Party or Parties or its or their business, undertaking, property or securities;
 
Liens” means any hypothecs, mortgages, pledges, assignments, liens, charges, security interests, encumbrances and adverse rights or claims, other third person interest or encumbrance of any kind, whether contingent or absolute, and any agreement, option, right or privilege (whether by Law, contract or otherwise) capable of becoming any of the foregoing;
 
 
 

 
 
8
 
 
Locked-Up Shareholders” means each of the senior officers and directors of Brazauro;
 
Material Adverse Effect” means any change, effect, event or occurrence that individually or in the aggregate with other such changes, effects, events or occurrences, is or would reasonably be expected to be material and adverse to the business, prospects, results of operations or financial condition of Brazauro and its subsidiaries, taken as a whole, except any change, effect, event or occurrence resulting from or relating to:
 
 
(a)
the announcement of the execution of this Agreement or the transactions contemplated hereby or the performance of any obligation hereunder or communication by Eldorado of its plans or intentions with respect to Brazauro and/or any of its subsidiaries;
 
 
(b)
changes in the global economy or the securities markets in general;
 
 
(c)
the commencement, occurrence or continuation of any war, armed hostilities or acts of terrorism;
 
 
(d)
any change in applicable Laws or in the interpretation thereof by any Governmental Entity provided that it does not have a materially disproportionate  effect on Brazauro relative to comparable exploration and/or mining companies;
 
 
(e)
any change in GAAP;
 
 
(f)
any natural disaster;
 
 
(g)
changes affecting the mining industry generally or the price of gold, provided that such changes do not have a materially disproportionate effect on Brazauro relative to comparable mining and/or exploration companies;
 
 
(h)
any change in the price of gold;
 
 
(i)
any changes relating to relative currency exchange rates of the currencies in Canada, Brazil or the U.S.;
 
 
(j)
any decrease in the market price or any decline in the trading volume of Brazauro Shares on the TSX-V (it being understood that the causes underlying such change in market price or trading volume may be taken into account in determining whether a Material Adverse Effect has occurred);
 
Material Contracts” means any contract:
 
 
(a)
if terminated or modified or if it ceased to be in effect, would reasonably be expected to have a Material Adverse Effect on Brazauro;
 
 
(b)
under which Brazauro or any of its subsidiaries has directly or indirectly guaranteed any liabilities or obligations of a third party (other than ordinary course endorsements for collection) in excess of $100,000 in the aggregate;
 
 
 

 
 
9
 
 
 
(c)
relating to indebtedness for borrowed money, whether incurred, assumed, guaranteed or secured by any asset, with an outstanding principal amount in excess of $100,000;
 
 
(d)
providing for the establishment, organization or formation of any joint ventures;
 
 
(e)
under which Brazauro or any of its subsidiaries is obligated to make or expects to receive payments in excess of $100,000 over the remaining term of the contract;
 
 
(f)
that limits or restricts Brazauro or any of its subsidiaries from engaging in any line of business or any geographic area in any material respect; or
 
 
(g)
that is otherwise material to Brazauro and its subsidiaries, considered as a whole; and, for greater certainty, includes the Material Contracts listed in Schedule 3.1(s) to the Disclosure Letter;
 
material fact” has the meaning ascribed to it in the Securities Act;
 
MD&A” means management’s discussion and analysis;
 
MI 61-101” means Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions;
 
Minerals” means all ores, and ores and concentrates derived therefrom, of precious, base and industrial minerals, including, without limitation, diamonds and uranium, which may be lawfully explored for, mined and sold pursuant to Mineral Rights and other instruments of title;
 
Mineral Rights” means prospecting licences, exploration licences, mining leases, mining licences, mineral concessions and other forms of mineral tenure or other rights to Minerals, or to work upon lands for the purposes of searching for, developing or extracting Minerals under any forms of mineral title recognized under the laws applicable in Para State, Brazil, whether contractual, statutory or otherwise or any interest therein;
 
New Brazauro” means a Company to be incorporate under the BCBCA by Brazauro not less than 5 days prior to the day on which the Interim Order is sought;
 
New Brazauro Accession” has the meaning ascribed thereto in Section 5.2(b);
 
New Brazauro Shares” means the common shares in the capital of New Brazauro;
 
NI 43-101” means National Instrument 43-101 – Standards of Disclosure for Mineral Projects;
 
NYSE” means the New York Stock Exchange;
 
Option Agreement” has the meaning ascribed to it in Section 7.5.3;
 
ordinary course of business”, “ordinary course of business consistent with past practice”, or any similar reference, means, with respect to an action taken by a person, that such action is consistent with the past practices of such person and is taken in the
 
 
 

 
 
10
 
 
ordinary course of the normal day-to-day business and operations of such person; provided that in any event such action is not unreasonable or unusual;
 
Other Rights” means any interest in real property, whether freehold, leasehold, licence, right of way, easement or any other surface or other right in relation to real property and any right, licence or permit in relation to the use or diversion of water, but excluding any Mineral Rights;
 
Outside Date” means November 15, 2010, or such later date as may be agreed to in writing by the Parties;
 
Parties” means Brazauro, Subco and Eldorado, and “Party” means any of them;
 
Permit” means any license, permit, certificate, consent, order, grant, approval, classification, registration, flagging or other authorization of and from any Governmental Entity;
 
person” includes an individual, partnership, association, body corporate, trustee, executor, administrator, legal representative, government (including any Governmental Entity) or any other entity, whether or not having legal status;
 
Piranhas” means Brazauro’s project consisting of approximately 20,688 hectares and surrounding 7,229 hectares, located in Pará State, Brazil;
 
Plan of Arrangement” means the plan of arrangement, substantially in the form of Schedule A, and any amendments or variations thereto made in accordance with Section 8.3 hereof or the Plan of Arrangement or made at the direction of the Court in the Final Order with the consent of Brazauro and Eldorado, each acting reasonably, and any amendment thereto;
 
Pre-Acquisition Reorganization” has the meaning ascribed to it in Section 5.5(a);
 
Record Date” has the meaning ascribed to it in the Plan of Arrangement;
 
Regulatory Authorities” has the meaning ascribed to it in Section 3.1(z)(i);
 
Regulatory Authorizations” has the meaning ascribed to it in Section 3.1(z)(ii);
 
Release” means any release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Substance in the indoor or outdoor environment, including the movement of Hazardous Substance through or in the air, soil, surface water, ground water or property;
 
Response Period” has the meaning ascribed to it in Section 7.3.1(b);
 
Retained Project” means Agua Branca, Piranhas and the Tocantinzinho Project;
 
Retained Property” means Agua Branca, Piranhas, the Tocantinzinho Project, all cash, marketable securities and liquid assets of Brazauro and the liabilities related thereto;
 
 
 

 
 
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Returns” means all reports, forms, elections, information statements and returns (whether in tangible, electronic or other form) and including any amendments, schedules, attachments, supplements, appendices and exhibits thereto relating to, or required to be filed or prepared in connection with any Taxes;
 
ROFO Expiry Date” has the meaning ascribed to it in Section 7.5.3;
 
SEC” means the United States Securities and Exchange Commission;
 
Section 3(a)(10) Exemption” has the meaning ascribed thereto in Section 2.3;
 
Securities Act” means the Securities Act (British Columbia) and the rules, regulations and published policies made thereunder, as now in effect and as they may be promulgated or amended from time to time;
 
Securities Authorities” means the BCSC and the applicable securities commissions and other securities regulatory authorities in each of the other provinces of Canada;
 
Securities Laws” means the Securities Act, together with all other applicable provincial securities laws, rules and regulations and published policies thereunder, as now in effect and as they may be promulgated or amended from time to time;
 
Senior Locked-Up Shareholders” has the meaning ascribed to it in Section 6.2(d);
 
Share Exchange Ratio shall have the meaning ascribed to such term in the Plan of Arrangement;
 
Spin-off Property” means all assets and liabilities of Brazauro (including the Assumed Spin-Off Liabilities and all corporate opportunities and prospects of Brazauro, including “Project Phoenix”, which have been disclosed in the Disclosure Letter) other than the Retained Property;
 
SRP Rights” means the rights attached to the Brazauro Shares issued pursuant to the Brazauro Shareholder Rights Plan;
 
subsidiary” means, with respect to a specified body corporate, any body corporate of which more than 50% of the outstanding shares ordinarily entitled to elect a majority of the board of directors thereof (whether or not shares of any other class or classes shall or might be entitled to vote upon the happening of any event or contingency) are at the time owned directly or indirectly by such specified body corporate and shall include any body corporate, partnership, joint venture or other entity over which such specified body corporate exercises direction or control or which is in a like relation to a subsidiary;
 
Superior Proposal” means any bona fide unsolicited written Acquisition Proposal made after the date of this Agreement (and not obtained in violation of Section 7.2) that relates to 100% of the outstanding Brazauro Shares (other than Brazauro Shares owned by the Person making the Superior Proposal) or all or substantially all of the consolidated assets of Brazauro and its subsidiaries and:
 
 
 

 
 
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(a)
that is reasonably capable of being completed without undue delay, taking into account all financial, legal, regulatory and other aspects of such proposal and the person making such proposal;
 
 
(b)
that, in the case of an Acquisition Proposal to acquire the outstanding Brazauro Shares, is made available to all Brazauro Shareholders on the same terms and conditions (other than in the case of an asset transaction);
 
 
(c)
in respect of which, to the extent necessary, financing commitment letters reasonably satisfactory to the Brazauro Board are provided from the sources of financing to be used to complete the transaction contemplated by such proposal establishing that such financing is available without delays or conditions (other than the conditions attached to such Acquisition Proposal);
 
 
(d)
is not subject to a due diligence condition; and
 
 
(e)
in respect of which the Brazauro Board determines, in its good faith judgment, after receiving the advice of its outside legal and financial advisors, that:
 
 
(i)
failure to recommend such Acquisition Proposal to the holders of Brazauro Shares would be inconsistent with its fiduciary duties under applicable Law; and
 
 
(ii)
having regard for all of its terms and conditions, such Acquisition Proposal, will, if consummated in accordance with its terms (but not assuming away any risk of non-completion), result in a transaction more favourable to the holders of Brazauro Shares than the Arrangement, after taking into account any change to the Arrangement proposed by Eldorado pursuant to Section 7.3;
 
Tax Act” means the Income Tax Act (Canada), as amended from time to time;
 
Taxes” means any and all taxes, imposts, levies, withholdings, duties, fees, premiums, assessments and other charges of any kind, however denominated and instalments in respect thereof, including any interest, penalties, fines or other additions that have been, are or will become payable in respect thereof, imposed by any Governmental Entity, including for greater certainty all income or profits taxes (including Canadian, United States and Brazilian federal, provincial and territorial income taxes), payroll and employee withholding taxes, employment taxes, unemployment insurance, disability taxes, social insurance taxes, sales and use taxes, ad valorem taxes, excise taxes, goods and services taxes, harmonized sales taxes, franchise taxes, gross receipts taxes, capita l taxes, business license taxes, mining royalties, alternative minimum taxes, estimated taxes, abandoned or unclaimed (escheat) taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, severance taxes, workers’ compensation, United States, Canada, British Columbia, Brazil and other government pension plan premiums or contributions and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which a Party or any of its subsidiaries is required to pay, withhold or collect, together with any interest, penalties or other additions to tax that may become payable in respect of such taxes, and any interest in respect of such interest, penalties and additions whether disputed or not;
 
 
 

 
 
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Termination Fee” means the sum of $4.8 million;
 
Tocantinzinho Project” means the Tocantinzinho property in Brazil, as described in Schedule A to the Option Agreement;
 
Termination Fee Event” has the meaning ascribed to it in Section 7.4.3;
 
TSX” means the Toronto Stock Exchange;
 
TSX-V” means the TSX Venture Exchange;
 
Transaction Personal Information” has the meaning ascribed to it in Section 9.1;
 
United States” or “U.S.” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia;
 
U.S. Person” has the meaning ascribed to it in Regulation S of the U.S. Securities Act;
 
U.S. Securities Act” means the United States Securities Act of 1933 as the same has been and hereinafter from time to time may be amended;
 
U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as the same has been and hereinafter from time to time may be amended; and
 
Voting Agreements” means the voting agreements (including all amendments thereto) between Eldorado, Subco and the Locked-Up Shareholders setting forth the terms and conditions upon which they have agreed to vote their Brazauro Shares, Brazauro Warrants and Brazauro Options (including those issuable on the exercise of Brazauro Convertible Securities) in favour of the Arrangement Resolution.
 
1.2
Interpretation Not Affected by Headings
 
The division of this Agreement into Articles, Sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.  Unless the contrary intention appears, references in this Agreement to an Article, Section, subsection, paragraph or Schedule by number or letter or both refer to the Article, Section, subsection, paragraph or Schedule, respectively, bearing that designation in this Agreement.
 
1.3
Number and Gender
 
In this Agreement, unless the contrary intention appears, words importing the singular include the plural and vice versa, and words importing gender include all genders.
 
1.4
Date for Any Action
 
If the date on which any action is required to be taken hereunder by a Party is not a business day, such action shall be required to be taken on the next succeeding day which is a business day.
 
 
 

 
 
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1.5
Currency
 
Unless otherwise stated, all references in this Agreement to sums of money are expressed in lawful money of Canada and “$” refers to Canadian dollars.
 
1.6
Accounting Matters
 
Unless otherwise stated, all accounting terms used in this Agreement in respect of Brazauro shall have the meanings attributable thereto under GAAP and all determinations of an accounting nature in respect of Brazauro required to be made shall be made in a manner consistent with GAAP consistently applied.
 
1.7
Knowledge
 
In this Agreement, where any representation or warranty is expressly qualified by reference to the knowledge of any Party, such Party confirms that it has made due and diligent enquiry of such persons (including appropriate officers, employees and consultants, as applicable) as is reasonable, taking into account the matters that are the subject of the representations and warranties.
 
1.8
Schedules
 
The following Schedules are annexed to this Agreement and are incorporated by reference into this Agreement and form a part hereof:

Schedule A
-
Plan of Arrangement
Schedule B
-
Arrangement Resolution
Schedule C
-
Key Regulatory Approvals
Schedule D
-
Key Third Party Consents
Schedule E
-
Concessions
Schedule F
-
Lands
Schedule G
-
New Brazauro Representations, Warranties and Covenants
 
ARTICLE 2
THE ARRANGEMENT
 
2.1
Arrangement
 
The Parties agree that the Arrangement will be implemented in accordance with and subject to the terms and conditions contained in this Agreement and the Plan of Arrangement.  The closing of the transactions contemplated hereby shall take place at the offices of Eldorado Counsel in Vancouver, British Columbia at the Effective Time on the Effective Date.
 
2.2
Court Orders
 
Brazauro shall apply to the Court, in a manner acceptable to Eldorado and Subco, acting reasonably, pursuant to section 291 of the BCBCA for the Interim Order and the Final Order as follows:
 
 
(a)
As soon as reasonably practicable following the date of execution of this Agreement, Brazauro shall file, proceed with and diligently prosecute an application to the Court for the Interim Order which shall provide, among other things:
 
 
 

 
 
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(i)
for the class of persons to whom notice is to be provided in respect of the Arrangement and the Brazauro Meeting and for the manner in which such notice is to be provided;
 
 
(ii)
that the requisite approval for the Arrangement Resolution shall be:
 
 
(A)
at least two-thirds of the votes cast at the Brazauro Meeting in person or by proxy by the Brazauro Securityholders voting together as one class on the basis of one vote per Brazauro Share, one vote per Brazauro Option (vested and not yet vested) and one vote per Brazauro Warrant held;
 
 
(B)
at least two-thirds of the votes cast at the Brazauro Meeting in person or by proxy by the Brazauro Shareholders voting as one class; and
 
 
(C)
a simple majority of the votes cast at the Brazauro Meeting in person or by proxy by Brazauro Shareholders excluding the votes cast in respect of Brazauro Shares beneficially owned or over which control or direction is exercised by Eldorado and any of its related parties (as defined in MI 61-101) or joint actors (as defined in MI 61-101), and such other Brazauro Shareholders excluded by MI 61-101,
 
(the “Brazauro Securityholder Approval”);
 
 
(iii)
that in all other respects, the terms, conditions and restrictions of the Brazauro constating documents, including quorum requirements and other matters, shall apply in respect of the  Brazauro Meeting;
 
 
(iv)
for the grant of Dissent Rights only to the Brazauro Shareholders who are registered holders of Brazauro Shares and Brazauro Warrantholders;
 
 
(v)
for notice requirements with respect to the presentation of the application to the Court for the Final Order;
 
 
(vi)
that the Brazauro Meeting may be adjourned from time to time by management of Brazauro with the consent of Eldorado without the need for additional approval of the Court;
 
 
(vii)
that the Record Date for Brazauro Securityholders entitled to notice of and to vote at the Brazauro Meeting will not change in respect of any adjournment(s) of the Brazauro Meeting; and
 
 
(b)
subject to obtaining the approvals as contemplated by the Interim Order and as may be directed by the Court in the Interim Order, take all steps necessary or desirable to submit the Arrangement to the Court and to apply for the Final Order.
 
2.3
U.S. Securities Law Matters
 
The parties agree that the Arrangement will be carried out with the intention that all Eldorado Shares, Converted Eldorado Options and Converted Eldorado Warrants issued on completion of the Arrangement to the Brazauro Securityholders will be issued by Eldorado in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) of the U.S.
 
 
 

 
 
16
 
 
Securities Act (the “Section 3(a)(10) Exemption”).  In order to ensure the availability of the Section 3(a)(10) Exemption, the parties agree that the Arrangement will be carried out on the following basis:
 
 
(a)
the Arrangement will be subject to the approval of the Court;
 
 
(b)
the Court will be advised as to the intention of the parties to rely on the Section 3(a)(10) Exemption prior to the hearing required to approve the Arrangement;
 
 
(c)
the Court will be required to satisfy itself as to the fairness of the Arrangement to the Brazauro Securityholders subject to the Arrangement;
 
 
(d)
the Final Order approving the Arrangement that is obtained from the Court will expressly state that the Arrangement is approved by the Court as being fair to the Brazauro Securityholders;
 
 
(e)
each Brazauro Securityholder entitled to receive Eldorado Shares, Converted Eldorado Options or Converted Eldorado Warrants on completion of the Arrangement will be given adequate notice advising them of their right to attend the hearing of the Court to give approval of the Arrangement and providing them with sufficient information necessary for them to exercise that right;
 
 
(f)
the Brazauro Securityholders will be advised that the Eldorado Shares, Converted Eldorado Options and Converted Eldorado Warrants issued in the Arrangement have not been registered under the U.S. Securities Act and will be issued  by Eldorado in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) of the U.S. Securities Act and certain restrictions on resale under the securities laws of the United States, including, as applicable, Rule 144 under the U.S. Securities Act may be applicable with respect to securities issued to affiliates of Eldorado;
 
 
(g)
the Interim Order approving the Brazauro Meeting will specify that each Brazauro Securityholder will have the right to appear before the Court at the hearing of the Court to give approval of the Arrangement so long as they enter an appearance within a reasonable time; and
 
 
(h)
the Final Order shall include a statement to substantially the following effect:
 
“This Order will serve as a basis of a claim to an exemption, pursuant to section 3(a)(10) of the United States Securities Act of 1933, as amended, from the registration requirements otherwise imposed by that act, regarding the distribution of securities of Eldorado Gold Corporation, pursuant to the Plan of Arrangement.”
 
2.4
Brazauro Meeting
 
 
(a)
Subject to the terms of this Agreement, Brazauro agrees to convene and conduct the Brazauro Meeting in accordance with the Interim Order, Brazauro’s notice of articles and articles and applicable Law on or before July 15, 2010 or as soon as reasonably practicable thereafter.
 
 
 

 
 
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(b)
Subject to the terms of this Agreement, Brazauro will use its commercially reasonable efforts to solicit proxies in favour of the approval of the Arrangement Resolution, including, if so requested by Eldorado, using proxy solicitation services.
 
 
(c)
Brazauro will advise Eldorado as Eldorado may reasonably request, and at least on a daily basis on each of the last 10 business days prior to the date of the Brazauro Meeting, as to the aggregate tally of the proxies received by Brazauro in respect of the Arrangement Resolution.
 
 
(d)
Brazauro will promptly advise Eldorado of any written notice of dissent or purported exercise by any Brazauro Shareholder or Brazauro Warrantholder of Dissent Rights received by Brazauro in relation to the Arrangement Resolution and any withdrawal of Dissent Rights received by Brazauro and, subject to applicable Law, any written communications sent by or on behalf of Brazauro to any Brazauro Shareholder or Brazauro Warrantholder exercising or purporting to exercise Dissent Rights in relation to the Arrangement Resolution.
 
 
(e)
Upon receipt by Brazauro from Eldorado of all necessary documents required to be executed by it, Brazauro will use its best efforts to prepare or cause to be prepared and provide to Eldorado lists of the holders of all classes and series of securities of Brazauro, including lists of the Brazauro Securityholders, as well as a security position listing from each depositary of its securities, including The Canadian Depositary for Securities Limited and The Depository Trust Company, within five business days after the date hereof and will obtain and deliver to Eldorado thereafter on demand supplemental lists setting out any changes thereto, all such deliveries to be in printed form and, if available, in computer-readable format.
 
 
(f)
As soon as reasonably practicable following execution of this Agreement and in any event not later than June 23, 2010, Brazauro will convene a meeting of the Brazauro Board to approve the Brazauro Circular.
 
2.5
Brazauro Circular
 
 
(a)
Brazauro shall prepare the Brazauro Circular in compliance with the Securities Laws and file on a timely basis, and in any event on or before June 23, 2010, the Brazauro Circular with respect to the Brazauro Meeting in all jurisdictions where the same is required to be filed and mail the same as required by the Interim Order and in accordance with all applicable Laws, in all jurisdictions where the same is required, complying in all material respects with all applicable Laws on the date of mailing thereof and containing sufficient detail to enable securityholders to form a reasoned judgement concerning the Arrangement.  Without limiting the generality of the foregoing, Brazauro shall, in consultation with Eldorado, use all commercially reasonable efforts to abridge the timing contemplated by National Instrument 54-101 – Communication with Ben eficial Owners of Securities of a Reporting Issuer, as provided in section 2.20 thereof (it being agreed that such efforts shall not necessarily include the making of an application for a waiver or exemption from such National Instrument).
 
 
(b)
Brazauro shall ensure that the Brazauro Circular complies in all material respects with all applicable Laws, and, without limiting the generality of the foregoing, that the Brazauro Circular will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein
 
 
 

 
 
18
 
 
not misleading in light of the circumstances in which they are made (other than in each case with respect to any information relating to Eldorado and its affiliates, including Eldorado Shares) and shall provide Brazauro Securityholders with information in sufficient detail to permit them to form a reasoned judgement concerning the matters to be placed before them at the Brazauro Meeting.
 
 
(c)
Subject to Section 7.2, the Brazauro Circular will include the recommendation of the Brazauro Board that Brazauro Securityholders vote in favour of the Arrangement Resolution, and a statement that certain directors of Brazauro intend to vote all of their respective Brazauro Securities (including any Brazauro Shares issued upon the exercise of any Brazauro Options) in favour of the Arrangement Resolution, subject to the other terms of this Agreement and the Voting Agreements.
 
 
(d)
The terms of the Brazauro Circular shall comply with the terms of this Agreement.
 
 
(e)
Eldorado will furnish to Brazauro all such information regarding Eldorado, its affiliates and the Eldorado Shares, as may be required to meet the requirements of Section 14.2 of Form 51-102 F5) in the preparation of the Brazauro Circular and other documents related thereto.
 
 
(f)
Eldorado and Eldorado Counsel shall be given a reasonable opportunity to review and comment on the Brazauro Circular, prior to the Brazauro Circular being printed, mailed to Brazauro Shareholders and filed with the Securities Authorities, and Brazauro shall incorporate all reasonable comments (as determined by Brazauro Counsel, acting reasonably) made by Eldorado and Eldorado Counsel, provided that all information relating solely to Eldorado included in the Brazauro Circular shall be in form and substance satisfactory to Eldorado, acting reasonably. Brazauro shall provide Eldorado with a final copy of the Brazauro Circular prior to the mailing to the Brazauro Shareholders.
 
 
(g)
Brazauro and Eldorado shall each promptly notify each other if at any time before the Effective Date it becomes aware (in the case of Brazauro only with respect to Brazauro and New Brazauro and in the case of Eldorado only with respect to Subco or Eldorado) that the Brazauro Circular contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made, or that otherwise requires an amendment or supplement to the Brazauro Circular, and the Parties shall co-operate in the preparation of any amendment or supplement to the Brazauro Circular, as required or appropriate, and Brazauro shall promptly mail or otherwise publicly disseminate any amendment or supplement to the Brazauro Circular to Braz auro Securityholders and, if required by the Court or applicable Laws, file the same with the Securities Authorities and as otherwise required.
 
 
(h)
Eldorado shall be responsible for all information in the Brazauro Circular regarding Eldorado and its affiliates (other than any information provided by Brazauro to Eldorado or obtained from the Brazauro Public Disclosure Record for the purposes of describing the resulting issuer following the Effective Time).  New Brazauro shall be responsible for all information in the Brazauro Circular regarding Brazauro and its affiliates prior to the Effective Time, including all information provided to Eldorado or obtained from the Brazauro Public Disclosure Record for the purposes of describing the resulting issuer
 
 
 

 
 
19
 
 
following the Effective Time.  For greater certainty, Eldorado shall not be responsible for any information in the Brazauro Circular relating to Brazauro or New Brazauro.
 
2.6
Final Order
 
If the Interim Order is obtained, the Arrangement Resolution is passed at the Brazauro Meeting by Brazauro Securityholders as provided for in the Interim Order and as required by applicable Law, and the Key Regulatory Approvals are obtained, and subject to the terms of this Agreement, Brazauro shall, as soon as reasonably practicable thereafter and, in any event, within three business days thereafter, take all steps necessary or desirable to submit the Arrangement to the Court and diligently pursue an application for the Final Order pursuant to section 291 of the BCBCA.
 
2.7
Court Proceedings
 
Subject to the terms of this Agreement, Eldorado and Subco will cooperate with, assist and consent to Brazauro seeking the Interim Order and the Final Order, including by providing Brazauro on a timely basis any information required to be supplied by Eldorado in connection therewith. Brazauro will provide Eldorado Counsel with reasonable opportunity to review and comment upon drafts of all material to be filed with the Court in connection with the Arrangement, and will give reasonable consideration to all such comments provided that all information relating solely to Eldorado in such material shall be in form and substance satisfactory to Eldorado. Brazauro will also provide Eldorado Counsel on a timely basis with copies of any appearance, response or other responsive material or notice of intent to oppose and any evidence served on B razauro or Brazauro Counsel in respect of the application for the Interim Order or the Final Order or any appeal therefrom.  Subject to applicable Law, Brazauro will not file any material with the Court in connection with the Arrangement or serve any such material, and will not agree to modify or amend materials so filed or served, except as contemplated hereby or with Eldorado’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed; provided that nothing herein shall require Eldorado to agree or consent to any increase in consideration or other modification or amendment to such filed or served materials that expands or increases Eldorado or Subco’s obligations set forth in any such filed or served materials or under this Agreement.
 
2.8
Effect on the Arrangement and Effective Date and Payment of Consideration
 
2.8.1                      Subject to the satisfaction or, where not prohibited and subject to applicable Law,  the waiver of the conditions set forth in Article 6 by the applicable Party for whose benefit such conditions exist (excluding conditions that, by their terms, cannot be satisfied until the Effective Date, but subject to the satisfaction or, where not prohibited, the waiver of those conditions as of the Effective Date by the applicable Party for whose benefit such conditions exist), upon the Arrangement Resolution having been approved and adopted by the Brazauro Securityholders at the Brazauro Meeting, in accordance with the Interim Orde r and Brazauro obtaining the Final Order, the Arrangement shall be effective at the Effective Time on the Effective Date.
 
2.8.2                      Eldorado will, following receipt of the Final Order and prior to the Effective Time, make arrangements for the Depositary to be provided with sufficient Eldorado Shares to satisfy its obligations under the Arrangement.
 
2.9
Preparation of Filings
 
Eldorado and Brazauro shall co-operate in the preparation of any application for the Key Regulatory Approvals and any other orders, registrations, consents, filings, rulings, exemptions, no-action
 
 
 

 
 
20
 
 
letters and approvals and the preparation of any documents reasonably deemed by either of the Parties to be necessary to discharge its respective obligations or otherwise advisable under applicable Laws in connection with this Agreement or the Plan of Arrangement.
2.10
Announcement and Shareholder Communications
 
Eldorado and Brazauro shall each publicly announce the transactions contemplated hereby promptly following the execution of this Agreement by the Parties, the text and timing of each such announcement to be approved by Eldorado and Brazauro in advance, acting reasonably. Eldorado and Brazauro agree to co-operate in the preparation of presentations, if any, to Brazauro Securityholders regarding the Plan of Arrangement, and no Party shall:
 
 
(a)
issue any press release or otherwise make public announcements with respect to this Agreement or the Plan of Arrangement without the consent of the other Party (which consent shall not be unreasonably withheld or delayed); or
 
 
(b)
make any filing with any Governmental Entity or with the Exchanges with respect thereto without prior consultation with the other Party; provided, however, that the foregoing shall be subject to each Party’s overriding obligation to make any disclosure or filing required under applicable Laws or stock exchange rules, and the Party making such disclosure shall use all commercially reasonable efforts to give prior oral or written notice to the other Party and reasonable opportunity to review or comment on the disclosure or filing, and if such prior notice is not possible, to give such notice immediately following the making of such disclosure or filing, provided that all information relating solely to Eldorado shall be in form and substance satisfactory to Eldorado.
 
2.11
Withholding Taxes
 
Eldorado, Brazauro and the Depositary shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any person hereunder and from all dividends or other distributions otherwise payable to any former Brazauro Securityholder such amounts as Eldorado, Subco, Brazauro or the Depositary may be required or permitted to deduct and withhold therefrom under any provision of applicable Laws in respect of Taxes.  To the extent that such amounts are so deducted, withheld and remitted, such amounts shall be treated for all purposes under this Agreement as having been paid to the person to whom such amounts would otherwise have been paid.
 
2.12
Canadian Tax Matters
 
The Arrangement is intended to create the opportunity to increase the Canadian tax basis of the Brazauro assets under Sections 88(1)(c) and (d) of the Tax Act, and each Party hereto agrees to act in a manner that is consistent with the intention to create and maintain this opportunity.  The Arrangement is intended to have these additional Canadian tax results:
 
 
(a)
Brazauro will undergo a share capital reorganization which creates an additional class of shares and Eldorado will exchange the Brazauro Shares that it currently holds for the newly created class of shares in a tax deferred manner contemplated by Sections 51, 85(1) or 86 of the Tax Act;
 
 
(b)
the transfer of the Spin-Off Property to New Brazauro will happen at fair market value and may not be eligible for tax deferred treatment;
 
 
 

 
 
21
 
 
 
(c)
the distribution of the New Brazauro Shares to Brazauro Shareholders shall be treated  as a capital repayment that is not treated as a dividend under the Tax Act;
 
 
(d)
the Brazauro Shares will be transferred to Subco in exchange for the issuance of Eldorado Shares to the Brazauro Shareholders and such transfer of Brazauro Shares will not be eligible for tax-deferred treatment for the Brazauro Shareholders under the Tax Act;
 
 
(e)
Brazauro Shareholders may elect, prior to implementation of the Arrangement, to have their Brazauro Shares transferred to Eldorado directly in exchange for the issuance of Eldorado Shares, and such transfer will be eligible for tax deferred treatment for the Brazauro Shareholders under the Tax Act;
 
 
(f)
the Brazauro Options will be exchanged for Converted Eldorado Options as set out in the Plan of Arrangement and such exchange will be eligible for tax-deferred treatment for the Brazauro Optionholders under the Tax Act to the extent any Brazauro Option is granted under s.7 of the Tax Act; and
 
 
(g)
the Brazauro Warrants will be exchanged for Converted Eldorado Warrants as set out in the Plan of Arrangement and such exchange will not be eligible for tax-deferred treatment for the Brazauro Warrantholders under the Tax Act.
 
2.13
U.S. Tax Matters
 
                      The Arrangement is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code and this Agreement is intended to be a “plan of reorganization” within the meaning of the Treasury Regulations promulgated under Section 368 of the Code.  Each Party, to the extent it is required to make any filings in the United States, agrees to treat the Arrangement as a reorganization within the meaning of Section 368(a) of the Code for all U.S. federal income tax purposes, and agrees to treat this Agreement as a “plan of reorganization” within the meaning of the Treasury Regulations promulgated under Section 368 of the U.S. Internal Revenue Code, and to not take any position on any Tax Return or otherwise take any Tax reporting position inconsistent with such treatment, unless otherwise required by Law, as determined by such Party in its sole discretion.  Notwithstanding any representations and covenants set forth in this Agreement, it is understood and agreed that neither Eldorado nor Brazauro provide any assurances to any Brazauro Securityholders regarding the United States federal income tax consequences of the Arrangement to any Brazauro Securityholder.
 
2.13.1            The parties agree to use commercially reasonable efforts to amend the Plan of Arrangement if necessary, so that the Plan of Arrangement qualifies as a reorganization within the meaning of Section 368(a) of the Code; provided however, that no Party shall be required to use commercially reasonable efforts to amend the Plan of Arrangement or agree to an amendment to the Plan of Arrangement if such amendment would result in a materially adverse or potentially materially adverse tax realization, payment or other tax event to that party or if such amendment would be in violation of the Party’s governing laws and regulatory provisions.
 
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BRAZAURO
 
3.1
Representations and Warranties of Brazauro
 
Brazauro hereby represents and warrants to and in favour of Subco and Eldorado as follows, except to the extent that such representations and warranties are qualified by the Disclosure
 
 
 

 
 
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Letter (which shall make reference to the applicable section, subsection, paragraph or subparagraph below in respect of which such qualification is being made), and acknowledges that Subco and Eldorado are relying upon such representations and warranties in connection with the entering into of this Agreement:
 
 
(a)
Board Approval.  As of the date hereof, the Brazauro Board, after consultation with its financial and legal advisors, has determined that the Plan of Arrangement is fair to the Brazauro Securityholders and is in the best interests of Brazauro and has resolved to recommend to the Brazauro Securityholders that they vote in favour of the Arrangement Resolution.  The Brazauro Board has approved the Arrangement pursuant to the Plan of Arrangement and the execution and performance of this Agreement.
 
 
(b)
Fairness Opinion. The Brazauro Board has received oral confirmation that it will receive the written opinion of BMO Nesbitt Burns Inc., the Brazauro Board’s financial advisor, to the effect that, as of the date of such opinion, subject to the assumptions and limitations set out therein, the consideration to be received by the Brazauro Shareholders (other than Eldorado and its affiliates) in connection with the transactions contemplated by this Agreement is fair, from a financial point of view, to such Brazauro Shareholders other than Eldorado, and a written fairness opinion is to be included in the Brazauro Circular.
 
 
(c)
Organization and Qualification. Brazauro and each of its subsidiaries is a corporation duly incorporated or an entity duly created and validly existing under all applicable Laws of its jurisdiction of incorporation, continuance or creation and has all necessary corporate or other power, authority and capacity to own its property and assets as now owned and to carry on its business as it is now being conducted.  Brazauro and each of its subsidiaries:
 
 
(i)
except as disclosed in Schedule 3.1(c) of the Disclosure Letter, has all material Permits necessary to conduct its business substantially as now conducted or as intended to be conducted as disclosed in the Brazauro Public Disclosure Record, except where the failure to hold such Permits would not individually or in the aggregate have a Material Adverse Effect; and
 
 
(ii)
is duly registered or otherwise authorized and qualified to do business and each is in good standing in each jurisdiction in which the character of its properties, owned, leased, licensed or otherwise held, or the nature of its activities makes such qualification necessary.
 
 
(d)
Authority Relative to this Agreement.  Brazauro has the requisite corporate power, authority and capacity to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Brazauro and the performance by Brazauro of its obligations under this Agreement have been duly authorized by the Brazauro Board and no other corporate proceedings on its part are necessary to authorize this Agreement or the Arrangement pursuant to the Plan of Arrangement. This Agreement has been duly executed and delivered by Brazauro and constitutes a legal, valid and binding obligation of Brazauro, enforceable against Brazauro in accordance with its terms, subject to the qualification that such enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of general application relating to o r affecting rights of creditors and that equitable remedies, including specific performance, are discretionary.
 
 
 

 
 
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(e)
No Violation.  None of the authorization, execution and delivery of this Agreement by Brazauro, the completion of the transactions contemplated by this Agreement or the Arrangement pursuant to the Plan of Arrangement, the performance of its obligations thereunder, nor compliance by Brazauro with any of the provisions hereof will:
 
 
(i)
violate, conflict with, or result (with or without notice or the passage of time) in a violation or breach of any provision of, or require, except in respect of the Key Third Party Consents (which are the only consents, approvals and notices required from any third party under any Contracts of Brazauro or any of its subsidiaries in order for Brazauro and its subsidiaries to proceed with the execution and delivery of this Agreement and the completion of the transactions contemplated by this Agreement and the Arrangement pursuant to the Plan of Arrangement), any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in a right of termination or acceleration under, or result in the creation of any Lien upon any of the properties or assets of Brazauro or any of its subsidiaries, or cause any indebtedness to come due b efore its stated maturity, or cause any credit commitment to cease to be available, or cause any payment or other obligation to be imposed on Brazauro or any of its subsidiaries, under any of the terms, conditions or provisions of:
 
 
(A)
their respective articles, charters or by-laws or other comparable organizational documents; or
 
 
(B)
any Permit or Material Contract to which Brazauro or any of its subsidiaries is a party or to which any of them, or any of their respective properties or assets, may be subject or by which Brazauro or any of its subsidiaries is bound; or
 
 
(ii)
subject to obtaining the Key Regulatory Approvals,
 
 
(A)
result (with or without notice or the passage of time) in a violation or breach of or constitute a default under any provisions of any Laws applicable to Brazauro or any of its subsidiaries or any of their respective properties or assets; or
 
 
(B)
cause the suspension or revocation of any Permit currently in effect in regard of Brazauro or any of its subsidiaries (except, in the case of each of clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of Liens or any consents (expressly excluding the Key Third Party Consents and Key Regulatory Approvals), approvals or notices which if not given or received, would not, individually or in the aggregate, reasonably be expected to have any Material Adverse Effect).
 
 
(iii)
give rise to any rights of first refusal or, except as disclosed in Section 3.1(e) of the Disclosure Letter, trigger any change in control provisions or any restrictions or limitation under any such note, bond, mortgage, indenture, contract, license, franchise or Permit, or result in the imposition of any encumbrance, charge or Lien upon any of Brazauro’s assets or the assets of any of its subsidiaries; or
 
 
 

 
 
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(iv)
result in the imposition of any Liens upon any assets of Brazauro or any of its subsidiaries.
 
 
(f)
Capitalization.  The authorized share capital of Brazauro consists of an unlimited number of Brazauro Shares. As of the close of business on May 11, 2010, there are issued and outstanding 93,197,320 Brazauro Shares. As of the close of business on May 11,  2010, an aggregate of up to 18,673,678 Brazauro Shares are issuable upon the exercise of 9,731,059 Brazauro Options, 4,400,000 Brazauro 2008 Warrants, 4,067,439 Brazauro 2009 Warrants and 475,180 Brazauro Agent’s Warrants and there are no options, warrants, conversion privileges or other rights, shareholder rights plans (other than the Brazauro Shareholder Rights Plan), agreements, arrangements or commitments (pre-emptive, contingent or otherwise) of any character whatsoever requiring or which may require the issuance, sale or transfer by Brazauro of any securities of Bra zauro (including Brazauro Shares), or any securities or obligations convertible into, or exchangeable or exercisable for, or otherwise evidencing a right or obligation to acquire, any securities of Brazauro (including Brazauro Shares) or of any subsidiary of Brazauro.  Other than the Brazauro Shares and the Brazauro Convertible Securities, there are no securities of Brazauro outstanding.  All outstanding Brazauro Shares have been duly authorized and validly issued, are fully paid and non-assessable, and all Brazauro Shares issuable upon the exercise of Brazauro Convertible Securities in accordance with their respective terms have been duly authorized and, upon issuance, will be validly issued as fully paid and non-assessable, and are not and will not be subject to, or issued in violation of, any pre-emptive rights. All securities of Brazauro (including the Brazauro Shares and the Brazauro Convertible Securities) have been issued in compliance with all applicable Laws and Securities Laws.& #160; Other than the Brazauro Convertible Securities, there are no securities of Brazauro or of any of its subsidiaries outstanding which have the right to vote generally (or are convertible into or exchangeable for securities having the right to vote generally) with the Brazauro Shareholders on any matter.  Except as disclosed in Schedule 3.1(f) of the Disclosure Letter, there are no outstanding contractual or other obligations of Brazauro or any subsidiary to repurchase, redeem or otherwise acquire any of its securities or with respect to the voting or disposition of any outstanding securities of any of its subsidiaries, other than the Brazauro Options. There are no outstanding bonds, debentures or other evidences of indebtedness of Brazauro or any of its subsidiaries having the right to vote with the holders of the outstanding Brazauro Shares on any matters.
 
 
(g)
Brazauro Shareholder Rights Plan.  Brazauro has taken all corporate action required for it to perform its obligations under Section 5.2(a) hereof.
 
 
(h)
Reporting Status and Securities Laws Matters.  Brazauro is a “reporting issuer” and not on the list of reporting issuers in default under applicable Canadian provincial Securities Laws in British Columbia, Alberta and Ontario and is required to file reports pursuant to Section 13 or Section 15(d) of the U.S. Exchange Act.  No delisting, suspension of trading in or cease trading order with respect to any securities of Brazauro and, to the knowledge of Brazauro, no inquiry or investigation (formal or informal) of any Securities Authority or the SEC, is in effect or ongoing or, to the knowledge of Brazauro, expected to be implemented or undertaken.
 
 
(i)
Ownership of Subsidiaries.  Schedule 3.1(i) of the Disclosure Letter includes complete and accurate lists of all subsidiaries owned, directly or indirectly, by Brazauro, each of which is wholly-owned other than as disclosed in Schedule 3.1(i) of the Disclosure
 
 
 

 
 
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Letter.  All of the issued and outstanding shares of capital stock and other ownership interests in the subsidiaries of Brazauro are duly authorized, validly issued, fully paid and non-assessable, and all such shares and other ownership interests held directly or indirectly by Brazauro are legally and beneficially owned free and clear of all Liens, and there are no outstanding options, warrants, rights, entitlements, understandings or commitments (contingent or otherwise) regarding the right to purchase or acquire, or securities convertible into or exchangeable for, any such shares of capital stock or other ownership interests in or material assets or properties of any of the subsidiaries of Brazauro, except as disclosed in Schedule 3.1(i) of the Disclosure Letter. There are no contracts, commitments, agreements, understandings, arrangements or restrictions which require any subsidiaries of Brazauro to issue, sell or deliver any shares in its share capital or other ownership interests, or any securities or obligations convertible into or exchangeable for, any shares of its share capital or other ownership interests. Except as otherwise disclosed in Schedule 3.1(i) of the Disclosure Letter there are no outstanding options, rights, entitlements, understandings or commitments (contingent or otherwise) providing to any third party the right to acquire any shares or other ownership interests in any subsidiaries of Brazauro. All ownership interests of Brazauro and its subsidiaries are owned free and clear of all Liens of any kind or nature whatsoever held by third parties.
 
 
(j)
Public Filings.  Brazauro has filed all documents in the Brazauro Public Disclosure Record required to be filed by it in accordance with applicable Securities Laws, other than documents and information filed with the SEC, the Securities Authorities or the TSX-V.  Brazauro has filed all documents in the Brazauro Public Disclosure Record required to be filed with or furnished to the SEC.  All such documents and information comprising the Brazauro Public Disclosure Record, as of their respective dates (and the dates of any amendments thereto):
 
 
(i)
did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading;
 
 
(ii)
with respect to the documents and information filed on SEDAR, complied in all material respects with the requirements of applicable Securities Laws, and any amendments to the Brazauro Public Disclosure Record required to be made have been filed on a timely basis with the Securities Authorities or the TSX-V. Brazauro has not filed any confidential material change report with any Securities Authorities that at the date of this Agreement remains confidential; and
 
 
(iii)
with respect to the documents and information filed with the SEC, were prepared in accordance with the requirements of the U.S. Exchange Act, and the rules and regulations promulgated thereunder.
 
 
(k)
Brazauro Financial Statements.  Brazauro’s audited financial statements as at and for the fiscal years ended January 31, 2009 and 2008 (including the notes thereto and related MD&A) and Brazauro’s unaudited financial statements as at and for the three and nine months ended October 31, 2009 (collectively, the “Brazauro Financial Statements”) were prepared in accordance with GAAP consistently applied (except as otherwise indicated in such financial statements and the notes thereto or, in the case of audited statements, in the related report of Brazauro’s independent auditors, or in the case of unaudited interim statements, are subject to normal period-end adjustments and may omit notes which are not required by applicable Laws in the unaudited sta tements) and fairly
 
 
 

 
 
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present in all material respects the consolidated financial position, results of operations and changes in financial position of Brazauro and its subsidiaries as of the dates thereof and for the periods indicated therein (subject, in the case of any unaudited interim financial statements, to normal period-end adjustments) and reflect reserves required by GAAP in respect of all material contingent liabilities, if any, of Brazauro and its subsidiaries on a consolidated basis.  There has been no material change in Brazauro’s accounting policies, except as described in the notes to the Brazauro Financial Statements, since October 31, 2009, and to the knowledge of Brazuaro, the audited financial statements for the fiscal year ended January 31, 2010 are not anticipated to disclose any material information or material events that have occurred or which are expected to occur that would constitute a Mat erial Adverse Effect.
 
(l)
Internal Controls and Financial Reporting. Brazauro has designed and implemented disclosure controls and procedures, to the extent appropriate for a company of Brazauro’s size and stage of development, to provide reasonable assurance that material information relating to Brazauro, including its consolidated subsidiaries, is made known to the Chief Executive Officer and the Chief Financial Officer of Brazauro by others within those entities, as appropriate to allow timely decisions regarding required disclosure, particularly during the periods in which filings are being prepared.  Brazauro has also designed and implemented internal controls over financial reporting (as defined in Rule 13a-15(e) under the U.S. Exchange Act), designed to the extent appropriate for a company of Brazauro’s size and stage of development, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles.  Brazauro has disclosed, based on the most recent evaluation of its Chief Executive Officer and its Chief Financial Officer prior to the date hereof, to Brazauro’s auditors and the audit committee of Brazauro’s board of directors:
 
 
(i)
any significant deficiencies in the design or operation of its internal controls over financial reporting that are reasonably likely to adversely affect Brazauro’s ability to record, process, summarize and report financial information and has identified for Brazauro’s auditors and Brazauro’s board of directors any material weaknesses in internal control over financial reporting; and
 
 
(ii)
any fraud, whether or not material, that involves management or other employees who have a significant role in Brazauro’s internal control over financial reporting.
 
 
(m)
Books and Records.  The financial books, records and accounts of Brazauro and its subsidiaries, in all material respects:
 
 
(i)
have been maintained in accordance with Canadian Law;
 
 
(ii)
in each case are stated in reasonable detail and accurately and fairly reflect the material transactions and dispositions of the assets of Brazauro and its subsidiaries; and
 
 
(iii)
accurately and fairly reflect the basis for Brazauro Financial Statements.
 
 
(n)
Minute Books.  Except as disclosed in Schedule 3.1(n) of the Disclosure Letter, the minute books of each of Brazauro and its subsidiaries are true and correct in all material
 
 
 

 
 
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respects; they contain the duly signed minutes of all meetings of the boards of directors, committees of the boards and shareholders and all resolutions passed by the boards of directors, committees of the boards and the shareholders.
 
 
(o)
No Undisclosed Liabilities. Brazauro and its subsidiaries have no outstanding indebtedness or liabilities and none is a party to or bound by any surety-ship, guarantee, indemnification or assumption agreement, or endorsement of, or any other similar commitment with respect to the obligations, liabilities or indebtedness of any person, other than those specifically identified in the Brazauro Financial Statements or, to the extent disclosed in Schedule 3.1(o) of the Disclosure Letter, incurred in the ordinary course of business since the date of the most recent financial statements of Brazauro filed on SEDAR.
 
 
(p)
No Material Change.  Since January 31, 2010, except as disclosed in the Brazauro Public Disclosure Record, there has been no material change in respect of Brazauro and its subsidiaries taken as a whole, and the debt, business and material property of Brazauro and its subsidiaries conform in all respects to the description thereof contained in the Brazauro Public Disclosure Record; and there has been no dividend or distribution of any kind declared, paid or made by Brazauro on any Brazauro Shares.
 
 
(q)
Litigation.  Except as disclosed in Schedule 3.1(q) of the Disclosure Letter, to the knowledge of Brazauro, there are no material claims, actions, suits, grievances, complaints or proceedings pending or, to the knowledge of Brazauro, threatened affecting Brazauro or any of its subsidiaries or affecting any of their respective property or assets at law or in equity before or by any Governmental Entity, including matters arising under Environmental Laws. Neither Brazauro nor any of its subsidiaries nor their respective assets or properties is subject to any outstanding material judgment, order, writ, injunction or decree.
 
 
(r)
Taxes. Except as disclosed in Schedule 3.1(r) of the Disclosure Letter, Brazauro and each of its subsidiaries has duly and timely filed all Returns required to be filed by it prior to the date hereof, other than those which have been administratively waived, and all such Returns are complete and correct in all material respects and none of its declared Tax credits has expired under the applicable statute of limitations:
 
 
(i)
Brazauro and each of its subsidiaries has paid on a timely basis all Taxes which are due and payable, all assessments and reassessments, other than those which are being or have been contested in good faith and in respect of which reserves have been provided in the most recently published Brazauro Financial Statements.
 
 
(ii)
Except as provided for in the Brazauro Financial Statements, no material deficiencies, litigation, proposed adjustments or matters in controversy exist or have been asserted with respect to Taxes of Brazauro or any of its subsidiaries, and neither Brazauro nor any of its subsidiaries is a party to any action or proceeding for assessment or collection of Taxes and no such event has been asserted or, to the knowledge of Brazauro, threatened against Brazauro or any of its subsidiaries or any of their respective assets, that would reasonably be expected to have a Material Adverse Effect.
 
 
 

 
 
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(iii)
To the best of Brazauro’s knowledge, no claim has been made by any Governmental Entity in a jurisdiction where Brazauro and any of its subsidiaries does not file Returns that Brazauro or any of its subsidiaries is or may be subject to Tax by that jurisdiction.
 
 
(iv)
Other than as disclosed in Schedule 3.1(r)(iv) of the Disclosure Letter, there are no Liens for unpaid Taxes (other than in respect of Taxes not yet due and payable) upon any of the assets of Brazauro or any of its subsidiaries.
 
 
(v)
Brazauro and each of its subsidiaries has withheld or collected all amounts required to be withheld or collected by it on account of Taxes and has remitted all such amounts to the appropriate Governmental Entity when required by Law to do so, except where the failure to do so would not, individually or in the aggregate, result in a Material Adverse Effect.
 
 
(vi)
There are no outstanding agreements extending or waiving the statutory period of limitations applicable to any claim for, or the period for the collection or assessment or reassessment of, Taxes due from Brazauro or any of its subsidiaries for any taxable period and no request for any such waiver or extension is currently pending.
 
 
(vii)
Brazauro and each of its subsidiaries have given to Eldorado true, correct and complete copies of all their income and capital tax returns, examination reports and statements of deficiencies for taxable periods, or transactions consummated, for which the applicable statutory periods of limitations have not expired, and there are no omissions in the foregoing.
 
 
(viii)
The Brazauro Shares are listed on a “recognised stock exchange” as defined by the Tax Act.
 
 
(s)
Property.
 
 
(i)
The:
 
 
(A)
Concessions are the only mining concessions, claims, leases, licenses, permits or other rights to explore for minerals that Brazauro or any of its subsidiaries have any legal or equitable interest in and, as disclosed in Schedule 3.1(s) of the Disclosure Letter, as are required to develop Agua Branca and Piranhas; and
 
 
(B)
Lands are the only interests in real property, including licences, leases, rights of way, surface rights, easements or other real property interests that Brazauro or an of its subsidiaries have any legal or equitable interest in and, except as disclosed in Schedule 3.1(s) of the Disclosure Letter, as are required to develop Agua Branca and Piranhas.
 
 
(ii)
Except as disclosed in Schedule 3.1(s) of the Disclosure Letter, each Concession is in good standing and each Concession and all of the Lands are held by Brazauro or its subsidiaries are free and clear of all Liens.  The Disclosure Letter sets out an up to date, true and accurate list in all material respects of:
 
 
 

 
 
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(A)
the interests of Brazauro and its subsidiaries in each of the Concessions and Lands; and
 
 
(B)
the agreement or document pursuant to which such Concessions and Lands were acquired by Brazauro or its subsidiaries identified in the Disclosure Letter is lawfully authorized to hold the interests in the Concessions and the Lands set out therein.
 
 
(iii)
Except as disclosed in Schedule 3.1(s) of the Disclosure Letter, and applying customary standards in the mining industry in Brazil:
 
 
(A)
each Concession has been properly located and recorded in compliance with applicable Laws and are comprised of valid and subsisting mineral claims in each case in all material respects;
 
 
(B)
any and all assessment work required to be performed and filed under the Concessions has been performed and filed;
 
 
(C)
any and all Taxes and other payments required to be paid in respect of the Concessions and the Lands have been paid;
 
 
(D)
any and all filings required to be filed in respect of the Concessions and the Lands have been filed;
 
 
(E)
Brazauro or its subsidiaries have the exclusive right to deal with the Concessions and the Lands;
 
 
(F)
no other person has any material interest in the Concessions or the Lands or any right to acquire any such interest;
 
 
(G)
there are no back-in rights, earn-in rights, rights of first refusal, royalty rights or similar provisions which would materially affect Brazauro’s or its subsidiaries’ interests in the Concessions or the Lands; and
 
 
(H)
neither Brazauro nor its subsidiaries have received any notice, whether written or oral from any Governmental Entity or any person with jurisdiction or applicable authority of any revocation or intention to revoke Brazauro’s or any of its subsidiaries’ interests in the Concessions.
 
 
(iv)
Except as disclosed in Schedule 3.1(s) of the Disclosure Letter, all work and activities carried out on the Concessions and the Lands by Brazauro or any of its subsidiaries or, to the knowledge of Brazauro or any of its subsidiaries, by any other person appointed by Brazauro or any of its subsidiaries have been carried out in all material respects in compliance with all applicable Laws, and neither Brazauro nor any of its subsidiaries, nor, to the knowledge of Brazauro or any of its subsidiaries, any other person, has received any notice of any material breach of any such applicable Laws.
 
 
(v)
Brazauro and its subsidiaries have made full disclosure to Eldorado of all material facts of which Brazauro or any of its subsidiaries has knowledge relating
 
 
 

 
 
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to the Retained Projects, including the details of any bonds or cash deposits lodged or indemnities granted in respect thereof.
 
 
(t)
Contracts. Schedule 3.1(t) of the Disclosure Letter includes a complete and accurate list of all Material Contracts to which Brazauro or any of its subsidiaries is a party.  All Material Contracts are in full force and effect, and Brazauro or its subsidiaries are entitled to all rights and benefits thereunder in accordance with the terms thereof.  Brazauro has made available to Eldorado for inspection true and completed copies of all Material Contracts, and all such Material Contracts have been provided to Eldorado pursuant to its due diligence requests.  All of the Material Contracts are valid and binding obligations of Brazauro enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other laws affecting the enforcement of creditors’ rights generally and subj ect to the qualification that equitable remedies may only be granted in the discretion of a court of competent jurisdiction.  Brazauro and its subsidiaries have complied in all material respects with all terms of such Material Contracts, have paid all amounts due thereunder, have not waived any rights thereunder and no default or breach exists in respect thereof on the part of Brazauro or any of its subsidiaries or, to the knowledge of Brazauro or any of its subsidiaries, on the part of any other party thereto, and no event has occurred which, after the giving of notice or the lapse of time or both, would constitute such a default or breach or trigger a right of termination of any of the Material Contracts.  As at the date hereof, neither Brazauro nor any of its subsidiaries has received written notice that any party to a Material Contract intends to cancel, terminate or otherwise modify or not renew such Material Contract, and to the knowledge of Brazauro or any of its subsidiaries, no s uch action has been threatened.  Except as set out in Schedule 3.1(t) of the Disclosure Letter, neither Brazauro nor any of its subsidiaries is a party to any Material Contract that contains any non-competition obligation or otherwise restricts in any material way the business of Brazauro or any of its subsidiaries.
 
 
(u)
Permits.  Except as disclosed in Schedule 3.1(u) of the Disclosure Letter, Brazauro and each of its subsidiaries has obtained and is in compliance with all material Permits required by applicable Laws, necessary to conduct its current business as they are now being conducted or as intended to be conducted (which, for greater certainty, includes the exploration for mineral deposits), where the failure of holding or complying with such Permits would have a Material Adverse Effect on Brazauro.  None of Brazauro nor any of its subsidiaries has knowledge of any facts, events or circumstances that would reasonably be expected to result in a failure to obtain or be in compliance with such material Permits as are necessary to conduct its business as it is proposed to be conducted.
 
 
(v)
Intellectual Property.
 
 
(i)
All Intellectual Property owned by Brazauro and its subsidiaries has been created in whole or in part by current or past employees, consultants or independent contractors, any rights therein of such persons have been irrevocably assigned in writing to Brazauro or its subsidiaries and, as applicable, such persons have waived all moral rights in such person’s contribution to such Intellectual Property or component thereof;
 
 
(ii)
to the best of Brazauro’s knowledge, there is no infringement by third parties of any Intellectual Property owned, licensed or commercialized by Brazauro or its subsidiaries which is proposed to be carried on;
 
 
 

 
 
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(iii)
there is no action, suit, proceeding or claim pending or to the best of Brazauro’s knowledge, threatened by others challenging Brazauro’s or its subsidiaries’ rights in or to any Intellectual Property or the validity or scope of any Intellectual Property owned, licensed or commercialized by Brazauro or its subsidiaries which is used for the conduct of Brazauro’s or its subsidiaries’ business as currently carried on or proposed to be carried on;
 
 
(iv)
Brazauro and its subsidiaries have not failed to maintain any application or registration, or to comply with any agreement or order of any court which would prevent it from owning, using or commercializing any Intellectual Property currently used, commercialized or proposed to be used or commercialized in the conduct of its business as currently carried on or proposed to be carried on; and
 
 
(v)
there is no prior patent, trademark, copyright or any other intellectual property that may render any patent application owned by Brazauro or its subsidiaries unpatentable that has not been disclosed to the U.S. Patent and Trademark Office or that may have been required to be disclosed to the Canadian Intellectual Property Office, the European Patent Office or any similar intellectual property office in any country, as the case may be, which is used for the conduct of the business as currently carried on or proposed to be carried on.
 
 
(w)
HSR Act.  As determined in accordance with the HSR Act and regulations thereunder, Brazauro and all entities controlled by Brazauro:
 
 
(i)
do not hold assets located in the United States (other than investment assets, voting or nonvoting securities of another person, and assets included pursuant to Section 801.40(d)(2) of the HSR Act) having a total fair market value of over USD$63,400,000; and
 
 
(ii)
have not made aggregate sales in or into the United States of over USD$63,400,000 in its most recent fiscal year, all within the meaning of the HSR Act.
 
 
(x)
Environmental Matters.  To Brazauro’s knowledge, each of Brazauro and Brazauro’s subsidiaries and their respective businesses, operations, and properties:
 
 
(i)
is in material compliance with all Environmental Laws and all terms and conditions of all Environmental Permits;
 
 
(ii)
has not received any order, request or notice from any person alleging a material violation of any Environmental Law;
 
 
(iii)
is not a party to any litigation or administrative proceeding, nor so far as it knows is any litigation or administrative proceeding threatened against it or its property or assets, which in either case asserts or alleges that it violated any Environmental Laws, is required to clean up, remove or take remedial or other response action due to the Release of any Hazardous Substances, or is required to pay all or a portion of the cost of any past, present or future cleanup, removal or remedial or other response action which arises out of or is related to the Release of any Hazardous Substances,
 
 
 

 
 
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(iv)
has no knowledge of any conditions existing currently which could reasonably be expected to subject it to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or which require or are likely to require cleanup, removal, remedial action or other response by it pursuant to applicable Environmental Laws;
 
 
(v)
is not subject to any judgment, decree, order or citation related to or arising out of applicable Environmental Law and has not been named or listed as a potentially responsible party by any Governmental Entity in a matter arising under any Environmental Laws; and
 
 
(vi)
is not involved in operations and does not know of any facts, circumstances or conditions, including any Release of Hazardous Material, that would reasonably be expected to result in any Environmental Liabilities.
 
 
(y)
Mineral Resources.  The most recent estimated indicated, measured and inferred mineral resources disclosed in the Brazauro Public Disclosure Record have been prepared and disclosed in all material respects in accordance with accepted mining, engineering, geoscience and other approved industry practises and all applicable Laws, including NI 43-101. The information provided by Brazauro to the Qualified Persons (as defined in NI 43-101) in connection with the preparation of such estimates was complete and accurate at the time such information was furnished. Except as disclosed in Schedule 3.1(y) of the Disclosure Letter, no material mineral deposits are subject to illegal occupation.  There are no material outstanding unresolved comments of any Securities Authorities in respect of Brazauro’s disclosure in the Brazauro Public Disclosure Record.  There has been no material reduction in the aggregate amount of estimated mineral resources of Brazauro and its subsidiaries, on a consolidated basis, from the amounts disclosed in the Brazauro Public Disclosure Record.
 
 
(z)
Regulatory.
 
 
(i)
Brazauro and its subsidiaries have operated and are currently operating in material compliance with all applicable Laws, including all applicable rules, regulations, guidelines and policies of any regulatory or governmental agency having jurisdiction over Brazauro or its subsidiaries or their respective activities (collectively, the “Regulatory Authorities”); and
 
 
(ii)
Brazauro and its subsidiaries have operated and are currently operating their respective businesses in compliance with all licenses, permits, authorizations, approvals registrations and consents of the Regulatory Authorities (the “Regulatory Authorizations”) in all material respects and have made all requisite material declarations and filings with the Regulatory Authorities. Brazauro and its subsidiaries have not received any written notices or other correspondence from the Regulatory Authorities regarding any circumstances that have existed or currently exist which would lead to a loss, suspension, or modification of, or a refusal to issue, any material Regulatory Authorization relating to its activities which would reasonably be expected to restrict, curtail, limit or adversely affect the ability of Brazauro or its subsidiaries to operate the ir respective businesses.
 
 
 

 
 
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(aa)
Employee Benefits.
 
 
(i)
Brazauro and each of its subsidiaries has complied, in all material respects, with the terms of all agreements, health, welfare, supplemental unemployment benefit, bonus, incentive, profit sharing, deferred compensation, stock purchase, stock compensation, stock option, disability, pension or retirement plans and other employee compensation or benefit plans, policies, arrangements, practices or undertakings, whether oral or written, formal or informal, funded or unfunded, insured or uninsured which are maintained by or binding upon Brazauro or such subsidiary or in respect of which Brazauro or any of its subsidiaries has any actual or potential liability (collectively, the “Brazauro Benefit Plans”) and with all applicable Laws and collective bargaining agreements relating thereto.
 
 
(ii)
Schedule 3.1(aa) of the Disclosure Letter sets forth a complete list of the Brazauro Benefit Plans. Current and complete copies of all written Brazauro Benefit Plans as amended to date or, where oral, written summaries of the terms thereof, and all booklets and communications concerning the Brazauro Benefit Plans which have been provided to persons entitled to benefits under the Brazauro Benefit Plans have been delivered or made available to Eldorado together with copies of all material documents relating to the Brazauro Benefit Plans.
 
 
(iii)
Each Brazauro Benefit Plan is and has been established, registered (if required), qualified, invested and administered, in all material respects, in compliance with the terms of such Brazauro Benefit Plan (including the terms of any documents in respect of such Brazauro Benefit Plan), all applicable Laws and any collective bargaining agreement relating thereto.
 
 
(iv)
All obligations of Brazauro or any of its subsidiaries regarding the Brazauro Benefit Plans have been satisfied in all material respects and no Taxes are owing or exigible under any of the Brazauro Benefit Plans by Brazauro or its subsidiaries except as disclosed in Schedule 3.1(aa) of the Disclosure Letter. All employer and employee payments, contributions and premiums required to be remitted, paid to or in respect of each Brazauro Benefit Plan have been paid or remitted in a timely fashion in accordance with its terms and all applicable Laws except as disclosed in Schedule 3.1(aa) of the Disclosure Letter.
 
 
(v)
Each Brazauro Benefit Plan is insured or funded in compliance with the terms of such Brazauro Benefit Plan, all applicable Laws and any collective bargaining agreement relating thereto and is in good standing with such Governmental Entities as may be applicable and, as of the date hereof, no currently outstanding notice of under-funding, non-compliance, failure to be in good standing or otherwise has been received by Brazauro or any of its subsidiaries from any such Governmental Entities.
 
 
(vi)
To the knowledge of Brazauro, no Brazauro Benefit Plan is subject to any pending investigation, examination or other proceeding, action or claim initiated by any Governmental Entity, or by any other party (other than routine claims for benefits), and there exists no state of facts which after notice or lapse of time or both would reasonably be expected to give rise to any such investigation,
 
 
 

 
 
34
 
 
examination or other proceeding, action or claim or to affect the registration or qualification of any Brazauro Benefit Plan required to be registered or qualified.
 
 
(vii)
Except as disclosed in Schedule 3.1(aa) of the Disclosure Letter, Brazauro and its subsidiaries have no formal plan and have made no promise or commitment, whether legally binding or not, to create any additional Brazauro Benefit Plan or to improve or change the benefits provided under any Brazauro Benefit Plan.
 
 
(viii)
There is no entity other than Brazauro and any of its subsidiaries participating in any Brazauro Benefit Plan.
 
 
(ix)
Except as disclosed in Schedule 3.1(aa) of the Disclosure Letter, none of the Brazauro Benefit Plans provide benefits beyond retirement or other termination of service to employees or former employees or to the beneficiaries or dependants of such employees and where there are such Brazauro Benefit Plans disclosed in Schedule 3.1(aa), each such Brazauro Benefit Plan may be amended or terminated at any time without incurring any liability thereunder other than in respect of claims incurred prior to such amendment or termination.
 
 
(x)
Except as disclosed in Schedule 3.1(aa) of the Disclosure Letter, neither the execution and delivery of this Agreement by Brazauro nor completion of the Arrangement pursuant to the Plan of Arrangement nor compliance by Brazauro with any of the provisions hereof shall, subject to Section 5.6, result in any payment (including severance, unemployment compensation, bonuses or otherwise) becoming due to any director or employee of Brazauro or any of its subsidiaries or result in any increase or acceleration of contributions, liabilities or benefits or acceleration of vesting, under any Brazauro Benefit Plan or securities compensation plan.
 
 
(xi)
All data necessary to administer each Brazauro Benefit Plan is in the possession of Brazauro or its subsidiaries or their respective agents and is in a form which is sufficient for the proper administration of the Brazauro Benefit Plan in accordance with its terms and all applicable Laws and such data is complete and correct.
 
 
(bb)
Labour and Employment.
 
 
(i)
Schedule 3.1(bb)(i) of the Disclosure Letter sets forth a complete list of all employees of Brazauro and its subsidiaries, together with their titles, service dates and material terms of employment, including current wages, salaries or hourly rate of pay, and bonus (whether monetary or otherwise).  Except as disclosed in Schedule 3.1(bb)(i) of the Disclosure Letter, no such employee is on long-term disability leave, extended absence or worker’s compensation leave. All current assessments under applicable workers compensation legislation in relation to the employees listed in Schedule 3.1(bb)(i) of the Disclosure Letter have been paid or accrued by Brazauro and its subsidiaries, as applicable, and Brazauro and its subsidiaries are not subject to any special or penalty assessment under such legislation which has not been paid.
 
 
(ii)
Except for those written employment contracts with salaried employees of Brazauro and any of its subsidiaries identified in Schedule 3.1(bb)(ii) of the
 
 
 

 
 
35
 
 
Disclosure Letter, there are no written contracts of employment entered into with any such employees or any oral contracts of employment. Except for those agreements or provisions described in Schedule 3.1(bb)(i) of the Disclosure Letter, no employee of Brazauro or of any of its subsidiaries is party to a change of control, severance, termination, golden parachute or similar agreement or provision or would receive payments under such agreement or provision as a result of the Arrangement.
 
 
(iii)
Schedule 3.1(bb)(iii) of the Disclosure Letter sets forth a complete list of the collective agreements, either directly or by operation of law, between Brazauro or any of its subsidiaries with any trade union or association which may qualify as a trade union.  Other than as disclosed in Schedule 3.1(bb)(iii) of the Disclosure Letter, there are no outstanding or, to the knowledge of Brazauro, threatened labour tribunal proceedings of any kind, including unfair labour practice proceedings or any proceedings which could result in certification of a trade union as bargaining agent for any employees of Brazauro or any of its subsidiaries not already covered by a collective agreement.  Other than as disclosed in Schedule 3.1(bb)(iii) of the Disclosure Letter there are no threatened or apparent union organizing activities involving employees of Brazauro or any of its subsidiaries nor is Brazauro or any of its subsidiaries currently negotiating any of the collective agreements listed in Schedule 3.1(bb)(iii) of the Disclosure Letter.  There is no default or violation under any collective agreement listed in Schedule 3.1(bb)(iii) of the Disclosure Letter. There is no strike or lockout involving the employees covered by the collective agreements listed in Schedule 3.1(bb)(iii) of the Disclosure Letter.
 
 
(cc)
Compliance with Laws.  Brazauro and its subsidiaries have complied with and are not in violation of any applicable Laws, other than non-compliance or violations which would not, individually or in the aggregate, have a Material Adverse Effect.
 
 
(dd)
Absence of Cease Trade Orders.  No order ceasing or suspending trading in the Brazauro Shares (or any of them) or any other securities of Brazauro is outstanding and no proceedings for this purpose have been instituted or, to the knowledge of Brazauro, are pending, contemplated or threatened.
 
 
(ee)
Related Party Transactions.  Except as contemplated hereby or as disclosed in Schedule 3.1(ee) of the Disclosure Letter, to the knowledge of Brazauro, there are no Contracts or other transactions currently in place between Brazauro or any of its subsidiaries and:
 
 
(i)
to the knowledge of Brazauro, any officer or director of Brazauro or any of its subsidiaries;
 
 
(ii)
to the knowledge of Brazauro, any holder of record or beneficial owner of 10% or more of the Brazauro Shares; and
 
 
(iii)
to the knowledge of Brazauro, any affiliate or associate of any such officer, director, holder of record or beneficial owner.
 
 
(ff)
Expropriation.  No part of the property or assets of Brazauro or any of its subsidiaries has been taken, condemned or expropriated by any Governmental Entity nor has any written notice or proceeding in respect thereof been given or commenced nor does Brazauro or
 
 
 

 
 
36
 
 
any of its subsidiaries know of any intent or proposal to give such notice or commence any such proceedings.
 
 
(gg)
Registration Rights.  No Brazauro Shareholder has any right to compel Brazauro to register or otherwise qualify the Brazauro Shares (or any of them) for public sale or distribution.
 
 
(hh)
Rights of Other Persons.  Other than as disclosed in Schedule 3.1(hh) of the Disclosure Letter, no person has any right of first refusal or option to purchase or any other right of participation in any of the material properties or assets owned by Brazauro or any of its subsidiaries, or any part thereof.
 
 
(ii)
Restrictions on Business Activities.  There is no arbitral award, judgment, injunction, constitutional ruling, order or decree binding upon Brazauro or any of its subsidiaries that has or could reasonably be expected to have the effect of prohibiting, restricting, or impairing any business practice of any of them, any acquisition or disposition of property by any of them, or the conduct of the business by any of them as currently conducted, which could reasonably be expected to have a Material Adverse Effect.
 
 
(jj)
Brokers.  Except as disclosed by Brazauro to Eldorado, no broker, investment banker, financial advisor or other person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Brazauro, and the aggregate amount of such fees that may become payable in respect of all such arrangements is set out in Schedule 3.1(jj) to the Disclosure Letter.
 
 
(kk)
Fees and Expenses.  Schedule 3.1(kk) of the Disclosure Letter sets forth the amount of fees and expenses reasonably attributable to this Agreement and the transactions contemplated hereby that Brazauro has incurred to date and expects to incur by the Effective Date (other than the fees and expenses payable to those brokers identified to Eldorado in Schedule 3.1(jj) of the Disclosure Letter) and the amount of such fees and expenses that has been paid to date.
 
 
(ll)
Insurance.  As of the date hereof, Brazauro and its subsidiaries have such policies of insurance as are listed in Schedule 3.1(ll) of the Disclosure Letter.  All insurance maintained by Brazauro or any of its subsidiaries is in full force and effect and in good standing and neither Brazauro nor any of its subsidiaries is in default, whether as to payment of premium or otherwise, under the terms of any such insurance nor has Brazauro or any of its subsidiaries failed to give any notice or present any material claim under any such insurance in a due and timely fashion or received notice or otherwise become aware of any intent of an insurer to either claim any default on the part of Brazauro or any of its subsidiaries or not to renew any policy of insurance on its expiry or to increase any deductible or cost, except where such fail ure or default or other event would not reasonably be expected to have a Material Adverse Effect.
 
 
(mm)
Information.  All information provided to Eldorado was accurate in all material respects as at its respective date as stated therein, or, if any information provided to Eldorado is undated, as of the date of its delivery to Eldorado for purposes of the transactions contemplated by this Agreement.
 
 
 

 
 
37
 
 
 
(nn)
United States Securities Laws.
 
 
(i)
Based on its analysis as of the end of its most recently completed second fiscal quarter, Brazauro is a “foreign private issuer” as defined in Rule 3b-4 under the U.S. Exchange Act; and
 
 
(ii)
Based on its latest quarterly financial statements, Brazauro reasonably believes that it is not required to be registered as an “investment company” as such term is defined in the United States Investment Company Act of 1940, as amended.
 
3.2
Survival of Representations and Warranties
 
The representations and warranties of Brazauro contained in this Agreement shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.
 
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SUBCO AND ELDORADO
 
4.1
Representations and Warranties
 
Each of Subco and Eldorado hereby represents and warrants to and in favour of Brazauro as follows, and acknowledges that Brazauro is relying upon such representations and warranties in connection with the entering into of this Agreement:
 
 
(a)
Authority Relative to this Agreement.  Each of Subco and Eldorado has the requisite corporate authority and capacity to enter into and to perform their respective obligations under this Agreement. The execution and delivery of this Agreement by each of Eldorado and Subco, and the performance of their respective obligations thereunder have been authorized by their respective board of directors and no other corporate proceedings on their part are necessary to authorize this Agreement.  This Agreement has been duly executed and delivered by each of Subco and Eldorado and constitutes a legal, valid and binding obligation of each of Subco and Eldorado enforceable against it in accordance with its terms, subject to the qualification that such enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of gene ral application relating to or affecting rights of creditors and that equitable remedies, including specific performance, are discretionary.
 
 
(b)
Organization and Qualification.  Eldorado and each of its subsidiaries is a corporation duly incorporated or an entity duly created and validly existing under all applicable Laws of its jurisdiction of incorporation, continuance or creation and has all necessary corporate or other power, authority and capacity to own its property and assets as now owned and to carry on its business as it is now being conducted.  Eldorado, and each of its subsidiaries, has all Permits necessary to conduct its business substantially as now conducted, and is duly registered or otherwise authorized and qualified to do business and each is in good standing in each jurisdiction in which the character of its properties, owned, leased, licensed or otherwise held, or the nature of its activities makes such qualification necessary, except where the failur e to be so registered or in good standing or to have such Permits would not reasonably be expected to have a material adverse effect on Eldorado.
 
 
 

 
 
38
 
 
 
(c)
No Material Change.  Since December 31, 2009, except as disclosed in the Eldorado Public Disclosure Record, there has been no material change in respect of Eldorado and its subsidiaries, taken as a whole.
 
 
(d)
No Violations. Neither the execution and delivery of this Agreement by Subco or Eldorado nor the completion of the Arrangement pursuant to the Plan of Arrangement nor compliance by each of Subco and Eldorado with any of the provisions hereof will violate, conflict with, or result in a breach of any material provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under the articles, bylaws or Laws governing Subco or Eldorado or any material contract or other instrument or obligation to which Subco or Eldorado or any of their respective subsidiaries is a party or to which any of them, or any of their respective properties or assets, may be subject or by which Subco or Eldorado or any of their respective subsidiaries is bound and, in each case, individually or in the aggregate would materially adversely affect Subco’s or Eldorado’s ability to perform its obligations under this Agreement or violate any Law applicable to Subco or Eldorado or any of their respective subsidiaries or any of their respective properties or assets.
 
 
(e)
Capitalization.  The authorized share capital of Eldorado consists of an unlimited number of Eldorado Shares and an unlimited number of non-voting common shares (“Eldorado Non-Voting Shares”). As of the close of business on May 11, 2010, 538,762,651 Eldorado Shares are issued and outstanding, no Eldorado Non-Voting Shares are issued and outstanding, and an aggregate of up to 12,517,651 Eldorado Shares are issuable upon the exercise of 12,517,651 Eldorado Options and there are no options, warrants, conversion privileges or other rights, shareholder rights plans, agreements, arrangements or commitments (pre-emptive, contingent or otherwise) of any character whatsoever requiring or which may require the issuance, sale or transfer by Eldorado of any securities of Eldorado (in cluding Eldorado Shares), or any securities or obligations convertible into, or exchangeable or exercisable for, or otherwise evidencing a right or obligation to acquire, any securities of Eldorado (including Eldorado Shares) or subsidiaries of Eldorado.  Other than Eldorado Options, there are no securities of Eldorado or of any of its subsidiaries outstanding which have the right to vote generally (or are convertible into or exchangeable for securities having the right to vote generally) with the Eldorado Shareholders on any matter.  There are no outstanding contractual or other obligations of Eldorado or any of its subsidiaries to repurchase, redeem or otherwise acquire any of its securities or with respect to the voting or disposition of any outstanding securities of any of its subsidiaries, other than the Eldorado Options. There are no outstanding bonds, debentures or other evidences of indebtedness of Eldorado or any of its subsidiaries having the right to vote with the holders of th e outstanding Eldorado Shares on any matters.
 
 
(f)
Reporting Status and Securities Laws Matters. Eldorado is a “reporting issuer” and not on the list of reporting issuers in default under applicable Canadian provincial Securities Laws in each of the Provinces of Canada and is required to file reports pursuant to Section 13 or Section 15(d) of the U.S. Exchange Act.  No delisting, suspension of trading in or cease trading order with respect to any securities of and, to the knowledge of Eldorado, no inquiry or investigation (formal or informal) of any Securities Authority or the SEC, is in effect or ongoing or, to the knowledge of Eldorado, expected to be implemented or undertaken.
 
 
 

 
 
39
 
 
 
(g)
Public Filings.  Eldorado has filed all documents in the Eldorado Public Disclosure Record required to be filed by it in accordance with applicable Securities Laws, other than documents and information filed with the SEC, with the Securities Authorities or the TSX. Eldorado has filed all documents in the Eldorado Public Disclosure Record required to be filed with or furnished to the SEC.  All such documents and information comprising the Eldorado Public Disclosure Record, as of their respective dates (and the dates of any amendments thereto):
 
 
(i)
did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading;
 
 
(ii)
with respect to the documents and information filed on SEDAR, complied in all material respects with the requirements of applicable Securities Laws, and any amendments to the Eldorado Public Disclosure Record required to be made have been filed on a timely basis with the Securities Authorities or the TSX. Eldorado has not filed any confidential material change report with any Securities Authorities that at the date of this Agreement remains confidential; and
 
 
(iii)
with respect to the documents and information filed with or furnished to the SEC, were prepared in accordance with the requirements of the U.S. Exchange Act, and the rules and regulations promulgated thereunder.
 
 
(h)
Eldorado Financial Statements.  Eldorado’s audited financial statements as at and for the fiscal years ended December 31, 2009 and 2008 (including the notes thereto and related MD&A) and Eldorado’s unaudited financial statements as at and for the three months ended March 31, 2010 (the “Eldorado Financial Statements”) were prepared in accordance with GAAP consistently applied (except as otherwise indicated in such financial statements and the notes thereto or in the related report of Eldorado’s independent auditors) and fairly present in all material respects the consolidated financial position, results of operations and changes in financial position of Eldorado and its subsidiaries as of the dates thereof and for the periods indicated therein an d reflect reserves required by GAAP in respect of all material contingent liabilities, if any, of Eldorado and its subsidiaries on a consolidated basis.  There has been no material change in Eldorado’s accounting policies, except as described in the notes to the Eldorado Financial Statements, since March 31, 2010.
 
 
(i)
Undisclosed Liabilities.  Eldorado and its subsidiaries have no outstanding indebtedness or liabilities and are not party to or bound by any suretyship, guarantee, indemnification, or assumption agreement, or endorsement of, or any other similar commitment with respect to the obligations, liabilities or indebtedness of any person, other than those specifically identified in the Eldorado Financial Statements or incurred in the ordinary course of business since the date of the most recent financial statements of Eldorado filed on SEDAR.
 
 
(j)
Litigation. To Eldorado’s knowledge, other than as disclosed in the Eldorado Public Disclosure Record, there are no material claims, actions, suits, grievance, complaints or proceedings pending or, to the knowledge of Eldorado, threatened affecting Eldorado or any of its subsidiaries or their respective property or assets at law or equity before or by any Governmental Entity, including matters arising under Environmental Laws which, individually or in the aggregate will have a material adverse effect on Eldorado.
 
 
 

 
 
40
 
 
 
(k)
Mineral Reserves and Resources. The most recent estimated, proven and probable mineral reserves and the estimated measured, indicated and inferred mineral resources of Eldorado, with respect to properties that are material to Eldorado as defined under NI 43-101, disclosed in the Eldorado Public Disclosure Record have been disclosed and prepared in all material respects in accordance with accepted mining, engineering, geoscience and other approved industry practises and all applicable Laws, including NI 43-101.  There are no material outstanding unresolved comments of any Securities Authority in respect of Eldorado’s disclosure in the Eldorado Public Disclosure Record.  There has been no material reduction (other than as a result of operations in the ordinary course of business) in the aggregate amount of estimated mineral reserves and estimated mineral resources of Eldorado on a consolidated basis from the amounts disclosed publicly by Eldorado.
 
 
(l)
Issuance of Eldorado Shares. The Eldorado Shares to be issued pursuant to the Plan of Arrangement will, when issued, be duly and validly issued as fully paid and non-assessable common shares in the capital of Eldorado.
 
 
(m)
Absence of Cease Trade Orders.  No order ceasing or suspending trading in Eldorado Shares (or any of them) or any other securities of Eldorado is outstanding and no proceedings for this purpose have been instituted or, to the knowledge of Eldorado, are pending, contemplated or threatened.
 
 
(n)
Compliance with Laws.  Eldorado and its subsidiaries have complied with and are not in violation of any applicable Laws, other than non-compliance or violations which would not, individually or in the aggregate, have a material adverse effect on the business, prospects, results of operations or financial condition of Eldorado and its subsidiaries, taken as a whole.
 
 
(o)
United States Securities Laws.
 
 
(i)
Eldorado is a “foreign private issuer” as defined in Rule 3b-4 under the U.S. Exchange Act; and
 
 
(ii)
Eldorado is not required to be registered as an “investment company” as such term is defined in the United States Investment Company Act of 1940, as amended;
 
 
(p)
Use of Short Form Prospectus.  Eldorado meets the general eligibility requirements for use of a short form prospectus under National Instrument 44-101 – Short Form Prospectus Distributions.
 
4.2
Survival of Representations and Warranties
 
The representations and warranties of Subco and Eldorado contained in this Agreement shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.
 
 
 

 
 
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ARTICLE 5
COVENANTS OF BRAZAURO AND ELDORADO
 
5.1
Covenants of Brazauro Regarding the Conduct of Business
 
Brazauro covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, except as required by this Agreement, applicable Laws or any Governmental Entities or consented to by Eldorado in writing, Brazauro shall, and shall cause each of its subsidiaries to, conduct its business in the ordinary course of business consistent with past practice.  Without limiting the generality of the foregoing, from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, except as required or permitted by this Agreement, Brazauro shall not, nor shall it permit any of its subsidiaries to, directly or indirectly, without the prior w ritten consent of Eldorado (which consent shall not be unreasonably withheld or delayed):
 
 
(a)
take any action except in the ordinary course of business of Brazauro and its subsidiaries, and Brazauro shall use commercially reasonable efforts to maintain and preserve its and its subsidiaries’ business organization, assets, employees, goodwill and business relationships;
 
 
(b)
amend its notice of articles, articles, charter, by-laws or other comparable organizational documents or split, combine, reclassify or create a new class of any shares in the capital of Brazauro or any of its subsidiaries, or declare, set aside or pay any dividend or other distribution or payment (whether in cash, securities or property or any combination thereof) in respect of the Brazauro Shares or other securities owned by any person or the securities of any subsidiary owned by a person other than Brazauro other than, in the case of any subsidiary wholly-owned by Brazauro, any dividends payable to Brazauro or any other wholly-owned subsidiary of Brazauro;
 
 
(c)
issue, grant, deliver, sell or pledge, or agree to issue, grant, deliver, sell or pledge, any shares or other securities of Brazauro or its subsidiaries, or any Brazauro Convertible Securities or similar rights convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire, shares or other securities of Brazauro or its subsidiaries, other than:
 
 
(i)
the issuance of Brazauro Shares issuable pursuant to the terms of the outstanding Brazauro Convertible Securities, and
 
 
(ii)
the grant of Brazauro Options pursuant to the terms of contractual commitments described in Schedule 5.1(c) of the Disclosure Letter;
 
 
(d)
redeem, purchase or otherwise acquire, or offer to redeem, purchase or otherwise acquire, any outstanding securities of Brazauro or any of its subsidiaries,
 
 
(e)
amend the terms of any of its securities;
 
 
(f)
adopt a plan of liquidation or resolution providing for the liquidation or dissolution of Brazauro or any of its subsidiaries;
 
 
(g)
amend its accounting policies or adopt new accounting policies, in each case except as required in accordance with GAAP;
 
 
 

 
 
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(h)
make or amend any Tax election, change any method of Tax accounting, settle or compromise any Tax liability, file any material amended Tax Return, enter into a closing agreement, surrender any right to claim a material Tax refund, or consent to the extension or waiver of the limitation period applicable to any material Tax claim or assessment;
 
 
(i)
enter into, modify or terminate any Contract with respect to any of the foregoing outside of the ordinary course of business;
 
 
(j)
except as set forth in Schedule 5.1(j) of the Disclosure Letter,
 
 
(i)
sell, pledge, hypothecate, lease, license, sell and lease back, mortgage, dispose of or encumber or otherwise transfer, any assets, securities, properties, interests or businesses of Brazauro or any of its subsidiaries, for an amount greater than $60,000 in the aggregate;
 
 
(ii)
acquire (by merger, amalgamation, consolidation or acquisition of shares or assets or otherwise), directly or indirectly, any assets, securities, properties, interests, businesses, corporation, partnership or other business organization or division thereof, or make any investment either by the purchase of securities, contributions of capital, property transfer, or purchase or agree to purchase of any other property or assets of any other person, for an amount greater than $60,000 in the aggregate;
 
 
(iii)
except in the ordinary course of business consistent with past practice, incur, create, assume or otherwise become liable for, any indebtedness for borrowed money or any other liability or obligation or issue any debt securities or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other person, or make any loans, capital contributions, investments or advances;
 
 
(iv)
pay, discharge or satisfy any material claims, liabilities or obligations;
 
 
(v)
waive, release, grant or transfer any rights of material value; or
 
 
(vi)
authorize or propose any of the foregoing, or enter into or modify any Contract to do any of the foregoing;
 
 
(k)
enter into or modify any Contract or series of Contracts resulting in a new Contract or series of related new Contracts or modifications to an existing Contract or series of related existing Contracts outside of the ordinary course of business;
 
 
(l)
other than as is necessary to comply with existing Contracts, or in accordance with the Brazauro Benefit Plans:
 
 
(i)
grant to any officer, employee, consultant or director of Brazauro or any of its subsidiaries an increase in compensation in any form, or grant any general salary increase;
 
 
(ii)
make any loan to any officer, employee, consultant or director of Brazauro or any of its subsidiaries;
 
 
 

 
 
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(iii)
take any action with respect to the grant of any severance, change of control, bonus or termination pay to, or enter into any employment agreement, deferred compensation or other similar agreement (or amend such existing agreement) with, or hire or terminate employment (except for just cause) of, any officer, employee, consultant or director of Brazauro or any of its subsidiaries;
 
 
(iv)
increase any benefits payable under any existing severance or termination pay policies or employment agreements, or adopt or materially amend or make any contribution to any Brazauro Benefit Plan or other bonus, profit sharing, option, pension, retirement, deferred compensation, insurance, incentive compensation, compensation or other similar plan, agreement, trust, fund or arrangement for the benefit of directors, officers or employees or former directors, officers, employees of Brazauro or any of its subsidiaries;
 
 
(v)
increase compensation, bonus levels or other benefits payable to any director, executive officer, consultant or employee of Brazauro or any of its subsidiaries;
 
 
(vi)
provide for accelerated vesting, removal of restrictions or an exercise of any stock based or stock related awards (including stock options, stock appreciation rights, deferred share units, performance units and restricted share awards) upon a change of control occurring on or prior to the Effective Time; or
 
 
(vii)
establish, adopt or amend (except as required by applicable Law) any collective bargaining agreement or similar agreement;
 
 
(m)
settle, pay, discharge, satisfy, compromise, waive, assign or release any action, claim or proceeding brought against Brazauro and/or any of its subsidiaries or any action, claim or proceeding brought by any present, former or purported holder of its securities in connection with the transactions contemplated by this Agreement or the Plan of Arrangement for an amount that exceeds $100,000 in the aggregate;
 
 
(n)
enter into any agreement or arrangement that limits or otherwise restricts in any material respect Brazauro or any of its subsidiaries or any successor thereto, or that would, after the Effective Time, limit or restrict in any material respect Brazauro or any of its subsidiaries from competing in any manner;
 
 
(o)
waive, release or assign any material rights, claims or benefits of Brazauro or any of its subsidiaries;
 
 
(p)
enter into any agreement that if entered into prior to the date hereof would be a Material Contract or modify, amend in any material respect, transfer or terminate any Material Contract, or waive, release or assign any material rights or claims thereto or thereunder;
 
 
(q)
change any method of Tax accounting, make or change any Tax election, file any materially amended Return, settle or compromise any Tax liability, agree to an extension or waiver of the limitation period with respect to the assessment, reassessment or determination of Taxes, enter into any closing agreement with respect to any Tax or surrender any right to claim a material Tax refund;
 
 
(r)
take any action or fail to take any action which action or failure to act would result in the material loss, expiration or surrender of, or the loss of any material benefit under, or
 
 
 

 
 
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reasonably be expected to cause any Governmental Entities to institute proceedings for the suspension, revocation or limitation of rights under, any material Permits or any Approvals listed in Schedule 5.1(r) of the Disclosure Letter of or from any Governmental Entities necessary to conduct its businesses as now conducted or as proposed to be conducted; or fail to prosecute with commercially reasonable due diligence any pending applications to any Governmental Entities for Approvals;
 
 
(s)
take any action or fail to take any action that is intended to, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the ability of Brazauro to consummate the Arrangement or the other transactions contemplated by this Agreement, other than in connection with a Pre-Acquisition Reorganization;
 
 
(t)
take any action or enter into any transaction that would preclude the Canadian tax “bump” rules from applying upon a later amalgamation or winding-up of Brazauro (or its successor by amalgamation) including pursuant to paragraph 88(1)(c) and paragraph 88(1)(d) of the Tax Act; or
 
 
(u)
agree, resolve or commit to do any of the foregoing.
 
Brazauro shall use its commercially reasonable efforts to cause the current insurance (or re-insurance) policies maintained by Brazauro or any of its subsidiaries, including directors’ and officers’ insurance, not to be cancelled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance or re-insurance companies of nationally recognized standing having comparable deductions and providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect; provided that, subject to Section 7.8, none of Brazauro or any of its subsidiaries shall obtain or renew any insurance (or re-insurance) policy for a term exceeding 12 months.
 
Brazauro shall promptly notify Eldorado in writing of any circumstance or development that, to the knowledge of Brazauro, is or could reasonably be expected to constitute a Material Adverse Effect.
 
5.2
Covenants of Brazauro Relating to the Arrangement
 
Brazauro shall and shall cause its subsidiaries to perform all obligations required or desirable to be performed by Brazauro or any of its subsidiaries under this Agreement, co-operate with Subco and Eldorado in connection therewith, and do all such other acts and things as may be necessary or desirable in order to consummate and make effective the transactions contemplated in this Agreement and, without limiting the generality of the foregoing, Brazauro shall and, where applicable, shall cause its subsidiaries to:
 
 
(a)
immediately defer the separation time of the SRP Rights under the Brazauro Shareholder Rights Plan and continue to defer the separation time unless otherwise requested by Eldorado;
 
 
(b)
on or before the date that is 5 days prior to the date on which the Interim Order is sought, cause New Brazauro to be incorporated and organized and enter into a binding instrument in favour of Eldorado and Subco, addressing the matters detailed in Schedule G hereof, and acceding to this Agreement as a party (the “New Brazauro Accession”);
 
 
 

 
 
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(c)
on or immediately prior to the Effective Date, waive, suspend the operation of, terminate or otherwise render the Shareholder Rights Plan inoperative or ineffective as regards the Plan of Arrangement, it being understood that Brazauro will have no obligation to take any such action until all other conditions to the Plan of Arrangement have been satisfied or waived;
 
 
(d)
subject to obtaining confirmation that insurance coverage is maintained as contemplated in Section 7.8.1, and provided that the Effective Date has occurred, use its reasonable commercial efforts to cause such members of the Brazauro Board to resign as Eldorado may require, at the time and in the manner requested by Eldorado, as of the Effective Date, with a nominee of Eldorado to be appointed to the Brazauro Board immediately after each such resignation;
 
 
(e)
apply for and use its commercially reasonable efforts to obtain all Key Regulatory Approvals relating to Brazauro or any of its subsidiaries which are typically applied for by an offeree and, in doing so, keep Eldorado reasonably informed as to the status of the proceedings related to obtaining the Key Regulatory Approvals, including providing Eldorado with copies of all related applications and notifications, in draft form (except where such material is confidential in which case it will be provided (subject to applicable Laws) to Eldorado Counsel on an “external counsel” basis), in order for Eldorado to provide its comments thereon, which shall be given due and reasonable consideration;
 
 
(f)
use its commercially reasonable efforts to obtain, as soon as practicable following execution of this Agreement, all third party consents, approvals and notices required under any of the Material Contracts, and all Key Third Party Consents;
 
 
(g)
elect in its return of income under Part I of the Tax Act for its taxation year ending immediately before the acquisition of control of Brazauro not to have subsection 256(9) of the Tax Act apply;
 
 
(h)
use its commercially reasonable efforts so that the Section 3(a)(10) Exemption is available for the issuance of the Eldorado Shares, the Eldorado Conversion Options and the Eldorado Conversion Warrants and in fulfilling the provisions of Section 2.3 hereof; and
 
 
(i)
defend all lawsuits or other legal, regulatory or other proceedings against Brazauro challenging or affecting this Agreement or the consummation of the transactions contemplated hereby.
 
5.3
Covenants of Eldorado Regarding the Performance of Obligations
 
5.3.1                       Eldorado shall, and shall cause its subsidiaries to, perform all obligations required or desirable to be performed by Eldorado or any of Eldorado’s subsidiaries under this Agreement, co-operate with Brazauro in connection therewith, and do all such other acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in this Agreement and, without limiting the generality of the foregoing, Eldorado shall and where appropriate shall cause its subsidiaries to:
 
 
(a)
apply for and use its commercially reasonable efforts to obtain all Key Regulatory Approvals relating to Eldorado or any of Eldorado’s subsidiaries which are typically
 
 
 

 
 
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applied for by an offeror and, in doing so, keep Brazauro reasonably informed as to the status of the proceedings related to obtaining the Key Regulatory Approvals, including providing Brazauro with copies of all related applications and notifications in draft form (except where such material is confidential in which case it will be provided (subject to applicable Laws) to Brazauro Counsel on an “external counsel” basis), in order for Brazauro to provide its reasonable comments thereon;
 
 
(b)
subject to the terms and conditions of this Agreement and applicable Laws, issue the Eldorado Shares pursuant to the Plan of Arrangement at the time provided therein;
 
 
(c)
defend all lawsuits or other legal, regulatory or other proceedings against Eldorado challenging or affecting this Agreement or the consummation of the transactions contemplated hereby;
 
 
(d)
not take any action that is intended to, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the ability of Eldorado or Subco to consummate the Arrangement or the other transactions contemplated by this Agreement;
 
 
(e)
use its commercially reasonable efforts so that the Section 3(a)(10) Exemption is available for the issuance of the Eldorado Shares, the Converted Eldorado Options and the Converted Eldorado Warrants and in fulfilling the provisions of Section 2.3 hereof;
 
 
(f)
not purchase common shares of Brazauro during the term of this Agreement, except pursuant to the terms of this Agreement and the Plan of Arrangement; and
 
 
(g)
apply for and use commercially reasonable efforts to obtain conditional approval of the listing and posting for trading on the TSX, and the approval of NYSE, of the Eldorado Shares to be issued in accordance with the terms of the Plan of Arrangement and, with respect to the TSX, all Eldorado Shares that would be issued on the exercise of any Converted Eldorado Options and Converted Eldorado Warrants pursuant to the Plan of Arrangement.
 
5.3.2
If, at any time prior to the Effective Date:
 
 
(a)
Eldorado effects a split, consolidation or other alteration of the issued and outstanding Eldorado Shares such that the Share Exchange Ratio no longer reflects the intention of the Parties in relation to the effect of the exchange of shares contemplated by the Arrangement, then the Board of Directors of Eldorado shall make such adjustments to the Share Exchange Ratio as, in their sole discretion and acting in good faith, they determine to be equitable in the circumstances; or
 
 
(b)
Eldorado amalgamates or merges with or into any other corporation or other entity (other than an amalgamation or merger which does not result in any reclassification of the outstanding Eldorado Shares or a change of the Eldorado Shares into other shares), then the Board of Directors of Eldorado shall ensure that, pursuant to the Arrangement, Brazauro Shareholders are entitled to receive, in lieu of the number of Eldorado Shares to which they were  theretofore entitled under the Arrangement, the aggregate number of shares, other securities or other property which such holder would have been entitled to receive as a result of the transaction if, on the effective date or record date thereof, as the
 
 
 

 
 
47
 
 
case may be, it had been the registered holder of the number of Eldorado Shares to which such holder was entitled upon completion of the Arrangement.
 
5.3.3                       If Eldorado or any of its affiliates acquire an Acquired Interest, then Eldorado or its affiliate, as applicable, shall grant to New Brazauro a right of first offer in respect of such Acquired Interest, for a term of 5 years following the acquisition and otherwise on the same terms as set out in Section 7.5.3, mutatis mutandis.
 
5.4
Mutual Covenants
 
Each of the Parties covenants and agrees that, except as contemplated in this Agreement, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms:
 
 
(a)
it shall, and shall cause its subsidiaries to, use commercially reasonable efforts to satisfy (or cause the satisfaction of) the conditions precedent to its obligations hereunder as set forth in Article 6 to the extent the same is within its control and to take, or cause to be taken, all other action and to do, or cause to be done, all other things necessary, proper or advisable under all applicable Laws to complete the Plan of Arrangement, including using its commercially reasonable efforts to:
 
 
(i)
obtain all Key Regulatory Approvals required to be obtained by it;
 
 
(ii)
effect all necessary registrations, filings and submissions of information requested by Governmental Entities required to be effected by it in connection with the Plan of Arrangement;
 
 
(iii)
oppose, lift or rescind any injunction or restraining order against it or other order or action against it seeking to stop, or otherwise adversely affecting its ability to make and complete, the Plan of Arrangement;
 
 
(iv)
co-operate with the other Party in connection with the performance by it and its subsidiaries of their obligations hereunder; and
 
 
(v)
subject to the terms and conditions of this Agreement, not knowingly take or cause to be taken any action which would reasonably be expected to prevent or materially delay the consummation of the transactions contemplated hereby; and
 
 
(b)
it shall not, and shall cause its subsidiaries not to, take any action, refrain from taking any commercially reasonable action, or permit any action to be taken or not taken, which is inconsistent with this Agreement or which would reasonably be expected to significantly impede the making or completion of the Plan of Arrangement except as permitted by this Agreement.
 
5.5
Pre-Acquisition Reorganization
 
 
(a)
Brazauro shall effect such reorganization of its business, operations, subsidiaries and assets or such other transactions (each, a “Pre-Acquisition Reorganization”) as Eldorado may reasonably request prior to the Effective Date, and the Plan of Arrangement, if required, shall be modified accordingly; provided, however, that Brazauro need not effect a Pre-Acquisition Reorganization which in the opinion of
 
 
 

 
 
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Brazauro, acting reasonably (i) would require Brazauro to obtain the prior approval of the Brazauro Shareholders in respect of such Pre-Acquisition Reorganization other than at the Brazauro Meeting; or (ii) would impede or materially delay the consummation of the Arrangement.  Without limiting the foregoing and other than as set forth in clause (i) above, Brazauro shall use its commercially reasonable efforts to obtain all necessary consents, approvals or waivers from any persons to effect each Pre-Acquisition Reorganization, and Brazauro shall cooperate with Subco in structuring, planning and implementing any such Pre-Acquisition Reorganization.  Subco shall provide written notice to Brazauro of any proposed Pre-Acquisition Reorganization at least 10 business days prior to the date of the Brazauro Meeting.  In addition:
 
 
(i)
any Pre-Acquisition Reorganization shall not become effective unless Eldorado shall have waived or confirmed in writing the satisfaction of all conditions in its favour in Section 6.1 and Section 6.2 and shall have confirmed in writing that it is prepared to promptly without condition (other than the satisfaction of the condition contemplated by Section 6.2(a)) proceed to effect the Arrangement;
 
 
(ii)
any Pre-Acquisition Reorganization shall not unreasonably interfere in material operations prior to the Effective Time of Brazauro or any of its subsidiaries;
 
 
(iii)
unless the Parties otherwise agree, any Pre-Acquisition Reorganization shall not require any filings with, notifications to or approvals of any Governmental Entity or third party (other than filing such Tax elections or notifications and prefilings or pre-clearances with corporations branches or similar Governmental Entities, as are necessary or advisable in the circumstances); and
 
 
(iv)
any Pre-Acquisition Reorganization shall not require Brazauro or any subsidiary to contravene any applicable Laws, their respective organizational documents or any Material Contract.
 
 
(b)
Each of Eldorado and Subco acknowledges and agrees that the planning for and implementation of any Pre-Acquisition Reorganization shall not be considered a breach of any covenant under this Agreement and shall not be considered in determining whether a representation or warranty of Brazauro hereunder has been breached. Eldorado and Brazauro shall work cooperatively and use reasonable commercial efforts to prepare prior to the Effective Time all documentation necessary and do such other acts and things as are necessary to give effect to such Pre-Acquisition Reorganization. For greater certainty, Brazauro shall not be liable for the failure of Eldorado to benefit from any anticipated tax efficiency as a result of a Pre-Acquisition Reorganization.
 
 
(c)
If the arrangement is not completed Eldoraro shall forthwith reimburse Brazauro for all reasonable fees and expenses (including any professional fees and expenses) incurred by Brazauro and its subsidiaries in considering and effecting a Pre-Acquisition Reorganization (not including the incorporation and organization of New Brazauro or the transfer of the Spin-Off Property to New Brazauro) that was effected at Eldorado’s request and shall be responsible for any costs associated with reversing or voiding any Pre-Acquisition Reorganization that was effected at Eldorado’s request.
 
 
 

 
 
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5.6
Employment Agreements
 
Following the approval of the Arrangement Resolution, Brazauro shall terminate all employment arrangements with employees of Brazauro and its subsidiaries that relate to the Retained Projects.  New Brazauro shall assume all termination obligations with respect to such employees of Brazauro and its subsidiaries, except for those employees related to the Retained Projects under employment agreements as are disclosed in Schedule 5.6 of the Disclosure Letter.  Eldorado will cause Brazauro to honour all termination obligations for the employees related to the Retained Projects under such employment agreements as are disclosed in Schedule 5.7 of the Disclosure Letter, including, without limitation, by paying to the individuals party to such agreements, in each case, such amounts as set out therein.
 
5.7
Eldorado Guarantee
 
Eldorado hereby unconditionally and irrevocably guarantees the due and punctual performance by Subco of each and every obligation of Subco arising under this Agreement and the Arrangement.
 
ARTICLE 6
CONDITIONS
 
6.1
Mutual Conditions Precedent
 
The obligations of the Parties to complete the transactions contemplated by this Agreement, are subject to the fulfillment, on or before the Effective Time, of each of the following conditions precedent, each of which may only be waived with the mutual consent of the Parties:
 
 
(a)
the Arrangement Resolution shall have been approved and adopted by the Brazauro Securityholders at the Brazauro Meeting in accordance with the Interim Order;
 
 
(b)
the Interim Order and the Final Order shall each have been obtained on terms consistent with this Agreement, and shall not have been set aside or modified in a manner unacceptable to Brazauro and Eldorado, acting reasonably, on appeal or otherwise;
 
 
(c)
there shall not exist any prohibition at Law, including a cease trade order, injunction or other prohibition or order at Law or under applicable legislation, against Eldorado or Brazauro which shall prevent the consummation of the Arrangement;
 
 
(d)
Eldorado Shares, Converted Eldorado Options and Converted Eldorado Warrants to be issued in the United States pursuant to the Arrangement shall be exempt from the registration requirements under the U.S. Securities Act;
 
 
(e)
the Key Regulatory Approvals shall have been obtained;
 
 
(f)
the Key Third Party Consents shall have been obtained;
 
 
(g)
if required by applicable Securities Laws:
 
 
(i)
relief shall have been obtained from any requirement of NI 43-101 which would require the filing on SEDAR by Brazauro or New Brazauro of a technical report in respect of any disclosure in the Brazauro Circular with respect to any material
 
 
 

 
 
50
 
 
property of New Brazauro, provided that if any such relief granted requires the filing of a technical report prior to the Effective Time, such a technical report is filed by Brazauro prior to the Effective Time; or
 
 
(ii)
a technical report as required under NI 43-101 can be prepared so as to not unduly delay the Brazauro Meeting;
 
 
(h)
this Agreement shall not have been terminated in accordance with its terms; and
 
 
(i)
the distribution of the securities pursuant to the Arrangement shall be exempt from the prospectus and registration requirements of applicable Securities Laws either by virtue of exemptive relief from the securities regulatory authorities of each of the provinces of Canada or by virtue of applicable exemptions under applicable Securities Laws.
 
6.2
Additional Conditions Precedent to the Obligations of Subco and Eldorado
 
The obligations of Subco and Eldorado to complete the transactions contemplated by this Agreement shall also be subject to the fulfillment of each of the following conditions precedent (each of which is for the exclusive benefit of Subco and Eldorado and may be waived by Subco and Eldorado):
 
 
(a)
all covenants of Brazauro and its subsidiaries under this Agreement to be performed on or before the Effective Time which have not been waived by Eldorado shall have been duly performed by Brazauro and its subsidiaries in all material respects, and Eldorado shall have received a certificate of Brazauro addressed to Eldorado and dated the Effective Time, signed on behalf of Brazauro by two senior executive officers of Brazauro (on Brazauro’s behalf and without personal liability), confirming the same as at the Effective Date;
 
 
(b)
all representations and warranties of Brazauro set forth in this Agreement qualified by the expression Material Adverse Effect shall be true and correct as of the Effective Time, as though made on and as of the Effective Time (except for representations and warranties made as of a specified date, the accuracy of which shall be determined as of that specified date) and all other representations and warranties shall be true in all material respects, except where any failure or failures of any such representations and warranties would not reasonably be expected to have a Material Adverse Effect on Brazauro; and Eldorado shall have received a certificate of Brazauro addressed to Eldorado and dated the Effective Time, signed on behalf of Brazauro by two senior executive officers of Brazauro (on Brazauro’s behalf and without personal liability), confirming the same as at the Effective Date;
 
 
(c)
no action, suit or proceeding, shall have been taken under any applicable Law or by any Governmental Entity, and no Law, policy, decision or directive (having the force of Law) shall have been enacted, promulgated, amended or applied, in each case:
 
 
(i)
to enjoin or prohibit the Plan of Arrangement or the transactions contemplated by this Agreement;
 
 
(ii)
which would render this Agreement or the Voting Agreements unenforceable in any way or frustrate the purpose and intent hereof or thereof; or
 
 
 

 
 
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(iii)
resulting in any judgment or assessment of damages, directly or indirect, which, individually or in the aggregate, has had or would be reasonably expected to have a Material Adverse Effect with respect to Brazauro;
 
 
(d)
the Voting Agreements shall have been entered into by the Locked-Up Shareholders and:
 
 
(i)
all representations and warranties made by Locked-Up Shareholders who are Directors of Brazauro, the Chief Executive Officer or Chief Financial Officer of Brazauro (the “Senior Locked-Up Shareholders”) in the Voting Agreements shall be true and correct in all respects, without regard to materiality, as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, the accuracy of which shall be determined as of that specified date);
 
 
(ii)
the Senior Locked-Up Shareholders shall have complied in all material respects with all covenants set forth in the Voting Agreements that are to be complied with on or before the Effective Date;
 
 
(iii)
none of the Voting Agreements to which the Senior Locked-Up Shareholders are party shall have been terminated; and
 
 
(iv)
no event shall have occurred that, with notice or lapse of time or both, would give Eldorado the right to terminate any of the Voting Agreements;
 
 
(e)
since the date of this Agreement, there shall not have occurred any event, occurrence, development or circumstance that, individually or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect on Brazauro;
 
 
(f)
all approvals, consents, registrations, permits, authorizations and other considerations, including the Key Third Party Consents, required to be obtained from any Governmental Entity or other Person that are necessary, proper or advisable to consummate the transactions contemplated by this Agreement the failure of which to obtain, individually or in the aggregate, would be reasonably expected to have a Material Adverse Effect with respect to Brazauro, shall have been obtained;
 
 
(g)
the number of Brazauro Shares and Brazauro Warrants held by securityholders who have validly exercised Dissent Rights is not more than 5% of the outstanding Brazauro Shares; and
 
 
(h)
not less than 5 days before the day that the Interim Order is sought, New Brazauro has been incorporated and organized and has entered into the New Brazauro Accession..
 
The foregoing conditions will be for the sole benefit of Subco and Eldorado and may be waived by them in whole or in part at any time.
 
6.3
Additional Conditions Precedent to the Obligations of Brazauro
 
The obligations of Brazauro to complete the transactions contemplated by this Agreement shall also be subject to the following conditions precedent (each of which is for the exclusive benefit of Brazauro and may be waived by Brazauro):
 
 
 

 
 
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(a)
all covenants of Subco and Eldorado under this Agreement to be performed on or before the Effective Time shall have been duly performed by Subco and Eldorado in all material respects, and Brazauro shall have received a certificate of Eldorado, addressed to Brazauro and dated the Effective Time, signed on behalf of Eldorado by two of its senior executive officers (on Eldorado’s behalf and without personal liability), confirming the same as of the Effective Date;
 
 
(b)
all representations and warranties of Subco and Eldorado set forth in this Agreement shall be true and correct in all respects, without regard to any materiality qualifications contained in them as of the Effective Time, as though made on and as of the Effective Time (except for representations and warranties made as of a specified date, the accuracy of which shall be determined as of that specified date), except where the failure or failures of all such representations and warranties (other than those contained in Section 4.1(a), 4.1(b) and 4.1(d)) to be so true and correct in all respects would not reasonably be expected to have a material adverse effect on Subco or Eldorado (it being a separate condition that the representations and warranties of Subco and Eldorado made in Section 4.1(a), 4.1(b) and 4.1(d) must be accurate in all respects when made and, except as contemplated by this Agreement, on and as of the Effective Time, as though made on and as of the Effective Time); and Brazauro shall have received a certificate of Subco and Eldorado, addressed to Brazauro and dated the Effective Time, signed on behalf of each of Subco and Eldorado by two senior executive officers of each of Subco and Eldorado (on Subco’s or Eldorado’s behalf and without personal liability), confirming the same as at the Effective Date; and
 
 
(c)
Eldorado shall have delivered evidence satisfactory to Brazauro of the conditional approval of the listing and posting for trading on the TSX, and the approval of NYSE, of the Eldorado Shares to be issued pursuant to the Plan of Arrangement.
 
The foregoing conditions will be for the sole benefit of Brazauro and may be waived by it in whole or in part at any time.
 
6.4
Satisfaction of Conditions
 
The conditions precedent set out in Section 6.1, Section 6.2 and Section 6.3 shall be conclusively deemed to have been satisfied, waived or released at the Effective Time.
 
ARTICLE 7
ADDITIONAL AGREEMENTS
 
7.1
Notice and Cure Provisions
 
Each Party will give prompt notice to the other of the occurrence, or failure to occur, at any time from the date hereof until the earlier to occur of the termination of this Agreement and the Effective Time of any event or state of facts which occurrence or failure would, or would be likely to:
 
 
(a)
cause any of the representations or warranties of any Party contained herein to be untrue or inaccurate in any material respect on the date hereof or at the Effective Time (provided that this paragraph (a) shall not apply in the case of any event or state of facts resulting from actions or omissions of a Party which are permitted or required by this Agreement); or
 
 
 

 
 
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(b)
result in the failure to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by any Party hereunder prior to the Effective Time.
 
Eldorado and Subco may not exercise their rights to terminate this Agreement pursuant to Section 8.2.1(c)(iii) and Brazauro may not exercise its right to terminate this Agreement pursuant to Section 8.2.1(d)(iii) unless the Party intending to rely thereon has delivered a written notice to the other Party specifying in reasonable detail all breaches of covenants, representations and warranties or other matters which the Party delivering such notice is asserting as the basis for the non-fulfilment or the applicable condition or termination right, as the case may be.  If any such notice is delivered, provided that a Party is proceeding diligently to cure such matter and such matter is capable of being cured, no Party may terminate this Agreement until the expiration of a period of fifteen business days from such notic e, and then only if such matter has not been cured by such date. If such notice has been delivered prior to either the making of the application for the Final Order, such application and such filing shall be postponed until the expiry of such period.  For greater certainty, in the event that such matter is cured within the time period referred to herein without a Material Adverse Effect, this Agreement may not be terminated as a result of the cured breach.
 
7.2
Non-Solicitation
 
7.2.1                      Except as otherwise expressly provided in this Section 7.2, Brazauro shall not, directly or indirectly, through any officer, director, employee, representative (including any financial or other advisor) or agent of Brazauro or any of its subsidiaries (collectively, the “Representatives”):
 
 
(a)
solicit, initiate, knowingly encourage or facilitate (including by way of furnishing information or entering into any form of agreement, arrangement or understanding) the initiation of any inquiries or proposals regarding an Acquisition Proposal;
 
 
(b)
participate in any substantive discussions or negotiations with any person (other than Eldorado or any of its affiliates) regarding an Acquisition Proposal;
 
 
(c)
approve, accept, endorse or recommend, or propose publicly to accept, approve, endorse or recommend, any Acquisition Proposal;
 
 
(d)
accept or enter into or publicly propose to accept or enter into, any agreement, understanding or arrangement or other contract in respect of an Acquisition Proposal; or
 
 
(e)
make a Change in Recommendation.
 
7.2.2                      Except as otherwise provided in this Section 7.2, Brazauro shall, and shall cause its subsidiaries and Representatives to immediately cease and cause to be terminated any solicitation, encouragement, discussion or negotiation with any persons conducted heretofore by Brazauro, its subsidiaries or any Representatives with respect to any Acquisition Proposal, and, in connection therewith, Brazauro will discontinue access to any of its confidential information (and not establish or allow access to any of its confidential information, or any data room, virtual or otherwise) and shall as soon as possible request, to the extent that it i s entitled to do so (and exercise all rights it has to require) the return or destruction of all confidential information regarding Brazauro and its subsidiaries previously provided to any such person or any other person and will request (and exercise all rights it has to require) the destruction of all material including or incorporating or otherwise reflecting any material confidential information regarding Brazauro and its subsidiaries.  Brazauro agrees that neither it nor any of its subsidiaries, shall terminate, waive, amend or modify any provision of any existing confidentiality agreement relating to an Acquisition Proposal or any standstill agreement to which it or any of its
 
 
 

 
 
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subsidiaries is a party (it being acknowledged and agreed that the automatic termination of any standstill provisions of any such agreement as the result of the entering into and announcement of this Agreement by Brazauro, pursuant to the express terms of any such agreement, shall not be a violation of this Section 7.2.2) and Brazauro undertakes to enforce all standstill, non-disclosure, non-disturbance, non-solicitation and similar covenants that it or any of its subsidiaries have entered into prior to the date hereof, provided that Brazauro shall not be prevented from considering any Superior Proposal if the provisions of this Section 7.2 are otherwise complied with.
 
7.2.3                      Notwithstanding Sections 7.2.1 and 7.2.2 and any other provision of this Agreement or of any other agreement between the Parties or between Brazauro and any other person, including the provisions of any confidentiality or standstill agreement, if at any time following the date of this Agreement and prior to obtaining the approval of the Arrangement Resolution at the Brazauro Meeting, Brazauro receives a written Acquisition Proposal that the Brazauro Board determines in good faith, after consultation with its financial advisors and Brazauro Counsel, constitutes or, if consummated in accordance with its terms, could reasonably be ex pected to result in a Superior Proposal, then Brazauro may, provided it is in compliance with Section 7.2.4:
 
 
(a)
furnish information with respect to Brazauro and its subsidiaries to the person making such Acquisition Proposal; and/or
 
 
(b)
enter into, participate, facilitate and maintain discussions or negotiations with, and otherwise cooperate with or assist, the person making such Acquisition Proposal,
 
provided that Brazauro shall not, and shall not allow its Representatives to, disclose any non-public information with respect to Brazauro to such person if such non public information has not been previously provided to, or is not concurrently provided to, Eldorado; and without Brazauro entering into a confidentiality agreement with such person containing terms and conditions that are customary for such agreements in the mining industry, but in no case that are no more favourable to such person than those found in the Confidentiality Agreement.
 
7.2.4                      Brazauro shall promptly notify Eldorado, at first orally and then in writing, within 24 hours of receipt of the Acquisition Proposal, if it receives an Acquisition Proposal, including the material terms and conditions thereof, and the identity of the person or persons making the Acquisition Proposal, and shall include copies of any such proposal, inquiry, offer or request, or any amendment to any of the foregoing. Brazauro shall thereafter also provide such other details of such proposal, inquiry, offer or request, or any amendment to any of the foregoing, as Eldorado may reasonably request. Brazauro shall keep Eldorado fully informed as to the status, including any changes to the material terms, of such proposal, inquiry, offer or request, or any amendment to any of the foregoing, and shall respond promptly to all inquiries from Eldorado with respect thereto.
 
7.2.5                      Notwithstanding anything in this Agreement to the contrary, but subject to Section 7.3, if at any time following the date of this Agreement and prior to obtaining the Brazauro Securityholder Approval at the Brazauro Meeting, Brazauro receives an Acquisition Proposal which the Brazauro Board concludes in good faith constitutes a Superior Proposal, then the Brazauro Board may, subject to compliance with the procedures set forth in Section 8.2, terminate this Agreement to enter into a definitive agreement with respect to such Superior Proposal.
 
7.2.6                      Nothing contained in this Agreement shall prohibit the Brazauro Board from taking any action or making a Change in Recommendation or from making any disclosure to any securityholder of Brazauro prior to the Effective Time, if, in the good faith judgment of the Brazauro Board, after consultation with Brazauro Counsel, failure to take such action or make such disclosure would be
 
 
 

 
 
55
 
 
inconsistent with the Brazauro Board’s exercise of its fiduciary duties or such action or disclosure is otherwise required under applicable Law (including by responding to an Acquisition Proposal under a directors’ circular or otherwise as required under Securities Laws); provided that, for greater certainty, in the event of a Change of Recommendation and a termination by Eldorado of this Agreement pursuant to Section 8.2.1(c)(i), Brazauro shall pay the Termination Fee as required by Section 7.4. In addition, subject to the provisions of this Section 7.2 and Section 7.3, nothing contained in this Agreement shall prevent Brazauro or the Brazauro Board from calling and holding a meeting of Brazauro Shareholders, or any of them, requisitioned by Braza uro Shareholders, or any of them, in accordance with the BCBCA or ordered to be held by a court in accordance with applicable Laws.
 
7.3
Right to Match
 
7.3.1                      Brazauro covenants that it will not accept, approve, endorse, recommend or enter into any agreement, understanding or arrangement in respect of a Superior Proposal (other than a confidentiality and standstill agreement permitted by Section 7.2.3) unless:
 
 
(a)
Brazauro has complied with its obligations under Section 7.2 and has provided Eldorado with a copy of the Superior Proposal; and
 
 
(b)
a period (the “Response Period”) of five business days has elapsed from the date that is the later of:
 
 
(i)
the date on which Eldorado receives written notice from the Brazauro Board that the Brazauro Board has determined, subject only to compliance with this Section 7.3, to accept, approve, endorse, recommend or enter into a definitive agreement with respect to such Superior Proposal; and
 
 
(ii)
the date Eldorado receives a copy of the Superior Proposal.
 
7.3.2                      During the Response Period, Eldorado will have the right, but not the obligation, to offer to amend this Agreement and the Plan of Arrangement, including an increase in, or modification of, the aggregate consideration.  The Brazauro Board shall review any such offer by Eldorado to amend this Agreement and the Plan of Arrangement to determine whether the Acquisition Proposal to which Eldorado is responding would continue to be a Superior Proposal when assessed against the Arrangement as it is proposed in writing by Eldorado to be amended.  If the Brazauro Board determines that the Acquisition Proposal no longer const itutes a Superior Proposal, the Brazauro Board, will cause Brazauro to enter into an amendment to this Agreement with Eldorado incorporating the amendments to the Agreement and Plan of Arrangement as set out in the written offer to amend, and will promptly reaffirm its recommendation of the Arrangement and by the prompt issuance of a press release to that effect.  If the Brazauro Board determines that the Acquisition Proposal continues to be a Superior Proposal, Brazauro may approve and recommend that holders of Brazauro Shares accept such Superior Proposal and may terminate this Agreement pursuant to Section 8.2.1(d)(i) in order to accept or enter into an agreement, understanding or arrangement to proceed with the Superior Proposal.
 
7.3.3                      Each successive amendment to any Acquisition Proposal that results in an increase in, or modification of, the consideration (or value of such consideration) to be received by the holders of the Brazauro Shares shall constitute a new Acquisition Proposal for the purposes of this Section 7.3 and Eldorado shall be afforded a new Response Period and the rights afforded in paragraph 7.3.2 in respect of each such Acquisition Proposal.
 
 
 

 
 
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7.3.4                      Where at any time before the Brazauro Meeting, Brazauro has provided Eldorado with a notice under Section 7.3.1 hereof, an Acquisition Proposal has been publicly disclosed or announced, and the Response Period has not elapsed, then, subject to applicable Laws, at Eldorado’s request, Brazauro will postpone or adjourn the Brazauro Meeting at the Brazauro Meeting (but not beforehand without Eldorado’s consent) to a date acceptable to Eldorado, acting reasonably, which shall not be later than ten days after the scheduled date of the Brazauro Meeting and shall, in the event that Eldorado and Brazauro amend the terms of this Agreement pursuant to Section 7.3.2 hereof, ensure that the details of such amended Agreement are communicated to the Brazauro Securityholders prior to the resumption of the adjourned Brazauro Meeting.
 
7.4
Expenses and Termination Fees
 
7.4.1                      Except as otherwise provided herein, all fees, costs and expenses incurred in connection with this Agreement and the Plan of Arrangement shall be paid by the Party incurring such fees, costs or expenses.
 
7.4.2                      If a Termination Fee Event occurs, Brazauro shall pay Eldorado (by wire transfer of immediately available funds) the Termination Fee in accordance with Section 7.4.4.
 
7.4.3                      For the purposes of this Agreement, “Termination Fee Event” means the termination of this Agreement:
 
 
(a)
by Eldorado, pursuant to:
 
 
(i)
Section 8.2.1(c)(i);
 
 
(ii)
Section 8.2.1(c)(iii), provided that the breach is a material breach of a covenant;
 
 
(iii)
Section 8.2.1(c)(iv), provided that the breach is a material breach; or
 
 
(iv)
or Section 8.2.1(c)(vi);
 
 
(b)
by Brazauro, pursuant to Section 8.2.1(d)(i); or
 
 
(c)
by Eldorado, pursuant to Section 8.2.1(b)(i), or Section 8.2.1(c)(v) or by either Party pursuant to 8.2.1(b)(iii), but only if, in the case of this paragraph (c), prior to the earlier of the termination of this Agreement or the holding of the Brazauro Meeting, a bona fide Acquisition Proposal, or the intention to make an Acquisition Proposal, with respect to Brazauro shall have been made to Brazauro or publicly announced by any person (other than Eldorado, Subco or any of its affiliates) and within twelve months following the date of such termination:
 
 
(i)
the Acquisition Proposal is consummated; or
 
 
(ii)
Brazauro and/or one or more of its subsidiaries enters into a definitive agreement in respect of, or the Brazauro Board approves or recommends, such Acquisition Proposal which is subsequently consummated at any time thereafter;
 
provided that, for the purposes of this Section 7.4.3(c), all references to “20%” in the definition of “Acquisition Proposal” shall be deemed to be references to “50%”.
 
 
 

 
 
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7.4.4                      If a Termination Fee Event occurs due to a termination of this Agreement by Brazauro pursuant to Section 8.2.1(d)(i), or by Eldorado pursuant to Section 8.2.1(c)(i) or Section 8.2.1(c)(vi), the Termination Fee shall be payable simultaneously with the occurrence of such Termination Fee Event.  If a Termination Fee Event occurs due to a termination of this Agreement by Eldorado pursuant to Section 8.2.1(c)(iv), the Termination Fee shall be payable within two business days following such Termination Fee Event.  If a Termination Fee Event occurs in the circumstances set out in Section 7.4.3(c), the Termin ation Fee shall be payable within two business days following the closing of the applicable transaction referred to therein.
 
7.4.5                      Each of the Parties acknowledges that the agreements contained in this Section 7.4 are an integral part of the transactions contemplated in this Agreement and that, without those agreements, the Parties would not enter into this Agreement. Each Party acknowledges that all of the payment amounts set out in this Section 7.4 are payments of liquidated damages which are a genuine pre-estimate of the damages, which the Party entitled to such damages will suffer or incur as a result of the event giving rise to such payment and the resultant termination of this Agreement and are not penalties. Brazauro irrevocably waives any right i t may have to raise as a defense that any such liquidated damages are excessive or punitive.  For greater certainty, each Party agrees that, upon any termination of this Agreement under circumstances where Eldorado is entitled to the Termination Fee and such Termination Fee is paid in full, subject to Section 7.4.6, Eldorado shall be precluded from any other remedy against Brazauro at law or in equity or otherwise (including, without limitation, an order for specific performance), and shall not seek to obtain any recovery, judgment, or damages of any kind, including consequential, indirect, or punitive damages, against Brazauro or any of its subsidiaries or any of their respective directors, officers, employees, partners, managers, members, shareholders or affiliates in connection with this Agreement or the transactions contemplated hereby.
 
7.4.6                      Nothing in this Section 7.4 shall relieve or have the effect of relieving any Party in any way from liability for damages incurred or suffered by a Party as a result of an intentional or wilful breach of this Agreement.
 
7.4.7                      Nothing in this Section 7.4 shall preclude a Party from seeking injunctive relief to restrain any breach or threatened breach of the covenants or agreements set forth in this Agreement or otherwise to obtain specific performance of any such covenants or agreements, without the necessity of posting bond or security in connection therewith.
 
7.4.8                      In no event shall Brazauro be obligated to pay to Eldorado an amount in respect of the termination of this Agreement that is, in aggregate, in excess of the Termination Fee.
 
7.5
Spin-Off
 
7.5.1                      The Parties agree that, pursuant to the Plan of Arrangement, the Spin-Off Property will be transferred to New Brazauro on the Effective Date and that Eldorado will provide funding to New Brazauro in the amount of Canadian $10,000,000, which funding shall not give Eldorado any rights or interests in New Brazauro of any nature whatsoever.  The transfer of the Spin-Off Property and the funding of New Brazauro by Eldorado shall be structured with a view to minimizing the tax consequences on the Parties and their respective securityholders.
 
7.5.2
The Parties hereby acknowledge that the Spin-Off Property has a nominal value.
 
7.5.3                      As part of the Arrangement, New Brazauro will grant Eldorado a right of first offer over the existing mineral exploration properties of New Brazauro at the Effective Time, but excluding “Project
 
 
 

 
 
58
 
 
Phoenix” and any other corporate opportunities, such that until May 15, 2015 (the “ROFO Expiry Date”), if New Brazauro or any New Brazauro affiliate wishes to:
 
 
(a)
sell an interest in or to enter into a joint venture in respect to the development of any of the exploration assets acquired by New Brazauro as part of the Spin-Off Property (but excluding any sale or joint venture arising pursuant to back-in rights to which the relevant interest is subject); or
 
 
(b)
abandon or fail to renew any mineral or property right or concession or authorization,
 
then New Brazauro will give notice to such effect to Eldorado and in such notice detail the nature of the proposed transaction and the price therefore.  Eldorado shall then have the right for a period of 30 days in which, with New Brazauro co-operation, to conduct due diligence in regards thereto and within such period to give notice to New Brazauro that it elects to so purchase or joint venture, as the case may be. If Eldorado gives such notice then the appropriate parties shall enter into and consummate such sale or joint venture, as the case may be, and if the latter, then substantially on the terms of the joint venture agreement defined as the “JVA” pursuant to the July 8, 2008 option agreement between the parties, among others, pertaining to the Tocantinzinho Project (the “Option Agreement”), with such changes as are necessary to reflect the terms of sale. If Eldorado either gives notice to New Brazauro that it is not interested in so purchasing or fails to give notice within such 30 day period, then New Brazauro or the respective New Brazauro affiliate may abandon or fail to renew or sell to or joint venture with, as the case may be, any other third party on the terms offered to Eldorado or better (for New Brazauro or such New Brazauro affiliate).  If such abandonment or failure to renew or transaction is not consummated within 120 days of expiry of the 30 day period referred to above (an aggregate of 150 days from the date of the original notice from New Brazauro to Eldorado), then the entire process shall again be required.  For greater certainty, the right of first offer shall not apply to the issuance of securities of New Brazauro or a change of control of New Brazauro.
 
7.6
Option Extension
 
If the Arrangement has not closed by the First Option Deadline under the Option Agreement (as defined therein), then the parties agree that the First Option Deadline shall be deemed extended for a period of 60 days.
 
7.7
Access to Information; Confidentiality
 
From the date hereof until the earlier of the Effective Time and the termination of this Agreement, subject to compliance with applicable Law and the terms of any existing Contracts, Brazauro shall, and shall cause its subsidiaries and their respective officers, directors, employees, independent auditors, accounting advisers and agents to, afford to Eldorado and to the officers, employees, agents and representatives of Eldorado such access as Eldorado may reasonably require at all reasonable times, including for the purpose of facilitating integration business planning, to their officers, employees, agents, properties, books, records and Contracts, and shall furnish Eldorado with all data and information as Eldorado may reasonably request.  Eldorado and Brazauro acknowledge and agree that information furnished pursuant to th is Section 7.7 shall be subject to the terms and conditions of the Confidentiality Agreement.
 
7.8
Insurance and Indemnification
 
7.8.1                      Eldorado will, or will cause Brazauro and those subsidiaries forming part of the Retained Property, maintain in effect without any reduction in scope or coverage for six years from the Effective
 
 
 

 
 
59
 
 
Date customary policies of directors’ and officers’ liability insurance providing protection no less favourable to the protection provided by the policies maintained by Brazauro and its subsidiaries which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date; provided, however, that Eldorado acknowledges and agrees that prior to the Effective Date, Brazauro may, in the alternative, purchase run-off directors’ and officers’ liability insurance for a period of up to six years from the Effective Date.
 
7.8.2                      Eldorado agrees that it shall directly honour all rights to indemnification or exculpation now existing in favour of present and former officers and directors of Brazauro and those subsidiaries forming part of the Retained Property to the extent that they are disclosed in Schedule 7.8.2 of the Disclosure Letter, and acknowledges that such rights,  to the extent that they are disclosed in Schedule 7.8.2 of the Disclosure Letter, shall survive the completion of the Plan of Arrangement and shall continue in full force and effect for a period of not less than six years from the Effective Date.
 
7.8.3                      The provisions of this Section 7.8 are intended for the benefit of, and shall be enforceable by, each insured or indemnified person, his or her heirs and his or her legal representatives and, for such purpose, Brazauro hereby confirms that it is acting as agent and trustee on their behalf.  Furthermore, this Section 7.8 shall survive the termination of this Agreement as a result of the occurrence of the Effective Date for a period of six years.
 
ARTICLE 8
TERM, TERMINATION, AMENDMENT AND WAIVER
 
8.1
Term
 
This Agreement shall be effective from the date hereof until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.
 
8.2
Termination
 
8.2.1                      This Agreement may be terminated and the Arrangement may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement or the Arrangement Resolution by the Brazauro Securityholders or the Arrangement by the Court):
 
 
(a)
by mutual written agreement of Brazauro and Eldorado; or
 
 
(b)
by either Brazauro or Eldorado, if:
 
 
(i)
the Effective Time shall not have occurred on or before the Outside Date, except that the right to terminate this Agreement under this Section 8.2.1(b)(i) shall not be available to any Party whose failure to fulfill any of its obligations or breach of any of its representations and warranties under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur by such Outside Date; or
 
 
(ii)
after the date hereof, there shall be enacted or made any applicable Law that makes consummation of the Arrangement illegal or otherwise prohibited or enjoins Brazauro or Eldorado from consummating the Arrangement and such applicable Law (if applicable) or enjoinment shall have become final and non-appealable; or
 
 
 

 
 
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(iii)
the Arrangement Resolution shall have failed to obtain the Brazauro Securityholder Approval at the Brazauro Meeting (including any adjournment or postponement thereof) in accordance with the Interim Order; or
 
 
(c)
by Eldorado, if:
 
 
(i)
prior to obtaining the Brazauro Securityholder Approval, the Brazauro Board fails to recommend or withdraws, amends, modifies or qualifies, in a manner adverse to Eldorado or fails to reaffirm its recommendation of the Arrangement within five business days (and in any case prior to the Brazauro Meeting) after having been requested in writing by Eldorado to do so, in a manner adverse to Eldorado, (it being understood that the taking of a neutral position or no position with respect to an Acquisition Proposal beyond a period of five business days (or beyond the date which is one day prior to the Brazauro Meeting, if sooner) shall be considered an adverse modification) (a “Change in Recommendation”); or
 
 
(ii)
any of the conditions set forth in Section 6.1 or Section 6.2 is not satisfied, and such condition is incapable of being satisfied by the Outside Date, provided that Eldorado shall not be able to terminate under this Section if the condition in Section 6.2(b) is not satisfied and Eldorado was aware or ought to have been aware of the material breach of the representation and warranty by virtue of its role as operator under the Option Agreement;
 
 
(iii)
subject to Section 7.1, a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Brazauro set forth in this Agreement (other than as set forth in Section 7.2) shall have occurred that would cause the conditions set forth in Section 6.1 or Section 6.2 not to be satisfied, and such conditions are incapable of being satisfied by the Outside Date; provided that Eldorado is not then in breach of this Agreement so as to cause any of the conditions set forth in Section 6.1 or Section 6.3 not to be satisfied; or
 
 
(iv)
Brazauro is in breach or in default of any of its obligations or covenants set forth in Section 7.2 other than an immaterial breach of Brazauro’s obligation under Section 7.2 to provide notice of an Acquisition Proposal to Eldorado within a prescribed period;
 
 
(v)
the Brazauro Meeting has not occurred on or before August 1, 2010, provided that the right to terminate this Agreement pursuant to this Section 8.2.1(c)(v) shall not be available to Eldorado if the failure by Eldorado to fulfil any obligation hereunder is the cause of, or results in, the failure of the Brazauro Meeting to occur on or before such date; or
 
 
(vi)
the Brazauro Board authorizes Brazauro to enter into a binding written agreement relating to a Superior Proposal;
 
 
(d)
by Brazauro, if
 
 
(i)
the Brazauro Board authorizes Brazauro, subject to complying with the terms of this Agreement, to enter into a legally binding agreement with respect to a Superior Proposal; provided that concurrently with such termination, Brazauro pays the Termination Fee payable pursuant to Section 7.4;
 
 
 

 
 
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(ii)
any of the conditions set forth in Section 6.1 or Section 6.3 is not satisfied, and such condition  is incapable of being satisfied by the Outside Date; or
 
 
(iii)
subject to Section 7.1, a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Eldorado set forth in this Agreement shall have occurred that would cause the conditions set forth in Section 6.1 or Section 6.3 not to be satisfied, and such conditions are incapable of being satisfied by the Outside Date; provided that Brazauro is not then in breach of this Agreement so as to cause any of the conditions set forth in Section 6.1 or Section 6.2 not to be satisfied.
 
8.2.2                      The Party desiring to terminate this Agreement pursuant to this Section 8.2 (other than pursuant to Section 8.2.1(a)) shall give notice of such termination to the other Parties.
 
8.2.3                      If this Agreement is terminated pursuant to this Section 8.2, this Agreement shall become void and of no effect without liability of any Party (or any shareholder, director, officer, employee, agent, consultant or representative of such Party) to any other Party hereto, except as otherwise expressly contemplated hereby, and provided that the provisions of this Section 8.2.3 and Sections 7.4, 9.3, 9.6 and 9.7 shall survive any termination hereof pursuant to Section 8.2.1; provided further that neither the termination of this Agreement nor anything contained in this Section 8.2 shall relieve a Party from any liability arising on or prior to such termination.
 
8.3
Amendment
 
This Agreement and the Plan of Arrangement may, at any time and from time to time before or after the holding of the Brazauro Meeting but not later than the Effective Time, be amended by mutual written agreement of the Parties, and any such amendment may, subject to the Interim Order and the Final Order and applicable Law, without limitation:
 
 
(a)
change the time for performance of any of the obligations or acts of the Parties;
 
 
(b)
waive any inaccuracies or modify any representation or warranty contained herein or in any document delivered pursuant hereto;
 
 
(c)
waive compliance with or modify any of the covenants herein contained and waive or modify performance of any of the obligations of the Parties; and/or
 
 
(d)
waive compliance with or modify any mutual conditions precedent herein contained.
 
8.4
Waiver
 
Any Party may:
 
 
(a)
extend the time for the performance of any of the obligations or acts of the other Party;
 
 
(b)
waive compliance, except as provided herein, with any of the other Party’s agreements or the fulfilment of any conditions to its own obligations contained herein; or
 
 
(c)
waive inaccuracies in any of the other Party’s representations or warranties contained herein or in any document delivered by the other Party,
 
 
 

 
 
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provided, however, that any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party and, unless otherwise provided in the written waiver, will be limited to the specific breach or condition waived; and provided further that, for the purposes of this Section 8.4, Subco and Eldorado shall be deemed to constitute one and the same Party.
 
ARTICLE 9
GENERAL PROVISIONS
 
9.1
Privacy
 
Each Party shall comply with applicable privacy Laws in the course of collecting, using and disclosing personal information about an identifiable individual (the “Transaction Personal Information”).  Eldorado and Subco shall not disclose Transaction Personal Information to any person other than to its advisors who are evaluating and advising on the transactions contemplated by this Agreement.  If Eldorado and Subco complete the transactions contemplated by this Agreement, Eldorado and Subco shall not, following Closing, without the consent of the individuals to whom such Transaction Personal Information relates or as permitted or required by applicable Law, use or disclose Transaction Personal Information:
 
 
(a)
for purposes other than those for which such Transaction Personal Information was collected by Brazauro prior to the Closing;
 
 
(b)
which does not relate directly to the carrying on of Brazauro’s business or to the carrying out of the purposes for which the transactions contemplated by this Agreement were implemented; and
 
 
(c)
as otherwise required by law.
 
Eldorado and Subco shall protect and safeguard the Transaction Personal Information against unauthorized collection, use or disclosure.  Eldorado and Subco shall cause its advisors to observe the terms of this Section and to protect and safeguard Transaction Personal Information in their possession.  If this Agreement shall be terminated, Eldorado and Subco shall promptly deliver to Brazauro all Transaction Personal Information in its possession or in the possession of any of its advisors, including all copies, reproductions, summaries or extracts thereof.
 
9.2
Notices
 
All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered if delivered personally and if sent by facsimile and received by the recipient, as evidenced by a transmission report, on a business day between the hours of midnight and 5:00 p.m. recipient local time on that business day, provided if it is received later or not on a business day, then the next business day, or as of the following business day if sent by prepaid overnight courier, to the Parties at the following addresses (or at such other addresses as shall be specified by any Party by notice to the other given in accordance with these provisions):
 
 
(a)
if to Brazauro:
 
 
Brazauro Resources Corp.
 
16360 Park Ten Place, Suite 217
 
Houston - Texas 77084
 
 
 

 
 
63

 
 
Attention:
Mark E. Jones
 
Fax:
+1 (281) 579-9799
 
 
with a copy (which shall not constitute notice) to:
 
Blake, Cassels & Graydon LLP
595 Burrard Street
P.O. Box 49314
Suite 2600, Three Bentall Centre
Vancouver BC V7X 1L3
 
 
Attention:
Bob J. Wooder
 
Facsimile:
604-631-3309
 
 
(b)
if to Eldorado:
 
 
1188 – 550 Burrard Street
 
Vancouver, BC  V6C 2B5
 
 
Attention:
Dawn Moss
 
Facsimile:
(604) 687- 4026
 
with a copy (which shall not constitute notice) to:
 
Fasken Martineau DuMoulin LLP
Suite 2900 – 550 Burrard Street
Vancouver, BC  V6C 0A3
 
 
Attention:
Josh Lewis
 
Facsimile:
(604) 632 - 4853
 
9.3
Governing Law; Waiver of Jury Trial
 
This Agreement, other than the Plan of Arrangement, which shall be governed by the laws of the Province of British Columbia, shall be governed, including as to validity, interpretation and effect, by the laws of the Province of British Columbia and the laws of Canada applicable therein. Each of the Parties hereby irrevocably attorns to the exclusive jurisdiction of the Courts of the Province of British Columbia in respect of all matters arising under and in relation to this Agreement and waives any defences to the maintenance of an action in the Courts of the Province of British Columbia.  EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT.
 
9.4
Injunctive Relief
 
Subject to Section 7.4, the Parties agree that irreparable harm would occur for which monetary damages would not be an adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is
 
 
 

 
 
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accordingly agreed that the Parties shall be entitled to seek an injunction or injunctions and other equitable relief to prevent breaches of this Agreement, any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief hereby being waived.
 
9.5
Time of Essence
 
Time shall be of the essence in this Agreement.
 
9.6
Entire Agreement, Binding Effect and Assignment
 
9.6.1                      Eldorado or Subco may assign all or any part of its rights under this Agreement to, and its obligations under this Agreement may be assumed by, a direct or indirect subsidiary of Eldorado, provided that if such assignment and/or assumption takes place, Eldorado shall continue to be liable jointly and severally with such subsidiary for all of its obligations hereunder.  This Agreement shall be binding on and shall enure to the benefit of the Parties and their respective successors and permitted assigns.
 
9.6.2                      Except as expressly permitted by the terms hereof, neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any of the Parties without the prior written consent of the other Parties.
 
9.6.3                      This Agreement (including the exhibits and schedules hereto and the Disclosure Letter) and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof and thereof and, except as expressly provided herein, this Agreement is not intended to and shall not confer upon any person other than the Parties any rights or remedies hereunder.
 
9.7
Severability
 
If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.
 
9.8
Counterparts, Execution
 
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.  The Parties shall be entitled to rely upon delivery of an executed facsimile or similar executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy shall be legally effective to create a valid and binding agreement between the Parties.
 
[Remainder of page intentionally left blank.  Signature page follows.]
 
 
 
 

 
 
65
 
 
IN WITNESS WHEREOF Subco, Eldorado and Brazauro have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 
ELDORADO GOLD HOLDINGS (BC) LTD.
   
   
 
By:
 
   
Name:
   
Title:
     

 
ELDORADO GOLD CORPORATION
   
   
 
By:
 
   
Name:
   
Title:

 
BRAZAURO RESOURCES CORPORATION
   
   
 
By:
 
   
Name:
   
Title:
 
 
 
 
 
 
 


EX-4.33 10 ss95636_ex0433.htm AMENDMENT AGREEMENT
EXHIBIT 4.33
 
AMENDMENT AGREEMENT
 
THIS AGREEMENT made as of June 8, 2010.
 
BETWEEN:
 
ELDORADO GOLD HOLDINGS (BC) LTD., a corporation incorporated under the laws of British Columbia (“Subco”)
 
- and -
 
ELDORADO GOLD CORPORATION, a corporation continued under the laws of Canada (“Eldorado”)
 
- and -
 
BRAZAURO RESOURCES CORPORATION, a corporation incorporated under the laws of British Columbia (“Brazauro”)
 
- and -
 
TRISTAR GOLD INC., a corporation incorporated under the laws of British Columbia (“Tristar”)
 
WHEREAS:
 
A.
Subco, Eldorado and Brazauro entered into an agreement dated May 11, 2010 (the “Arrangement Agreement”).
 
B.
Section 5.2(b) of the Arrangement Agreement provides that “New Brazauro”, a company to be incorporated by Brazauro, would “enter into a binding instrument in favour of Eldorado and Subco, addressing the matters detailed in Schedule G hereof, and acceding to this Agreement as a party (the “New Brazauro Accession”)”.
 
C.
Tristar is “New Brazauro”, as contemplated by the Arrangement Agreement, and wishes to enter into the New Brazauro Accession.
 
D.
Brazauro wishes to take certain steps prior to the Effective Date, whereby some or all of the Spin-off Property is transferred (the “Spin-off Property Transfer”) to Tristar or a Tristar subsidiary or a Brazauro subsidiary which shall not become an Eldorado subsidiary as a consequence of the transaction contemplated by the Arrangement Agreement.
 
E.
The Spin-off Property Transfer will require two payments of funds (collectively, the “Spin-off Payments”) to be paid by (i) a Tristar subsidiary to a Brazauro subsidiary which shall become an Eldorado subsidiary as a consequence of the transactions contemplated by the Arrangement Agreement and (ii) Tristar to Brazauro.
 
 
 

 
- 2 -
 
 
F.
The Spin-off Property Transfer and the Spin-off Payments are prohibited or restricted pursuant to the negative covenants of Brazauro under the Arrangement Agreement.
 
NOW THEREFORE IN CONSIDERATION OF THE PREMISES, the parties agree as follows:
 
1.
All capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Arrangement Agreement.  All references herein to the Arrangement Agreement or any portion thereof refer to the Arrangement Agreement.
 
2.
Tristar covenants to Subco, Eldorado and Brazauro to be bound by all of the rights and obligations of New Brazauro under the Arrangement Agreement from the date hereof (the “Effective Date”), as if Tristar was named therein in the place of New Brazauro and as an original party and specifically, Tristar hereby makes and confirms the representations, warranties and covenants all as set out in Schedule G to the Arrangement Agreement, amended as indicated in Schedule A hereto (the “Tristar Accession”).
 
3.
Subco, Eldorado and Brazauro agree to the Tristar Accession.
 
4.
The parties agree to execute all additional deeds and other instruments (collectively the “Collateral Documentation”) under the Arrangement Agreement or any other instrument related to the Arrangement Agreement, both:
 
 
(a)
as may be required to perfect the Tristar Accession pursuant thereto; and
 
 
(b)
as reasonably required by any counterparty thereto.
 
5.
Tristar covenants and agrees to notify Subco, Eldorado and Brazauro immediately if any change of control, restructuring or reorganization of Tristar is proposed that may impact on Tristar’s ability to meet its obligations, duties and liabilities under the Arrangement Agreement.
 
6.
Tristar’s address for service and notices shall be as follows, unless and until changed in accordance with the Arrangement Agreement:
 
c/o 595 Burrard Street
P.O. Box 49314
Suite 2600, Three Bentall Centre
Vancouver, British Columbia  V7X 1L3
 
Attention:  Brian Irwin
Facsimile:  (604) 631-3309
 
7.
The parties agree that the Plan of Arrangement, as set out in Schedule A to the Arrangement Agreement is replaced by the content of Schedule B hereto.
 
8.
Subco covenants, forthwith after the Effective Time, to amalgamate under s 273 of the BCBCA (the “Amalgamation”) with Newco (as defined in the Plan of Arrangement).
 
 
 

 
- 3 -
 
 
9.
Eldorado covenants to cause Subco to enter into the Amalgamation.
 
10.
The parties confirm that the transactions contemplated by the Plan of Arrangement and the Amalgamation shall be treated by the parties as an integrated transaction for U.S. tax purposes.
 
11.
The parties acknowledge and agree that, notwithstanding Sections 2.12 (b) and 7.5.1 of the Arrangement Agreement, the transfer of the Spin-off Property will be effected other than pursuant to the Plan of Arrangement.
 
12.
The parties agree that, subject to clause 13 hereof, notwithstanding the terms and conditions of the Arrangement Agreement, Brazauro may proceed to execute the Spin-off Property Transfer and Spin-off Payments, specifically as detailed in Schedule C hereto, and Eldorado and Subco waive any default under the Arrangement Agreement that otherwise would be triggered thereby.
 
13.
The Spin-off Property Transfer and the amounts and payment of the Spin-off Payments shall all be subject to the reasonable written approval of Eldorado, including as regards to all documents documenting the Spin-off Property Transfer.
 
14.
Brazauro and Tristar represent to Eldorado that none of the Retained Properties are the subject of the Spin-off Property Transfer.
 
15.
The parties agree that the last clause of Section 5.2 (d) of the Arrangement Agreement, which currently provides:
 
“… with a nominee of Eldorado to be appointed to the Brazauro Board immediately after each such resignation;”
 
be amended to provide:
 
“… with nominees of Eldorado to be appointed to the Brazauro Board immediately after such resignations;”
 
16.
The parties will at all times hereafter execute and deliver, at the request of the other, all such reasonable further documents and will do and perform all such reasonable acts as may be necessary to give full effect to the intent and meaning of this Amendment Agreement.
 
17.
This Amendment Agreement shall be interpreted in accordance with the governing laws of the Province of British Columbia and the laws of Canada having general application therein.
 
18.
This Amendment Agreement may be executed and delivered in any number of counterparts or facsimile counterparts with the same effect as if all parties had all signed and delivered the same document and all counterparts when executed and delivered (by facsimile or otherwise) will be construed together to be an original and will constitute one and the same agreement.
 
 
 

 
- 4 -
 
 
19.
This Amendment Agreement is expressly made a part of the Arrangement Agreement to the same extent as if incorporated therein, mutandis mutandis, and the parties agree that all representations, warranties, agreements, covenants, conditions and provisos contained in the Arrangement Agreement except as amended or altered herein shall be and remain unaltered and in full force and effect.  The Parties confirm and ratify the Arrangement Agreement as amended and extended hereby and hereinafter the term “Arrangement Agreement “ shall mean and include the Arrangement Agreement and this Amendment Agreement.
 
IN WITNESS WHEREOF the parties have executed this Amendment Agreement as of the date appearing at the commencement hereof.
 
 
ELDORADO GOLD HOLDINGS (BC) LTD.
   
 
By:  
 
   
Name: 
 
   
Title:
 
     
 
 
 
ELDORADO GOLD CORPORATION
   
 
By:  
 
   
Name: 
 
   
Title:
 
 
 
 
BRAZAURO RESOURCES CORPORATION
   
 
By:  
 
   
Name: 
 
   
Title:
 
 
 
 
TRISTAR GOLD INC.
   
 
By:  
 
   
Name: 
 
   
Title:
 

 
 

 
 
 
SCHEDULE A
 
TRISTAR REPRESENTATIONS, WARRANTIES AND COVENANTS
 
1.
Representations and Warranties of Tristar
 
Tristar represents and warrants to Eldorado and Subco on the date hereof and acknowledges that Eldorado and Subco are relying upon such representations and warranties in connection with the Accession to the Arrangement Agreement:
 
(a)
Organization and Qualification. Tristar is a corporation duly incorporated or an entity duly created and validly existing under all applicable Laws of its jurisdiction of incorporation, continuance or creation and has all necessary corporate or other power, authority and capacity to own its property and assets as now owned and to carry on its business as it is now being conducted.  Tristar is duly registered or otherwise authorized and qualified to do business and each is in good standing in each jurisdiction in which the character of its properties, owned, leased, licensed or otherwise held, or the nature of its activities makes such qualification necessary.
 
(b)
Authority Relative to this Agreement.  Tristar has the requisite corporate power, authority and capacity to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Tristar and the performance by Tristar of its obligations under this Agreement have been duly authorized by the board of directors of Tristar and no other corporate proceedings on its part are necessary to authorize this Agreement or the Arrangement pursuant to the Plan of Arrangement. This Agreement has been duly executed and delivered by Tristar and constitutes a legal, valid and binding obligation of Tristar, enforceable against Tristar in accordance with its terms, subject to the qualification that such enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of general application rela ting to or affecting rights of creditors and that equitable remedies, including specific performance, are discretionary.
 
(c)
No Violation.  Neither the execution and delivery of this Agreement by Tristar nor the completion of the Arrangement pursuant to the Plan of Arrangement nor compliance by Tristar with any of the provisions hereof will violate, conflict with, or result in a breach of any material provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under the articles of incorporation or Laws governing Tristar or any material contract or other instrument or obligation to which Tristar is a party or to which Tristar or any of its properties or assets, may be subject or by which Tristar is bound and which would materially adversely affect Tristar’s ability to perform its obligations under this Agreement or violate any Law applicable to T ristar or any its properties or assets.
 
2.
Survival of Representations and Warranties
 
The representations and warranties of Tristar shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which the Arrangement Agreement is terminated in accordance with its terms.
 
 
 

 
A-2
 
3. 
Covenants of New Brazauro
 
Tristar shall perform all obligations required or desirable to be performed by it under the Arrangement Agreement, co-operate with Subco and Eldorado in connection therewith, and do all such other acts and things as may be necessary or desirable in order to consummate and make effective the transactions contemplated in the Arrangement Agreement and, without limiting the generality of the foregoing, Tristar shall:
 
(a)
be responsible for all information in the Brazauro Circular regarding Brazauro and its affiliates prior to the Effective Time, including all information provided to Eldorado or obtained from the Brazauro Public Disclosure Record for the purposes of describing the resulting issuer following the Effective Time and all information regarding Tristar.  For greater certainty, Eldorado shall not be responsible for any information in the Brazauro Circular relating Tristar.
 
(b)
on or prior to the Effective Date, conditionally allot and reserve for issuance a sufficient number of  Shares to be issued under the Plan of Arrangement;
 
(c)
cooperate in all necessary ways, do all things, sign all documents, execute all transfers and assumptions and post all security required by any Governmental Entity in connection with the transfer of the Spin-Off Property to Tristar;
 
(d)
for a period of five years after the Effective Date, Tristar and each of its affiliates not acquire any Mineral Rights (or an interest therein) or Other Rights (or an interest therein) located wholly or in part within a 5 kilometre radius of the nearest boundary of the Retained Projects (the “Acquired Interest”) except in accordance with subsection (e), below;
 
(e)
if Tristar or any of its affiliates acquires or proposes to acquire an Acquired Interest, within thirty days after such acquisition or proposed acquisition, then Tristar, or the applicable affiliate of Tristar, if applicable, shall notify Eldorado of such acquisition or proposed acquisition.  Such notice shall describe in detail the Acquired Interest, the acquiring affiliate, if applicable, and the cost thereof.  Tristar shall make any and all information concerning the Acquired Interest available for inspection by Eldorado.  Within thirty days after receiving the notice and information, Eldorado shall have the option to elect to acquire such Acquired Interest at its cost.  If Eldorado does not elect to acquire such Acquired Interest, then Tristar and any of its affiliates will be free to acquire or otherwise deal with such Acquired Interest for its own account;
 
(f)
Tristar shall assume all termination obligations with respect to such employees of Brazauro and its subsidiaries, except for those employees related to the Retained Projects under employment agreements as are disclosed in Schedule 5.7 of the Disclosure Letter.
 
(g)
indemnify Brazauro and Eldorado from any liabilities:
 
 
(i)
included in or related to the Assumed Spin-Off Liabilities; and
 
 
 

 
A-3
 
 
(ii)
relating to employees of Brazauro or any subsidiary of Brazauro prior to the Effective Date, except for those obligations which Eldorado specifically covenants to satisfy pursuant to Section 5.7 of the Arrangement Agreement;
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
SCHEDULE B
 
PLAN OF ARRANGEMENT
 
 
 
 
 
 
 
 
 
 

 
 
 

 
 
SCHEDULE C
 
SPIN-OFF PROPERTY TRANSFER AND SPIN-OFF PAYMENTS
 
1.     Asset Sale and Purchase Agreement between BRAZAURO RECURSOS MINERAIS LTDA. (“BRM”), as Seller, and TRISTAR MINERAÇÃO DO BRASIL LTDA. (“TMB” ), previously named  MINERAÇÃO ÁGUA BRANCA LTDA. (“MAB”), as Buyer.
 
Assets sold: software, machines & equipment, moveable assets and fixtures, information technology equipment, communication equipment, plant equipment  and vehicle equipment, all as detailed in the Schedule I of the subject agreement.
 
2.     Agreement for Assignment of Mineral Rights by BRM to TMB
 
Mineral Rights: DNPM Processes Nos 850.819/2006, 850.595/2007, 850.596/2007 and 850.652/2007
 
Assignment price paid: R$2,200.00
 
3.     Quota Purchase and Sale Agreement and Other Covenants between BRM and BRAZAURO HOLDINGS (BRAZIL) LTD. (“Brazauro Holdings”) as Sellers, and TRISTAR GOLD INC. and TRISTAR GOLD [BRAZIL] INC. as Buyers and MAB as intervening party
 
Quota sold: 1000 quota of MAB comprising 999 quota owned by BRM and 1 quota owned by Brazauro Holdings
 
Sale Price paid: R$1,000.00
 
4.     Share Purchase and Sale Agreement between BRAZAURO RESOURCES CORPORATION as Seller and TRISTAR GOLD INC. as Buyer
 
Shares sold: all the issued and outstanding shares of STAR U.S. INC and of BRAZAURO HOLDINGS (BVI) LTD.
 
 
 
 
 

EX-8.1 11 ss95636_ex0801.htm SUBSIDIARIES OF THE REGISTRANT

EXHIBIT 8.1
Subsidiaries of the Registrant

Brazauro Resources Corporation
(a British Columbia corporation)

Owns 100% of the following corporations:

Star U.S. Inc.
(a Delaware corporation)
and
Brazauro Holdings (Brazil) Ltd.
(a British Columbia corporation)
and
Resource Holdings 2004 Inc.
(a BVI corporation)
and
Brazauro Holdings (BVI) Ltd.,
(a BVI corporation)


Brazauro Resources Corporation owns 99.99% of:

Brazauro Recursos Minerais Ltda. (a Brazilian corporation)


Brazauro Holdings (Brazil) Ltd. owns 0.01%, respectively of:

Brazauro Recursos Minerais Ltda. (a Brazilian corporation)
and
Mineracao Agua Branca Ltda. (a Brazilian corporation)
and
Mineração Cachambix Ltda. (a Brazilian corporation)


Brazauro Resources Corporation owns 0.01% of:

Empresa Internacional de Mineração do Brasil Ltda. (a Brazilian corporation)


Resource Holdings 2004 Inc. owns 99.99% of:

Empresa Internacional de Mineração do Brasil Ltda. (a Brazilian corporation)


Brazauro Recursos Minerais Ltda. owns 99.99% of:

Mineração Cachambix Ltda. (a Brazilian corporation)


Star U.S. Inc. Owns 100% of the following three corporations:

Diamond Operations, Inc. (a Delaware corporation)
Diamond Exploration, Inc. (an Arkansas corporation)
Continental Diamonds, Inc. (an Arkansas corporation)
 
 
 
 

EX-11.1 12 ss95636_ex1101.htm BRAZAURO CODE OF ETHICS
EXHIBIT 11.1
BRAZAURO RESOURCES CORPORATION

OFFICERS AND DIRECTORS CODE OF ETHICS


Introduction

Brazauro Resources Corporation (the “Company”) is committed to conducting business in accordance with the highest standards of business and ethics, including full and accurate financial disclosure and compliance with applicable laws, rules, regulations and stock exchange policies.

This Code of Ethics is applicable to all officers and directors of the Company and reflects the Company’s commitment to a culture of accountability, integrity and honesty. It outlines the basic principles with which all officers and directors are expected to comply and it sets forth specific policies to guide you in the performance of your duties and in avoiding unethical conduct and acts detrimental to the interests of the Company and its shareholders.

However, as it is not possible to list every act of misconduct, the below guidelines should not be considered exclusive or complete. Rather, this Code of Ethics serves as a supplement to your good judgment and common sense.

Conflicts of Interest

 A conflict of interest exists when it appears to a reasonable and objective observer that an officer or director’s duty to give undivided commercial loyalty to the Company may be prejudiced by an actual or potential direct or indirect personal benefit from another source.

Examples of conflict of interest exist, but are not limited to, when the officer or director has, directly or indirectly, a personal interest which is in conflict with that of the Company, or where his or her independence of judgment is affected, or when his or her loyalty to the Company is likely to be compromised by a real or possible benefit that the officer or director or a third party might gain from the transaction.

You must avoid situations where there is a real or apparent conflict of interest and must avoid any investment, action or omission which may prejudice the impartiality of the decisions made on behalf of the Company or hinder your exercise of free judgment. Where a real or apparent conflict of interest arises, you must bring the matter to the attention of the Chairman so that it can be dealt with in an appropriate manner.

Confidentiality

 The Company considers the protection of confidential information and trade secrets of utmost importance. Officers and directors must maintain the confidentiality of information entrusted to them by the Company or that otherwise comes into their possession in the normal course of their duties, except when disclosure is appropriately authorized or legally mandated.
Confidential or proprietary information may include, without limitation, any non-public information concerning the Company’s drill results, prospects , financial information and any non-public information provided by a third party with the expectation that it will be kept confidential.
 
 
 
 

 
 
Insider Trading

Confidential information about the Company’s affairs shall not be used for your own gain, or for the gain of others, such as friends or relatives. Individuals who are in possession of confidential information which is not generally available to the community at large – so-called “insider” information – are prohibited from disclosing it to any unauthorized person, or using it as a basis for trading in the Company’s securities or in the securities of any corporation which the Company is contemplating acquiring or doing business with.

You must also respect the confidential nature of any similar information concerning organizations with which the Company has business dealings, such as a supplier, customer or competitor.

For an officer or director to use confidential information for personal benefit or to disclose it to others outside the Company violates the Company’s interest in maintaining confidentiality and it may cause damage to the Company. Also, in the event of privileged information resulting in prohibited insider trading by the recipient of such information, both the person disclosing the information and the person using it for prohibited trading purposes are considered parties to prohibited insider trading and thereby subject to civil and penal liabilities, in addition to disciplinary measures by the Company.

Acceptance of Gifts and Gratuities

Business gifts and entertainment are customary courtesies designed to build goodwill among business partners. However, a problem may arise when such courtesies compromise, or appear to compromise, your ability to make objective and fair business decisions, for example by creating a sense of obligation in return or by presenting a conflict of interest.

To ensure the highest level of objectivity in dealing with our stakeholders, you shall not accept material gifts such as goods, services, loans, pleasure or vacation trips or accommodations, the use of property and the like, from vendors, contractors, suppliers or competitors. Gifts of a nominal value, reasonably estimated at less than US$50, may be accepted when such have not been solicited and are not being made in return for a special consideration or decision. Repeated acceptance of nominal value gifts from a single individual, vendor, contractor, supplier or competitor must be rejected. Cash or cash equivalent in any form or amount shall never be solicited or accepted.

Exceptions to this policy about gifts, gratuities or business dealings may be made in only very rare circumstances and you must have obtained written approval from the Company’s Chief Executive Officer prior to accepting such gift or gratuity.

Compliance with Laws, Rules and Regulations

Officers and directors must comply with the laws, rules and regulations that govern the Company’s affairs in all of the cities, states, provinces and countries in which the Company conducts business and must avoid even the appearance of impropriety. Officers and directors are encouraged to read and understand the requirements of the Corruption of Foreign Public Officials Act (the “Act”) and to conduct all Company business dealings in compliance with the Act.

You must immediately report any suspected violation of applicable laws, rules or regulations to the Chief Executive Officer or the Chair of the Board of Directors.


 
 

 

Financial Statements, Recordkeeping and Disclosure

It is the policy of the Company to comply with all financial reporting and accounting regulations applicable to the Company, and to condemn malfeasance. Malfeasance is the deliberate and concerted effort to falsify information, to distort the truth or in some way present an inaccurate view of a fact, issue or concept. Honest and accurate recording and reporting of information is critical to our financial reporting, our ability to make responsible business decisions and our avoidance of malfeasance of any kind. As such, you are encouraged to have clear, open and frequent communications with all levels of management and may not, directly or indirectly, improperly influence or manipulate the Company’s external auditors for the purpose of rendering the Company’s financial statements misleading.

In addition, it is the policy of the Company to provide full, fair, accurate, timely and comprehendible disclosure in the reports and documents that the Company files in accordance with securities exchange regulatory requirements, and in other public communications made by the Company.

Policy Violation

Any violation of this Code of Ethics, or other Company policies or applicable rules or regulations, may result in the board of directors requesting the resignation of the board member or the termination of the officer. Ignorance of the provisions of this Code of Ethics cannot be accepted as an excuse for their non-observance. In addition, violations of legal and regulatory requirements may carry their own civil and criminal penalties, including fines and imprisonment.

Acknowledgement

I have read and understood this Code of Ethics, and agree to comply with it. I have had sufficient opportunity to contact the Chairman and/or outside legal counsel in respect of any questions that I may have had in regards to this Code of Ethics.

I am aware that a copy of the signed Code of Ethics may be placed in my file with the Company and that I may be asked to periodically review this, and other policies, and to acknowledge that I have done so.






 
         
Name   Signature   Date
 
 
 
 
 
 
 

EX-12.1 13 ss95636_ex1201.htm CERTIFICATION OF CEO
EXHIBIT 12.1
 
13a-14 CERTIFICATION
 
I, Mark E. Jones, III, certify that:
 
1.  I have reviewed this Annual Report on Form 20-F of Brazauro Resources Corporation (the “Company”);
 
2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flow of the Company as of, and for, the periods presented in this report;

4.  The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, to the Company’s internal control over financial reporting; and

5.  The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board of Directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 

Dated:  July 9, 2010
/s/ Mark E. Jones, III
 
Mark E. Jones, III
 
Chief Executive Officer


  

EX-12.2 14 ss95636_ex1202.htm CERTIFICATION OF CFO
EXHIBIT 12.2
 
 
13a-14 CERTIFICATION
 
 
I, Brian C. Irwin, certify that:
 
 
1.  I have reviewed this Annual Report on Form 20-F of Brazauro Resources Corporation (the “Company”);
 
2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flow of the Company as of, and for, the periods presented in this report;

4.  The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, to the Company’s internal control over financial reporting; and

5.  The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board of Directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 

Dated:  July 9, 2010
/s/ Brian C. Irwin
 
Brian C. Irwin
 
Chief Financial Officer

 

EX-13.1 15 ss95636_ex1301.htm CERTIFICATION OF CEO

EXHIBIT 13.1


1350 CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted), Mark E. Jones, III, the Chief Executive Officer of Brazauro Resources Corporation (the “Company”) hereby certifies that, to the best of his knowledge:

The Company’s Annual Report on Form 20-F for the period ended January 31, 2010, to which this Certification is attached as Exhibit 32 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report

 
 

 

Dated:  July 9, 2010
/s/ Mark E. Jones, III
 
Mark E. Jones, III
 
Chief Executive Officer


 
 
 
 
 
 
 
 
 

EX-13.2 16 ss95636_ex1302.htm CERTIFICATION OF CFO

EXHIBIT 13.2


1350 CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted), Brian C. Irwin, the Chief Financial Officer of Brazauro Resources Corporation (the “Company”) hereby certifies that, to the best of his knowledge:

The Company’s Annual Report on Form 20-F for the period ended January 31, 2010, to which this Certification is attached as Exhibit 32 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report



Dated:  July 9, 2010
/s/ Brian C. Irwin
 
Brian C. Irwin
 
Chief Financial Officer


 
 
 
 
 
 
 
 
 

EX-15.1 17 ss95636_ex1501.htm CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 15.1
 
 
 
 
 
 
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
We have issued our report, dated May 13, 2010, accompanying the consolidated financial statements and schedule included in the Annual Report of Brazauro Resources Corporation on Form 20-F for the year ended January 31, 2010.  We hereby consent to the incorporation by reference of said report in the Registration Statements of Brazauro Resources Corporation on Form S-8 (File Nos. 333-147577 and 333-139278).
 
 
 
 
 
Vancouver, Canada “Morgan & Company”
   
May 13, 2010 Chartered Accountants
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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