-----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, CFvrLx32vVM5bSNfcz5tTE6o9+ohxe6+JdK5lqR77J9qKJ7r5JCMWopTITPZl9sk XP5GdnAUJKJiOXzVhMgzYg== 0000933157-97-000028.txt : 19970930 0000933157-97-000028.hdr.sgml : 19970930 ACCESSION NUMBER: 0000933157-97-000028 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970929 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL SILVER MINES INC CENTRAL INDEX KEY: 0000933157 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 912938293 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-35511 FILM NUMBER: 97687287 BUSINESS ADDRESS: STREET 1: 10220 N. NEVADA STREET 2: SUITE 207 CITY: SPOKANE STATE: WA ZIP: 99218 BUSINESS PHONE: (509) 466-3144 MAIL ADDRESS: STREET 1: 10220 N NEVADA STREET 2: STE 230 CITY: SPOKANE STATE: WA ZIP: 99218 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED ROYAL MINES INC DATE OF NAME CHANGE: 19950908 SB-2/A 1 1 As filed with the Securities and Exchange Commission on ___________________, 1997. Registration No. 333-35511 ===================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ---------------------------------- FORM SB-2/A-1 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------------------------- ROYAL SILVER MINES, INC. - --------------------------------------------------------------------- (Exact name of Registrant specified in charter) Utah 1330 87-0306609 - --------------------------------------------------------------------- (State of (Primary Industrial (I.R.S. Employer Incorporation) Classification) I.D.#) 10220 N. Nevada Suite 270 Spokane, Washington 99218 Tel: (509) 466-3144 - --------------------------------------------------------------------- (Address, including zip code of principal place of business and telephone number, including area code of Registrant's principal executive offices.) Conrad C. Lysiak Attorney and Counselor at Law West 601 First Avenue, Suite 503 Spokane, Washington 99204 (509) 624-1475 - --------------------------------------------------------------------- (Name, address, including zip code and telephone number, including area code of agents for service.) Approximate date of commencement date or proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box [x]. The Exhibit Index for this Registration Statement begins on sequential page number 147. ===================================================================== 2 CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------ Proposed Proposed Title of Maximum maximum each class of offering aggregate securities to Amount to be price per offering Amount of be registered registered Share [1] price registration fee - ------------------------------------------------------------------------------ Units each consisting of: one Share of Common Stock $0.01 par value 6,000,000 $ 0.75 $ 4,500,000 $ 1,363.64 and One Redeemable Common Stock Purchase Warrant exercisable until September 1, 2000 6,000,000 $ 0.00 $ 0 $ 0.00 Shares of Common Stock Issuable Upon the Exercise of Redeemable Common Stock Purchase Warrants 6,000,000 $ 1.40 $ 8,400,000 $ 2,545.45 - ------------------------------------------------------------------------------ TOTAL REGISTRATION FEE $12,900,000 $ 3,909.09 - ------------------------------------------------------------------------------
[1] Estimated solely for the purpose of calculating the registration fee. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall be come effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 3 ROYAL SILVER MINES, INC. CROSS REFERENCE SHEET PURSUANT TO RULE 404 (a) AND ITEM 501 (b) OF REGULATION S-B Form S-B Item # and Caption Caption in Prospectus - ---------------------------------------------------------------- 1 Front of Registration Statement and Outside Front Cover of Prospectus FACING PAGE; CROSS REFERENCE SHEET; OUTSIDE FRONT COVER PAGE 2 Inside Front and Outside Back Cover of Pages of Prospectus INSIDE FRONT COVER PAGE; OUTSIDE BACK COVER PAGE 3 Summary Information and Risk Factors PROSPECTUS SUMMARY; RISK FACTORS; THE COMPANY 4 Use of Proceeds PROSPECTUS SUMMARY; USE OF PROCEEDS 5 Determination of Offering Price OUTSIDE FRONT COVER PAGE; PLAN OF DISTRIBUTION 6 Dilution DILUTION 7 Selling Securityholders NOT APPLICABLE 8 Plan of Distribution INSIDE FRONT COVER PAGE; PLAN OF DISTRIBUTION 9 Legal Proceedings BUSINESS 10 Directors, Executive Officers, Promoters and Control Persons MANAGEMENT 11 Security Ownership of Certain Beneficial Owners and Management MANAGEMENT 12 Description of Securities OUTSIDE FRONT COVER PAGE; DESCRIPTION OF SECURITIES; PLAN OF DISTRIBUTION 13 Interest of Named Experts and Counsel LEGAL MATTERS; EXPERTS 4 Form S-B Item # and Caption Caption in Prospectus - ----------------------------------------------------------------- 14 Disclosure of Commission Position on Indemnification for Securities Act Liabilities BUSINESS 15 Organization Within Last 5 Years THE COMPANY; BUSINESS 16 Description of Business PROSPECTUS SUMMARY; BUSINESS 17 Management's Discussion and Analysis or Plan of Operation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18 Description of Property BUSINESS 19 Certain Relationships and Related Transactions MANAGEMENT 20 Market for Common Equity and Related Stockholder Matters DIVIDEND POLICY; PRINCIPAL SHAREHOLDERS; SHARES AVAILABLE FOR FUTURE SALES 21 Executive Compensation MANAGEMENT 22 Financial Statements FINANCIAL STATEMENTS 23. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures NOT APPLICABLE 5 PROSPECTUS ROYAL SILVER MINES, INC. 6,000,000 UNITS - $4,500,000 Maximum CONSISTING OF 6,000,000 SHARES OF COMMON STOCK, 6,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS Each Unit consists of one (1) share of Common Stock, $0.01 par value, and one (1) Redeemable Common Stock Purchase Warrant (the "Units"). The Common Stock, Redeemable Common Stock Purchase Warrants are being offered as a Unit. They are immediately detachable and separately tradeable. Each Redeemable Warrant ("Redeemable Warrant") entitles the holder to purchase one share of Common Stock at a price of $1.40, until September 1, 2000. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 per share for ninety (90) consecutive trading days. The Redeemable Warrants and the terms of exercise thereof are more fully described herein. See "Description of Securities." The Units are being offered on a best efforts no minimum, 6,000,000 Units maximum basis. The offering period is ninety (90) days from the effective date. The offering period can be extended by the Company up to one hundred eighty (180) days from the effective date. Shares of the Company's Common Stock are quoted on the OTC Bulletin Board (the "Bulletin Board"), operated by the National Association of Securities Dealers, Inc., under the symbol "RSMI." On September 21, 1997 the last sale price of the Common as reported on the Bulletin Board was $0.75. THIS SECURITIES ARE HIGHLY SPECULATIVE. THEY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" (at page 9) AND "DILUTION." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------- Price to Proceeds to Public[1] Commission [2] Company [2] - --------------------------------------------------------------------- Per Unit $ 0.75 $ 0.075 $ 0.675 Maximum Offering $ 4,500,000 $ 450,000 $ 4,050,000 - --------------------------------------------------------------------- 6 [1] The Company intends to offer the Units directly to the public through its officers and directors on a "best efforts-non minimum basis - 6,000,000 Units maximum." The Company may also offer the Units through brokers and dealers who are members of or registered with the National Association of Securities Dealers, Inc ("NASD"), who will receive a commission of up to $0.075 per Unit sold. Payment for the Units shall be made by check or money order payable to the Company and must be delivered to the Company along with a duly executed subscription agreement in the form attached hereto to 10220 N. Nevada, Suite 270, Spokane, Washington 99218. [2] The figures for commission to be paid and proceeds assumes a 10% commission will be paid on all Units sold in this Offering and does not reflect the payment of expenses in connection with this Offering estimated at $30,000. The Company currently plans to offer the Units for sale in the states of Colorado, Georgia, Illinois, New York and Washington, D.C., and possibly in the United Kingdom, Switzerland, France, Netherlands and Canada. No assurances can be given that the Units will in fact be available for offer and sale in any such jurisdictions. The Company may also seek to offer and sell the Units in other jurisdictions. ROYAL SILVER MINES, INC. 10220 North Nevada Suite 270 Spokane, Washington 99218 (509) 466-3144 The date of this Prospectus is October 1, 1997. THE OFFERING IS MADE SUBJECT TO WITHDRAWAL, CANCELLATION, OR MODIFICIATION BY THE COMPANY WITHOUT NOTICE. THE COMPANY RESERVES THE RIGHT, IN ITS SOLD DISCRETION, TO REJECT ANY AND ALL SUBSCRIPTIONS, AND NO SUBSCRIPTION WILL BE EFFECTIVE UNTIL ACCEPTED BY THE COMPANY. FEDERAL LAW REQUIRES THAT ANY BROKER OR DEALER PARTICIPATING IN THE ISSUANCE OF CERTAIN SECURITIES, INCLUDING THOSE OFFERED HEREBY, DELIVER A COPY OF THE PRELIMINARY PROSPECTUS TO ANY PERSON WHO IS EXPECTED TO RECEIVE A CONFIRMATION OF SALE AT LEAST 48 HOURS PRIOR TO THE MAILING OF SUCH CONFIRMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE TO ANY PERSON IN ANY STATE, TERRITORY, OR POSSESSION OF THE UNITED STATES IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. AS HERETOFORE INDICATED, THE UNITS OFFERED BY THIS PROSPECTUS ARE PURELY SPECULATIVE IN NATURE, THE COMPANY MAKES NO GUARANTEES, WARRANTIES OR OTHER REPRESENTATIONS TO THE CONTRARY. 7 - --------------------------------------------------------------------- PROSPECTUS SUMMARY - --------------------------------------------------------------------- THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. The Company ROYAL SILVER MINES, INC. (the "Company") formerly known as Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a U.S. mineral resource company incorporated under the laws of the State of Utah. The Company is engaged in the business of acquiring and exploring mineral properties containing silver, lead, copper, zinc and other mineralization, with a primary emphasis on base metals. See "Business." The Company's offices are located at 10220 N. Nevada, Suite 270, Spokane, Washington 99218. The Company's telephone number is (509) 466-3144. The Offering The Company is selling 6,000,000 Units. Each Unit consisting of one (1) share of Common Stock, $0.01 par value, and one (1) Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants"). Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $1.40, until September 1, 2000. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 per share for ninety (90) consecutive trading days. The Units are being offered on a "best efforts, no minimum - 6,000,000 Units maximum" basis. See "Description of Securities."
50% of the 100% of the Offering sold Offering sold Units being Offered. . . 3,000,000 6,000,000 Shares Outstanding . . . . 13,406,732 13,406,732 Shares to be Outstanding[1] . . 16,406,732 19,406,732 Gross Proceeds from the Offering . . . . . 2,250,000 4,500,000 Estimated Expenses of the Offering including Selling Commissions . 255,000 480,000 Net Proceeds to the Company After Deducting Estimated Expenses . . 1,995,000 4,020,000
8 [1] Does not include 6,000,000 shares reserved for issuance upon the exercise of the Redeemable Warrants. In the event that some or all of the 6,000,000 additional shares are issued through exercise of the Redeemable Warrants, of which there can be no assurance, the public investors' percent of ownership would increase while the private investors percent of ownership would decrease. Use of Proceeds The net proceeds available to the Company upon completion of this offering and after deducting the commissions and estimated offering expenses will be approximately $1,995,000 if 50% of the Units are sold and $4,020,000 if 100% of the Units are sold. The Company intends to use the proceeds to finance its work programs in Chile, Argentina and Mexico; for administrative expenses; and, for working capital. See "Use of Proceeds" and "Proposed Business." Risk Factors Investment in the Units should be considered highly speculative. The Company has no current operating history and is subject to all of the inherent risks of a developing business enterprise. The Company is in need of additional capital and has no revenues. There are non-arms length transactions with affiliates involving conflicts of interest. The Company does not anticipate paying any dividends on its Common Stock. Price Per Unit $ 0.75 Selected Financial Information The Company has no operating history and maybe considered a developmental enterprise. The Company has no revenues and there is no assurance that the Company will ever have material revenues or that its operations will be profitable. The following financial data summarizes certain information concerning the Company is based upon the financial statements and notes, thereto, contained in this Prospectus. See "Financial Statements." 9 Balance Sheet at September 30, 1996 (Audited) and June 30, 1997 (Unaudited):
09/30/1996 06/30/1997 (Audited) (Unaudited) Assets Current Assets . . . . $ 806,440 $ 1,234,713 Total Assets . . . . . 5,605,357 6,174,102 Current Liabilities . . . 119,867 33,342 Stockholders' Equity . . . 5,485,490 6,140,760 Total Liabilities & Stockholders' Equity. . . . 5,605,357 6,174,102 Net Tangible Book Value Per Share . $ 0.52 $ 0.46
Transfer Agent OTC Stock Transfer 231 East 2100 South Salt Lake City, Utah 84115 (801) 485-5555 - --------------------------------------------------------------------- RISK FACTORS - --------------------------------------------------------------------- THE UNITS BEING OFFERED INVOLVE A HIGH DEGREE OF RISK AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE PROSPECTUS AND CAREFULLY CONSIDER AMONG THE OTHER FACTORS AND FINANCIAL DATA DESCRIBED HEREIN, THE FOLLOWING RISK FACTORS DESCRIBED HEREIN: 1. Recent Status as a Public Reporting Company. The Company became a fully reporting public company on January 23, 1995. The Company has no current operating history and is subject to all risks inherent in a developing business enterprise. The likelihood of success of the Company must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with a new business in general and those specific to the natural resource industry and the competitive and regulatory environment in which the Company will operate. 2. Exploration Stage Company. Mineral exploration, particularly for gold and silver, is highly speculative in nature, frequently is nonproductive, and involves many risks, often greater than those involved in the actual mining of mineralization. Such risks can be considerable and may add unexpected expenditures or delays to the Company's plans. There can be no assurance that the Company's mineral exploration activities will be successful or profitable. Once mineralization is discovered, it may take a number of years from the initial phase of drilling until production is possible, during which 10 time the economic feasibility of production may change. A related factor is that exploration stage companies use the evaluation work of professional geologists, geophysicists, and engineers for estimates in determining whether to acquire an interest in property or to commence exploration or development work. These estimates generally rely on scientific estimates and economic assumptions, and in some instances may not be correct, and could result in the expenditure of substantial amounts of money on a property before it can be determined whether or not the property contains economically recoverable mineralization. The economic viability of a property cannot be determined until extensive exploration and development has been conducted and a comprehensive feasibility study performed. The Company currently does not have any such feasibility studies, and has not yet prepared feasibility studies on any of its properties. Moreover, the market prices of any minerals produced are subject to fluctuation, which may negatively affect the economic viability of properties on which expenditures have been made. The Company is not able to determine at present whether or not, or the extent to which, such risks may adversely affect the Company's strategy and business plans. 3. Lack of Revenue. The Company needs additional capital but currently has no revenues. Substantial expenditures are required to establish ore reserves through drilling, to determine metallurgical processes to extract the mineralization from the ore and, in the case of new properties, to construct mining and processing facilities. The Company lacks a constant and continual flow of revenue. The Company currently holds certain royalty interests in several mining properties previously sold, but there is no assurance that the Company will receive royalty payments, or that the Company will otherwise receive adequate funding to be able to finance its exploration activities. The Company is looking for revenue sources on an on-going basis, but there can be no assurance that such sources can be found or that, if available, the terms of such financing will be commercially acceptable to the Company. Because of the Company's need for additional capital to fund its present operations, to complete the acquisition of certain mineral rights, and to provide for further exploration and development, the lack of consistent revenue could be a detrimental factor in the progress of the Company. 4. Realization of Investments in Mineral Properties and Additional Capital Needs. The ultimate realization of the Company's investments in mineral properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development and upon future profitable production. The Company expects to finance its operations for Fiscal 1997 through the sale of equity securities, joint venture arrangements (including project financing), and the sale of interests in mineral properties. The Company does not have sufficient capital of its own to explore and develop its mineral properties and there can be no assurance that the Company will be successful in obtaining the required funds to finance its long-term capital needs. 11 5. Retention and Attraction of Key Personnel. The Company's success will depend, in large part, on its ability to retain and attract highly qualified personnel. The Company's success in retaining its present staff and in attracting additional qualified personnel will depend on many factors, including its ability to provide them with competitive compensation arrangements, equity participation and other benefits. There is no assurance that the Company will be successful in retaining or attracting highly qualified individuals in key management positions. 6. Regulatory Concerns. Environmental and other government regulations at the federal, state and local level pertaining to the Company's business and properties may include: (a) surface impact; (b) water acquisition; (c) site access; (d) reclamation; (e) wildlife preservation; (f) licenses and permits; and, (e) maintaining the fees for unpatented mining claims. See "Business - Government Regulation and Environmental Concerns." 7. Working Capital Deficits; Accumulated Deficit; Working Capital Deficit; Auditor's Report. Although it commenced operations more than two years ago, the Company remains in the development stage. At June 30, 1997, the Company had a working capital of $1,201,371 and an accumulated deficit of $4,505,108, which deficits and losses are expected to continue for the foreseeable future. The Company's operations are subject to numerous risks associated with the mining industry. 8. Reliance Upon Directors and Officers. The Company is wholly dependent, at the present, upon the personal efforts and abilities of its Officers and Directors who exercise control over the day to day affairs of the Company. There can be no assurance as to the volume of business, if any, which the Company may succeed in obtaining, nor that its proposed operations will prove to be profitable. See "Proposed Business" and "Management." 9. Indemnification of Officers and Directors for Securities Liabilities. The Bylaws of the Company provide that the Company may indemnify any Director, Officer, agent and/or employee as to those liabilities and on those terms and conditions as are specified in the Utah Business Corporation Act. Further, the Company may purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the Company and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by the Company as a result of their actions. Further, the Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. 10. Cumulative Voting, Preemptive Rights and Control. There are no preemptive rights in connection with the Company's Common Stock. The shareholders purchasing in this offering may be further diluted in their percentage ownership of the Company in the event additional 12 shares are issued by the Company in the future. Cumulative voting in the election of Directors is not provided for. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors. See "Description of the Securities." 11. Public Shareholders will Suffer the Greatest Losses if the Company is Unsuccessful. If the Company's future operations are successful, the present shareholders will realize substantial benefits from the Company's growth. If the Company's future operations are unsuccessful, the persons who purchase the Warrants and Shares offered hereby will sustain the principal losses of such cash investment. See "Dilution." 12. Potential Future Sales Pursuant to Rule 144. Approximately 13,406,732 shares of Common Stock. At June 30, 1997, there are issued and outstanding of which 6,339,594 shares are "Restricted Securities" as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended. In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a one (1) year holding period, may sell within any three month period, an amount which does not exceed the greater of 1% of the then outstanding shares of Common Stock or the average weekly trading volume during the four calendar weeks prior to such sale. Rule 144 also permits the sale of shares, under certain circumstances, without any quantity limitation, by persons who are not affiliates of the Company and who have beneficially owned the shares for a minimum period of two (2) years. Hence, the possible sale of these restricted shares may, in the future dilute an investors percentage of free-trading shares and may have a depressive effect on the price of the Company's securities and such sales, if substantial, might also adversely effect the Company's ability to raise additional equity capital. See "Description of Securities - Shares Eligible for Future Sale." 13. No Escrow - No Minimum Offering - Funds Immediately Available for Use by the Company. There is no minimum number of shares that must be sold in this Offering and there is no escrow of funds, accordingly, the proceeds from this Offering will be immediately available to the Company and there will be no refunds. 14. No Dividends. The holders of the Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefore. To date, the Company has not paid any cash dividends. The Board does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. As the Company will be required to obtain additional financing, it is likely that there will be restrictions on the Company's ability to declare any dividends. See "Dividend Policy" and "Description of Securities." 15. Substantial and Immediate Dilution. Purchasers of Units will incur immediate and substantial dilution in the net tangible book value of the shares. The shares purchased in this offering will be diluted by $0.25 from the offering price of $0.75, if the minimum offering is sold and $0.23 if the maximum offering is sold. See "Dilution." 13 16. No Firm Commitment to Purchase Units. The Units offered herein are offered on a best efforts basis by the Company and no commitment exists by anyone to purchase all or any portion of the Units being offered, and the Company can give no assurance that any Units will be sold. See "Plan of Offering." 17. Warrants. The exercise by the holders of the Warrants to be sold pursuant to this offering is subject to the Company either maintaining the effectiveness of the registration statement, of which this Prospectus forms a part, on a current basis or filing an effective registration statement with the Securities and Exchange Commission and complying with the appropriate state securities laws. While the Company has agreed to use its best efforts to so make the underlying stock available for the Warrantholders, no assurance can be given that at the time that a Warrantholder seeks to exercise the right to purchase the Company's stock that an effective registration statement will in fact be in, effect. The Company is obligated under the Warrant Agreements to maintain this Prospectus current by making such post-effective amendments as may be necessary from time to time. See "Description of Securities - Redeemable Warrants." 18. Redeemable Warrants. The Warrants are by the Company. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $1.40, until September 1, 2000. The Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 for ninety (90) consecutive trading days, if the holder does not exercise the Redeemable Warrants, the Redeemable Warrants will loose all value. See "Description of Securities - Redeemable Warrants." 19. No Underwriter. The Company has not retained an underwriter to assist in offering the Units. The Units are being offered by the Company and selected dealers and there is no assurance the Company and selected broker/dealers are capable of selling all, or any, of the Units offered. The Company's Officers have experience in the securities industry, and some of the Officers were employed as representatives in the securities industries, however, the Officers and Directors of the Company have no experience in the offer and sale of securities on behalf of an issuer and, consequently, may be unable to complete the sale of the Units even with the assistance of selected dealers. In the event an underwriter is retained by the Company, this Offering would be suspended until the Company's registration statement, including this Prospectus, was amended to reflect such retention. The registration statement would then require additional review and clearances by regulatory authorities, and the Company could be expected to incur significant additional legal and accounting cost. See "Plan of Offering." FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE OF THE UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING AN INVESTMENT IN THE UNITS OFFERED HEREBY SHOULD BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT. 14 - --------------------------------------------------------------------- DILUTION - --------------------------------------------------------------------- As of June 30, 1997, the Company had 13,406,732 shares of Common Stock outstanding with a net tangible book value of approximately $0.46 per share. The discussion and computations which follow do not give effect to the exercise of Common Stock Redeemable Warrants to be issued to investors in this offering. There may be additional dilution with the exercise of the Common Stock Redeemable Warrants. See "Financial Statements." As of June 30, 1997, the net tangible book value of the Company was $6,140,760 or approximately $0.46 per share. Assuming the sale by the Company of all offered Units (6,000,000) at the public offering price of $0.75 per Unit, and assuming no other changes to the Company's financial position, the net tangible book value of the Company would be $10,160,760 or approximately $0.52 per share. This represents an immediate dilution of $0.23 per share to new investors; and an immediate increase in the net tangible book value of shares held by present shareholders of $0.06 per share. Assuming the sale by the Company of fifty percent of the offering three million (3,000,000) Units and assuming no other changes to the Company's financial position, the net tangible book value of the Company would be $8,135,760 or approximately $0.50 per share. This represents an immediate dilution of $0.25 per share to new investors; and an immediate increase in the net tangible book value of Units held by present shareholders of $0.04 per share. "Net tangible book value" is the amount that results from subtracting the total liabilities, deferred costs, and intangible assets of the Company from its total assets. "Dilution" is the difference between the public offering price and the net tangible book value of the shares immediately after the offering. Additionally, dilution is calculated based on book value of the Company's assets, which may not necessarily reflect the actual market value of such assets. 15 The following table illustrates the per share dilution:
Assuming 50% Assuming 100% of the Units of the Units Sold Sold Public offering price per share [1] . . . . . $ 0.75 $ 0.75 Net tangible book value per share before offering [2] . . $ 0.46 $ 0.46 Increase per share attri- attributable to existing investors . . . $ 0.00 $ 0.00 Net tangible book value per share after offering . . . $ 0.50 $ 0.52 Dilution of net tangible book value per share to new investors . . . $ 0.25 $ 0.23
[1] Offering price before deduction of offering expenses. [2] Determined by dividing the number of shares of Common Stock outstanding into the net tangible book value of the Company. [3] Does not give effect to the issuance of up to 6,000,000 shares of Common Stock reserved for issuance upon exercise of the Redeemable Warrants held by investors in this offering. [4] All computations are on a per share basis. - --------------------------------------------------------------------- SELECTED FINANCIAL DATA - --------------------------------------------------------------------- The selected financial data presented below has been derived from the financial statements of the Company, which financial statements have been examined by Williams & Webster, P. S., independent public accountants, as indicated in their report included elsewhere herein. The information below should be read in conjunction with the Company's Financial Statements and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." For the reasons set forth in the "Prospectus Summary - Risk Factors" the information shown below may not be indicative of the Company's future results of operations. 16
June 30 June 30 September September November 1997 1996 30, 1996 30, 1995 30, 1994 (Unaudited) (Unaudited) (Audited) (Audited) (Audited) Statement of Operations and Accumulated Deficit Data: Revenues $ 0 $ 0 $ 0 $ 0 $ 0 Operating Expenses $ 1,463,455 $ 929,984 $ 2,045,082 $ 962,735 $ 211,796 Net loss $(1,447,291) $ (937,393) $(2,045,082) $ (962,735) $(211,796) Net Loss per share $ (0.12) $ (0.11) $ (0.22) $ (0.15) $ (0.03) Balance Sheet Data: Work Capital (Deficit) $ 1,201,371 $ 261,027 $ 686,573 $ (665,274) $ 25,754 Total Assets $ 6,174,102 $5,243,891 $ 5,605,357 $4,056,698 $ 366,620 Long-term Debt $ 0 $ 0 $ 0 $ 0 $ 0 Stockholders' Equity $ 6,140,760 $5,188,755 $ 5,485,490 $3,235,376 $ 276,321
- --------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------------------------------- The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. Financial Condition, Liquidity and Capital Resources. There is considerable risk in any mining venture, and there can be no assurance that the Company's operations will be successful or profitable. Exploration for commercially minable ore deposits is highly speculative and involves risks greater than those involved in the discovery of mineralization. Mining companies use the evaluation work of professional geologists, geophysicists, and engineers in determining whether to acquire an interest in a specific property, or whether or not to commence exploration or development work. These estimates are not always scientifically exact, and in some instances result in the expenditure of substantial amount of money on a property before it is possible to make a final determination as to whether or not the property contains economically minable ore bodies. The economic viability of a property cannot be finally determined until extensive exploration and development work, plus a detailed economic feasibility study, has been performed. Also, the market prices for mineralization produced are subject to fluctuation and uncertainty, which may negatively affect the economic viability of properties on which expenditures have been made. During the development stage of the Company, from inception to June 30, 1997, the Company accumulated a deficit of $4,455,108. 17 At June 30, 1997, $4,472,096 of the Company's total assets of $6,174,102 were investments in mineral properties. Additional exploration is required to substantiate or determine whether these mineral properties contain ore reserves that are economically recoverable. The realization of these investments is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing, the Company's success in carrying out its present plans or making other arrangements for development, and upon future profitable production. The ultimate outcome of these investments cannot be determined at this time; accordingly, no provision for any asset impairment that may result, in the event the Company is not successful in developing or selling these properties, has been made in the Company's financial statements. Liquidity and Capital Resources. The Company currently has no revenues but, as explained above, has an accumulated deficit. Although it has recurring losses from operations, the Company has increased its operating capital and improved its financial condition and ability. Regarding its losses from operations, the Company cannot assure that it will be able to fully carry out its plans as budgeted without additional operating capital. At June 30, 1997, the Company had working capital of $1,201,371. This amount is a significant improvement in liquidity and capital resources from its working capital position of $390,852 at December 31, 1996 and of $686,573 at September 30, 1996. In the nine months ending June 30, 1997, the Company's working capital has increased by $514,798 primarily because of the cash stock sales of $1,868,250 in the second quarter and the reduction of all remaining short-term debt, which are partially offset by funding of the Company's general and administrative expenses. During the same nine month period, the Company's cash increased from $688,716 to $1,123,602. In the second quarter of fiscal 1997, the Company reduced its short-term debt position to $0 by paying off a $35,000 promissory note. The Company has continued to reduce its accrued expenses and accounts payable. Accordingly, the Company's current liabilities shrank from $119,867 at September 30, 1996 to $33,342 at June 30, 1997. The Company has no long-term debt. The Company has estimated that it will need minimal capital resources of approximately $40,000-50,000 per month to meet its estimated expenditures for fiscal 1997. In 1996, acting on instructions from the Board, several key members of management, in particular the CEO of the Company, met with experienced financial and investment firms through out Europe and North America and negotiated preliminary terms and arrangements for such capital fund raising. During the second fiscal quarter of 1997, the Company raised $1,871,250 in funds, primarily through the private placement of shares and warrants. The Company is continuing with the previously described negotiations and various alternatives to raise capital. 18 The Board of Directors reasonably believes that the Company is able to engage in nearly any size operation or scope of mining activity depending on the circumstances and merits of each proposed operation or mining activity. Accordingly, the Board has not limited the size of operation or scope of project which it believes is reasonable for management to consider in achieving the Company's business plan. Therefore, management has been authorized to consider and review numerous proposals and, upon satisfactory assessment, to then make a specific determination as to an estimated range of funding amounts that each such proposal reasonably might require. Inasmuch as the Company has not yet determined in detail the specifications of the project, operation or mining activity that it intends to undertake, management is not able at this time to provide a detailed listing or exact range of operation costs, including increases in general and administrative expense, if any. However, the Company plans to fund any substantial increases in general and administrative expense principally from joint venture revenues or funds it may receive or savings it may realize through corporate restructuring or business combination arrangements. Funds required to finance the Company's exploration and development of mineral properties are expected to come primarily from the contributions of its joint venture participants, and from the funds generated from such joint ventures and other lease or royalty arrangements. As a result of negotiations in July and August 1997, the Company reached an amended agreement with Oregon LTDA on one of the mining properties in Chile. As part of this agreement, the Company can obtain the mineral rights to this portion of the Mocha concession for payments of $500,000 by July 31, 2002, $1,000,000 by July 31, 2003, $1,000,000 by July 31, 2004, $1,500,000 by July 31, 2005, with Oregon LTDA retaining no residual rights. The Company consistently has made full and timely payment of its expenses, in particular to the various governmental payees it interacts with, and has met its obligations to the entities which provide its personnel, office space, and equipment needs. The Company currently is seeking alternate sources of working capital sufficient to increase the funding of additional general and administrative expenses that may become necessary as the Company's business plan develops, and to continue meeting its ongoing payment obligations for its leases to governmental entities. RESULTS OF OPERATIONS Comparison of the Nine Months Ended June 30, 1996 and June 30, 1997, respectively. General and administrative expenses increased from $929,984 during the first three quarters of fiscal 1996 to $1,463,455 during the first three quarters of fiscal 1997. This increase is principally due to an increased level of expenditures in acquiring and exploring the 19 Company's recent acquisitions in Argentina and Chile. Also, during the second quarter of fiscal 1997 the Company wrote off $238,887 of mineral properties associated with its investment in the Bunker Hill Mine. As a result, during the nine months of fiscal 1996 compared to the first nine months of fiscal 1997, the Company's net loss increased from $937,393 to $1,447,291, while the net loss per share increased from $0.11 to $0.12 per share. The Company is unable to fully determine the impact of future transactions on its operating capital. Hence, the Company has determined not to incur and does not have any commitments or plans for material capital expenditures during the remainder of its current fiscal year for which it does not have a reasonably available source of payment. It is uncertain what effect this decision may have with respect to restricting capital expenditures. On the one hand, if the Company were to continue such restriction, the likely effect might be adverse to the preservation of its assets and capital base, thereby narrowing the scope of plans for future operations and constricting liquidity. On the other hand, if the Company were to discontinue such restriction without an increase in sustained cash flow, the likely effect of that might be an increase in accumulated deficits which could be adverse to the Company's financial condition with respect to liabilities and stockholders' equity. Therefore, while the Company continues to seek a joint venture participant and additional sources of capital for financing operations during the remainder of its current fiscal year, the Company will continue to carefully monitor its capital expenditures. - --------------------------------------------------------------------- USE OF PROCEEDS - --------------------------------------------------------------------- The proceeds from the sale of the Units offered hereby will be approximately $982,500 if 25% of the Units are sold, approximately $1,995,000 if 50% of the Units are sold, approximately $3,007,500 if 75% of the Units are sold and $4,020,000 if 100% of Units are sold. The Company intends to utilize the proceeds from the sale of the Units to finance its work programs in Chile, Argentina and Mexico; for administrative expenses; and, for working capital as follows: 20
Assuming Assuming Assuming Assuming Sale of Sale of Sale of Sale of 100% of 75% of 50% of 25% of Shares Shares Shares Shares Exploration - Mocha Project $ 300,000 $ 300,000 $ 200,000 $ 0 Exploration/Development Mexico $ 1,200,000 $ 750,000 $ 300,000 $ 100,000 Property Payments $ 350,000 $ 350,000 $ 350,000 $ 350,000 General and Administrative $ 400,000 $ 400,000 $ 400,000 $ 400,000 Working Capital and General Corporate $ 1,620,000 $ 1,057,500 $ 645,000 $ 82,500 Equipment Purchases $ 150,000 $ 150,000 $ 100,000 $ 50,000 Total $ 4,020,000 $ 3,007,500 $ 1,995,000 $ 982,500
The figures set forth above are estimated and cannot be calculated precisely at the present time. Until required for working capital, the net proceeds may be invested temporarily in short-term obligations such as certificates of deposit issued by banks and short term government obligations. The Company reserves the right to amend the use of proceeds, by vote of a majority of the Board of Directors. It is anticipated that the maximum estimated proceeds from the Offering will be sufficient to fund operations for a period of approximately twenty-four (24) months. It is, however, impossible to predict what additional expenses may be since the costs of operations associated with development stage companies frequently involve unanticipated expenditures. Management currently believes that the Company will require additional capital. If the Company should be unable to meet currently unanticipated expenses, the Company expects that it will have cash requirements for working capital which will have to be met through bank indebtedness or through the private or public sale of the Company's debt or equity securities. There can be no assurance that the Company would be able to obtain such financing or that such financing, if available, would be on terms and conditions acceptable to the Company. If the Company were unable to obtain needed funds, it could be forced to curtail or cease its activities. See "Risk Factors - Need for Additional Financing." - --------------------------------------------------------------------- DIVIDEND POLICY - --------------------------------------------------------------------- The Company has never paid a cash dividend on its Common Stock and does not expect to pay a cash dividend in the foreseeable future, but intends to devote all funds to the operations of its business. See "Risk Factors - No Dividends Anticipated." 21 - --------------------------------------------------------------------- GLOSSARY - --------------------------------------------------------------------- Acid Mine Drainage Acidic run-off water from mine waste dumps and mill tailings ponds containing sulfide minerals. Also refers to ground water pumped to surface from mines. Adit An opening driven horizontally into the side of a mountain or hill for providing access to a mineral deposit. Alteration Any physical or chemical change in a rock or mineral subsequent to its formation. Milder and more localized than metamorphism. Anticline An arch or fold in layers of rock shaped like the crest of a wave. Assay A chemical test performed on a sample of ores or minerals to determine the amount of valuable metals contained. Backfill Waste material used to fill the void created by mining an orebody. Ball Mill A steel cylinder filled with steel balls into which crushed ore is fed. The ball mill is rotated, causing the balls to cascade and grind the ore. Basement Rocks The underlying or older rock mass. Often refers to rocks of Precambrian age which may be covered by younger rocks. Base Metal Any non-precious metal (e.g. copper, lead, zinc, nickel, etc.). Bedding The arrangement of sedimentary rocks in layers. Block Caving An inexpensive method of mining in which large blocks of ore are undercut, causing the ore to break or cave under its own weight. Breccia A rock in which angular fragments are surrounded by a mass of fine-grained minerals. Bulk Mining Any large-scale, mechanized method of mining involving many thousands of tons of ore being brought to surface per day. 22 Cathode A rectangular plate of metal, produced by electrolytic refining, which is melted into commercial shapes such as wirebars, billets, ingots, etc. Chalcocite A sulfide mineral of copper common in the zone of secondary enrichment. Channel Sample A sample composed of pieces of vein or mineral deposit that have been cut out a small trench or channel, usually about ten cm wide and two cm deep. Chute An opening, usually constructed of timber and equipped with a gate, through which ore is drawn from a stope into mine cars. Complex Ore An ore containing a number of minerals of economic value. The term often implies that there are metallurgical difficulties in liberating and separating the valuable metals. Cone Crusher A machine which crushes ore between a gyrating cone or crushing head and an inverted, truncated cone known as a bowl. Concentrate A fine, powdery product of the milling process containing a high percentage of valuable metal. Conglomerate A sedimentary rock consisting of rounded, water-worn pebble or boulders cemented into a solid mass. Contact A geological term used to describe the line or plane along which two different rock formations meet. Core The long cylindrical piece of rock, about an inch in diameter, brought to surface by diamond drilling. Crosscut A horizontal opening driven from a shaft and (or near) right angles to the strike of a vein or other orebody. Cut-and-fill A method of stopping in which ore is removed in slices, or lifts, and then the excavation is filled with rock or other waste material (backfill), before the subsequent slice is extracted. 23 Cyanidation A method of extracting exposed gold or silver grains from crushed or ground ore by dissolving it in a weak cyanide solution. May be carried out in tanks inside a mill or in heaps of ore out of doors. Decline An underground passageway connecting one or more levels in a mine, providing adequate traction for heavy, self-propelled equipment. Such underground openings are often driven in an upward or downward spiral, much the same as a spiral staircase. Development Work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible. Development Drilling Drilling to establish accurate estimates of mineral reserves. Diamond Drill A rotary type of rock drill that cuts a core of rock that is recovered in long cylindrical sections, two centimeters or more in diameter. Dilution (mining) Rock that is, by necessity, removed along with the ore in the mining process, subsequently lowering the grade of the ore. Dip The angle at which a vein, structure or rock bed is inclined from the horizontal as measured at right angles to the strike. Disseminated Ore Ore carrying small particles of valuable minerals spread more or less uniformly through the hose rock. Dore Unparted gold and silver poured into molds when molten to form buttons or bars. Further refining is necessary to separate the gold and silver. Drift A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation. Drill-Indicated Reserves The size and quality of a potential orebody as suggested by widely spaced drill holes; more work is required before reserves can be classified as probable or proven. 24 Due Diligence The degree of care and caution required before making a decision; loosely, a financial and technical investigation to determine whether an investment is sound. Electrolytic Refining The process of purifying metal ingots that are suspended as anodes in an electrolytic bath, alternated with refined sheets of the same metal which act as starters or cathodes. Environmental Impact Study A written report, compiled prior to a production decision, that examines the effects proposed mining activities will have on the natural surroundings. Epithermal Deposit A mineral deposit consisting of veins and replacement bodies, usually in volcanic or sedimentary rocks, containing precious metals, or, more rarely, base metals. Exploration Work involved in searching for ore, usually by drilling or driving a drift. Face The end of a drift, crosscut or stope in which work is taking place. Fissure An extensive crack, break or fracture in rocks. Float Pieces of rock that have been broken off and moved from their original location by natural forces such as frost or glacial action. Flotation A milling process in which valuable mineral particles are induced to become attached to bubbles and float, and others sink. Footwall The rock on the underside of a vein or ore structure. Fracture A break in the rock, the opening of which allows mineral bearing solutions to enter. A "cross-fracture" is a minor break extending at more-or-less right angles to the direction of the principal fractures. Free Milling Ores of gold or silver from which the precious metals can be recovered by concentrating methods without resort to pressure leaching or other chemical treatment. 25 Galena Lead sulfide, the most common ore mineral of lead. Gossan The rust-colored capping or staining of a mineral deposit, generally formed by the oxidation or alteration of iron sulfides. Grab Sample A sample from a rock outcrop that is assayed to determine if valuable elements are contained in the rock. A grab sample is not intended to be representative of the deposit, and usually the best-looking material is selected. Grade The average assay of a ton of ore, reflecting metal content. Hangingwall The rock on the upper side of a vein or ore deposit. Head Grade The average grade of ore fed into a mill. Heap Leaching A process involving the percolation of a cyanide solution through crushed ore heaped on an impervious pad or base to dissolve minerals or metals out of the ore. High Grade Rich ore. As a verb, it refers to selective mining of the best ore in a deposit. Host Rock The rock surrounding an ore deposit. Hydrometallurgy The treatment of ore by wet processes (e.g., leaching) resulting in the solution of a metal and its subsequent recovery. Intrusive A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface. Lagging Planks or small timbers placed between steel ribs along the roof of a stope or drift to prevent rocks from falling, rather than to support the main weight of the overlying rocks. Lens Generally used to describe a body of ore that is thick in the middle and tapers towards the ends. 26 Level The horizontal openings on a working horizon in a mine; it is customary to work mines from a shaft, establishing levels at regular intervals, generally about 50 meters or more apart. Limestone A bedded, sedimentary deposit consisting chiefly of calcium carbonate. Lode A mineral deposit in solid rock. Metamorphic Rocks Rocks which have undergone a change in texture or composition as the result of heat and/or pressure. Mill A processing plant that produces a concentrate of the valuable minerals or metals contained in an ore. The concentrate must then be treated in some other type of plant, such as a smelter, to affect recovery of the pure metal. Milling Ore Ore that contains sufficient valuable mineral to be treated by the milling process. Mineable Reserves Ore reserves that are known to be extractable using a given mining plan. Mineral A naturally occurring homogeneous substance having definite physical properties and chemical composition and, if formed under favorable conditions, a definite crystal form. Mineralized Material or Deposit A mineralized body which has been delineated by appropriate drilling and/or underground sampling to support a sufficient tonnage and average grade of metal(s). Under SEC standards, such a deposit does not qualify as a reserve until a comprehensive evaluation, based upon unit cost, grade, recoveries, and other factors, conclude economic feasibility. Muck Ore or rock that has been broken by blasting. Native Metal A metal occurring in nature in pure form, uncombined with other elements. Net Profit Interest A portion of the profit remaining after all charges, including taxes and bookkeeping charges (such as depreciation) have been deducted. 27 Net Smelter Return A share of the net revenues generated from the sale of metal produced by a mine. Open Pit A mine that is entirely on surface. Also referred to as open-cut or open-cast mine. Ore Material that can be mined and processed at a positive cash flow. Ore Pass Vertical or inclined passage for the downward transfer of ore connecting a level with the hoisting shaft or a lower level. Orebody A natural concentration of valuable material that can be extracted and sold at a profit. Ore Reserves The calculated tonnage and grade of mineralization which can be extracted profitably; classified as possible, probable and proven according to the level of confidence that can be placed in the data. Oreshott The portion, or length, of a vein or other structure, that carries sufficient valuable mineral to be extracted profitably. Oxidation A chemical reaction caused by exposure to oxygen that results in a change in the chemical composition of a mineral. Participating Interest A company's interest in a mine, which entitles it to a certain percentage of profits in return for putting up an equal percentage of the capital cost of the project. Patent The ultimate stage of holding a mineral claim in the United States, after which no more assessment work is necessary because all mineral rights have been earned. Patented Mining Claim A parcel of land originally located on federal lands as an unpatented mining claim under the General Mining Law, the title of which has been conveyed from the federal government to a private party pursuant to the patenting requirements of the General Mining Law. Pillar A block of solid ore or other rock left in place to structurally support the shaft, walls or roof of a mine. 28 Porphyry Any igneous rock in which relatively large crystals, called phenocrysts, are set in a fine-grained groundness. Precambrian Shield The oldest, most stable regions of the Earth's crust, the largest of which is the Canadian Shield. Prospect A mining property, the value of which has not been determined by exploration. Proven and Probable Mineral Reserves Reserves that reflect estimates of the quantities and grades of mineralized material at a mine which the Company believes could be recovered and sold at prices in excess of the cash cost of production. The estimates are based largely on current costs and on projected prices and demand for such mineralized material. Mineral reserves are stated separately for each such mine, based upon factors relevant to each mine. Proven and probable mineral reserves are based on calculations of reserves provided by the operator of a property that have been reviewed but not independently confirmed by the Company. Changes in reserves represent general indicators of the results of efforts to develop additional reserves as existing reserves are depleted through production. Grades of ore fed to process may be different from stated reserve grades because of variation in grades in areas mined from time to time, mining dilution and other factors. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. Probable Reserves Resources for which tonnage and grade and/or quality are computed primarily from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. 29 Proven Reserves Resources for which tonnage is computed from dimensions revealed in outcrops, trenches, workings or drill holes and for which the grade and/or quality is computed from the results of detailed sampling. The sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. The computed tonnage and grade are judged to be accurate, within limits which are stated, and no such limit is judged to be different from the computed tonnage or grade by more than 20 percent. Raise A vertical or inclined underground working that has been excavated from the bottom upward. Rake The trend of an orebody along the direction of its strike. Reclamation The restoration of a site after mining or exploration activity is completed. Recovery The percentage of valuable metal in the ore that is recovered by metallurgical treatment. Replacement Ore Ore formed by a process during which certain minerals have passed into solution and have been carried away, while valuable minerals from the solution have been deposited in the place of those removed. Reserves That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of "Ore" when dealing with metalliferous minerals. Resources The calculated amount of material in a mineral deposit, based on limited drill information. Rib Samples Ore taken from rib pillars in a mine to determine metal content. Rockbolting The act of supporting openings in rock with steel bolts anchored in holes drilled especially for this purpose. 30 Rockburst A violent release of energy resulting in the sudden failure of walls or pillars in a mine, caused by the weight or pressure of the surrounding rocks. Rock Mechanics The study of the mechanical properties of rocks, which includes stress conditions around mine openings and the ability of rocks and underground structures to withstand these stresses. Room-and-Pillar Mining A method of mining flat-lying ore deposits in which the mined-out area, or rooms, are separated by pillars of approximately the same size. Rotary Drill A machine that drills holes by rotating a rigid, tubular string of drill rods to which is attached a bit. Commonly used for drilling large-diameter blastholes in open pit mines. Royalty An amount of money paid at regular intervals by the lessee or operator of an exploration or mining property to the owner of the ground. Generally based on a certain amount per ton or a percentage of the total production or profits. Also, the fee paid for the right to use a patented process. Run-of-Mine A loose term used to describe ore of average grade. Sample A small portion of rock or a mineral deposit, taken so that the metal content can be determined by assaying. Secondary Enrichment Enrichment of a vein or mineral deposit by minerals that have been taken into solution from one part of the vein or adjacent rocks and redeposited in another. Shaft A vertical or steeply inclined excavation for the purpose of opening and servicing a mine. It is usually equipped with a hoist at the top which lowers and raises a conveyance for handling personnel and materials. Shear or Shearing The deformation of rocks by lateral movement along unnumberable parallel planes, generally resulting from pressure and producing such metamorphic structures as cleavage and schistosity. 31 Shrinkage Stopping A stopping method which uses part of the broken ore as a working platform and as support for the walls of the stope. Siderite Iron carbonate, which when pure, contains 48.2% iron; must be roasted to drive off carbon dioxide before it can be used in a blast furnace. (Roasted product is called sinter.) Skarn Name for the metamorphic rocks surrounding an igneous intrusive where it comes in contact with a limestone or dolomite formation. Solvent Extraction-Electrowinning G(SX/EW) A metallurgical technique, so far applied only to copper ores, in which metal is dissolved from the rock by organic solvents and recovered from solution by electrolysis. Sphalerite A zinc sulfide mineral; the most common ore mineral of zinc. Step-out Drilling Holes drilled to intersect a mineralization horizon or structure along strike or down dip. Stockpile Broken ore heaped on surface, pending treatment or shipment. Stope Underground excavation from which ore has been extracted either above or below mine level. Stratigraphy Strictly, the description of bedded rock sequences; used loosely, the sequence of bedded rocks in a particular area. Strike The direction, or bearing from true north, of a vein or rock formation measured on a horizontal surface. Stringer A narrow vein or irregular filament of a mineral or minerals traversing a rock mass. Stripping Ratio The ratio of tons removed as waste relative to the number of tons or ore removed from an open pit mine. Sublevel A level or working horizon in a mine between main working levels. Sulfide A compound of sulfur and some other element. 32 Tailings Material rejected from a mill after more of the recoverable valuable minerals have been extracted. Tailings Pond A low-lying depression used to confine tailings, the prime function of which is to allow enough time for heavy metals to settle out or for cyanide to be destroyed before water is discharged into the local watershed. Trend The direction, in the horizontal plane, or a linear geological feature (for example, an ore zone), measured from true north. Troy Ounce Unit of weight measurement used for all precious metals. The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces. Unpatented Mining Claim A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode mining claim is granted certain rights including the right to explore and mine such claim under the General Mining Law. Vein A mineralized zone having a more or less regular development in length, width and depth which clearly separates it from neighboring rock. Volcanogenic A term used to describe the volcanic origin of mineralization. Vug A small cavity in a rock, frequently lined with well-formed crystals. Amethyst commonly forms in these cavities. Wall Rocks Rock units on either side of an orebody. The hanging-wall and footwall rocks of an orebody. Waste Barren rock in a mine, or mineralized material that is too low in grade to be mined and milled at a profit. Winze An internal shaft. Zone of Oxidation The upper portion of an orebody that has been oxidized. 33 - -------------------------------------------------------------------- BUSINESS - --------------------------------------------------------------------- General Royal Silver Mines, Inc. (the "Company"), formerly known as Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a U.S. mineral resource company incorporated under the laws of the State of Utah. The Company is engaged in the business of acquiring and exploring mineral properties containing silver, copper and zinc. Prior to September 30, 1995, the Company acquired all of the outstanding securities of Celebration Mining Company ("Celebration"), a development stage company, pursuant to a share exchange agreement and plan of reorganization ("Reorganization"). Unless indicated differently by the context, all references to the Company herein shall refer to Royal Silver Mines, Inc., the corporate entity that resulted from the business combination of Consolidated Royal Mines, Inc. and Celebration. Prior to the Reorganization, Celebration was a non-public, closely held Washington corporation. It was formed in February 1994 to identify and acquire mineral properties for subsequent exploration and development, if warranted, through equity financing and joint venture arrangements. The Reorganization has been accounted for as a purchase by Celebration of the Company. Celebration was treated as the acquiring company for financial reporting purposes because its shareholders constituted greater than 50 percent of the combined shareholder group at the time of reorganization. In conformity with generally accepted accounting principles and the Company's accounting policy, Celebration is recognized as the predecessor entity. Consequently, Celebration's assets and liabilities were not adjusted in the accompanying financial statements. On the other hand, for purposes of reporting statutory and corporate authority, the Company is deemed to be the acquiring corporation, and Celebration is now a wholly-owned subsidiary of the Company. Prior to the Reorganization, the Company had been a majority-owned subsidiary of Centurion Mines Corporation ("Centurion"). Currently, however, Centurion holds an approximate 8.9% shareholder interest in the Company and is an affiliate and related party of the Company. The Company operates its business as an exploration stage company, meaning that it intends to receive income from property sales, joint ventures, or other business arrangements with larger companies, rather than developing and placing its properties into production on its own. As discussed in greater detail below in the section entitled "Business - The Company's Strategy and Business Plan," a substantial portion of the Company's assets consist of investments in mineral properties for which additional exploration is required to determine if they contain mineralization that is economically recoverable. The realization of these investments is contingent to a large extent upon the success of the Company's property transactions as a whole, the 34 existence of economically recoverable metals and other mineralized material, the ability of the Company to obtain financing or make other arrangements for development, and upon future profitable production. History The Company was incorporated in Utah on April 6, 1969 as Royal Resources, Inc. for the purpose of acquiring and developing mineral properties. The Company changed its name to Royal Minerals, Inc., on January 6, 1983, and became a public company in July 1984. The Company complied with the Securities and Exchange Commission reporting requirements until August 1986, at which time the Company filed Form 15 with the Commission and suspended further reporting requirements. On January 31, 1992, Centurion owned 82.3 percent of the Company's common stock. See "Business - Centurion's Acquisition and Control of the Company." Also on January 31, 1992, the Company shareholders authorized a 5-for-1 reverse stock split, and on March 4, 1994, authorized a 4-for-1 reverse stock split of the common stock of the Company. On March 17, 1994, the Company changed its name to Consolidated Royal Mines, Inc. On November 22, 1994, the Company filed a registration statement on Form 10 and renewed its reporting requirements, effective January 23, 1995. During the fourth quarter of Fiscal 1995, the Company revised its business plan to concentrate on the acquisition of silver properties. That change in focus prompted Consolidated Royal Mines, Inc. and Celebration Mining Company to implement the Reorganization, which closed on August 8, 1995, and to change the Company's name to Royal Silver Mines, Inc., effective September 18, 1995. Strategy and Business Plan The Company's mission is to explore for and, if warranted, develop its mineral properties. The Company's strategy is to conduct an initial evaluation of its properties, and after determining the geological merit of each, proceed with additional exploration either by utilizing the Company's own funds or by seeking joint ventures with major mining companies who will then commit their funds in exchange for an interest in the project. The Company expects in this way to achieve an increase in the value of its assets and to economize the use of its own funds. The Company has determined that it will focus on exploration and development of base metal and silver properties because management believes supply/demand fundamentals for these metals are currently favorable and are projected to remain favorable for the long term. These supply/demand characteristics are driven primarily by increasing affluence in developing countries and particularly by demand form the Far East. Management also believes that base metal and silver deposits are not being discovered as rapidly as supplies are being depleted. These factors create a high likelihood of stable and favorable focus metal prices overall, and possible significant price increases in selected commodities such as silver and zinc in the near future. 35 Management intends to expand growth by focusing on silver and base metal properties in North America, Mexico, Chile and Argentina. The Company intends to explore, develop, joint venture, discover and accumulate reserves, identify and acquire undervalued properties and reserves, and/or operate mining properties. The Company's strategy for each will vary on a case-by-case basis. Properties Chilean Properties - Mocha Prospect Background The prospect was submitted in early 1997 to the Company through one of the directors of the Company and a field exam was made immediately by personnel working in Argentina at the time. The decision to begin to acquire and unitize the Mocha District was based on a number of factors: 1. More than 50% of a known large porphyry system at Mocha is covered by Tertiary gravels and ignimbrites (post-mineral cover). 2. The best grade primary and oxide copper, noted from surface sampling and drilling, is on the west side of the prospect just before going under the post-mineral cover. On average, the cover is believed to be less than 200 meters in thickness. 3. A large north-south trending aeromagnetic low anomaly west of Mocha has never been tested by exploratory drilling. These anomalies are often indicative of major copper porphyry systems. Since 1995, several junior and major mining companies have held land positions and attempted unsuccessfully to make a deal on the principal claim group held by the Escala family of Santiago, Chile. In January of 1997, the Oregon and Chilean Exploration Mining Company, LTDA, staked 95 "pedimentos" or exploration claims totaling 28,300 hectares surrounding the known Mocha District claims of the Escala family and Conoco Minerals, and including the large aeromagnetic low anomaly 5-7 kilometers west of Mocha. The Company has been successful at consolidating the District. Final agreements were signed on June 23, 1997 and July 31, 1997 between the Company and the Escala and Oregon LTDA properties. Negotiations are also underway for the Conoco Minerals claims which are of lesser area and importance. Approximately US$75,000 has been spent in front-end payments. An additional US$75,000 has been spent in claim staking, legal fees, and geologic studies. Only one US$25,000 payment is due in the next six months. The entire and total amount of the Escala property is US$5,000,000 payable as follows: 36 On signing US$ 50,000 6 months US$ 100,000 12 months US$ 160,000 18 months US$ 300,000 24 months US$ 300,000 30 months US$ 500,000 36 months US$ 800,000 48 months US$1,395,000 60 months US$1,395,000 Notwithstanding the preceding, should the Company exercise the option to purchase within the terms of 48 months from the date of the signing of the option to purchase contract, the price of said contract shall amount to US$4,510,000 of which the unpaid balance shall be due- in-full at such time. In addition to the purchase price stated hereinabove, the Company will pay annually to the Sellers in equal parts an amount equal to 2% of the net smelter return obtained by the beneficiary or its cessionary as a result of the exploitation of any of the properties which are acquired. The parties agree to negotiate, in good faith, an amount for the N.S.R. buy-out which will become an integral part of the option to purchase contract. Under the terms of the agreement with the Oregon, LTDA, which was signed on July 31, 1997, the Company can acquire a 100% interest in the 28,300 hectare claim block according to the following schedule: On signing US$ 25,000 3 months US$ 25,000 6 months US$ 25,000 9 months US$ 25,000 12 months US$ 25,000 15 months US$ 25,000 18 months US$ 25,000 21 months US$ 25,000 36 months US$ 156,000 60 months US$ 500,000 72 months US$1,000,000 84 months US$1,000,000 96 months US$1,500,000 The Company is further obligated to spend $200,000 in work commitments in the first three years. Location and Access The Mocha District is located in northern Chile and lies approximately on the 19E48'30" south meridian at 69E16'30" west longitude (See Figure 1). This area is within Region I of Chile, Iquique Province, Comuna de Huara. The prospect is approximately 100 kilometers east-northeast of the coastal city of Iquique and 60 37 kilometers west of the Bolivian border. Access is by paved and gravel roads which requires about three hours to drive from Iquique via Huara. The property lies along a southwesterly trending intermittent stream, Quebrada Tarapaca, at an average elevation of 2300 meters. The farming pueblo of Mocha is located near the northeastern corner of the property. History of the Prospect Prospect pits, shallow shafts, and small adits were driven into the oxide copper showings at Mocha many years ago, probably pre-1940. The first systematic exploration for porphyry-type mineralization at Mocha was carried out by the United Nations special fund mineral survey in late 1961 and 1962 and included geologic mapping, soil sampling, and six shallow diamond drill holes. Conoco Minerals, Inc., optioned the prospect in late 1980 and in 1981 conducted geology, geochemistry, and geophysics culminating in eleven core holes totaling nearly 5000 meters and three rotary holes totaling approximately 850 meters. The United Nations and Conoco core drilling activities outlined a minimum of several hundred million tons with an overall grade of 0.4%-0.6% copper as a mixture of primary sulfides, secondary sulfides, and oxides. Conoco personnel recognized the importance of intense biotitization hosting the primary sulfides. ASARCO optioned the property in 1995 and drilled thirty-three shallow RVC (reverse circulation) angle holes within the previously drilled and exposed area with the hope of increasing the secondary-enriched copper resource. ASARCO was only able to delineate a secondary enriched global resource approximately 41.9 million tons of 0.51% copper. Some problems may have been encountered with ASARCO'S RVC drilling as assay results were lower than assays in adjacent core holes. No attempt was made by ASARCO to discover higher grade primary sulfides, oxide copper, or explore the vast covered area to the west. Geology The Mocha District is located within and on the west side of a 30-40km (19.25 mile) wide, north-south trending up-thrown block of Mesozoic and Paleozoic rocks. This structural block extends at least 500 km to the south and includes the El Abra and Chuquicamata Districts (See Figure 2). The block was uplifted in later Tertiary time offsetting Tertiary gravels and ignimbrites believed to be 10-15 million years in age. A major north-south fault zone locally known as the West Fissure occupies an axial position within the Mesozoic-Paleozoic block. 38 The West Fissure is believed to have had a major component of net left lateral displacement since Mesozoic time. The West Fissure, however, fails to displace a 4.3 million year ignimbrite near Quebrada Blanca, and therefore has been inactive since that time. Spatial regional relationships suggest that the West Fissure, or its ancestral equivalent, influenced the localization of the porphyry copper deposits not only in the El Abra-Chuquicamata-Tesoro region, but also the cluster of deposits in the Copaquiri-Quebrada Blanca-Collahuasi region. The West Fissure is covered by gravels north of Copaquiri but also may correspond to northerly trending structural zones near Cerro Colorado and Mocha. The West Fissure also extends for several hundred kilometers to the south of Chuquicamata. Therefore, the location of several distinct regional clusters of porphyry copper deposits appear to have been influenced by this important fault zone extending over a strike length of at least 500 km (310 miles). In recent years, a more subtle east-west structural component has also been recognized in several of the important porphyry copper districts along the West Fissure trend. In the Copaquiri-Quebrada Blanca-Collahuasi, Cerro Colorado, and Mocha Districts, the overall trend of copper mineralization and/or the alignment of known prospects appears to be at least in part east-west and partially offset by north-south faults. The east-west controlling structure at Mocha may extend as far to the east as the famous Potosi district in Bolivia. Exploration Potential The drilling programs in 1961 (United Nations), 1981 (Conoco), and 1995 (ASARCO), demonstrated that a large sulfide copper resource (250,000,000 tons) of overall grade between 0.4% - 0.6% copper) exists mostly within intensive biotized rocks in the exposed portion of the Mocha District. A preliminary examination of existing data and subsequent field work by the Company indicates that this large resource is only partially exposed. The overall trend of better copper grades (0.4% Cu) appears to be 700 meters wide, trending east-west, with better values of oxide and primary sulfides to the west, and heading under post-mineral cover. A separate and distinct secondary sulfide zone is also possible to the west, as is additional oxide copper. Also, a large north-south trending aeromagnetic low is present on the prospect, approximately seven (7) kilometers west of Mocha. This anomaly could represent another porphyry system or possibly a faulted extension of Mocha. A ground magnetic survey is recommended to further delineate this anomaly. Additional geophysics, including gravity to help estimate the thickness of the overburden, could be useful. An IP survey could aid in delineating the extent of sulfides under the postmineral cover. However, even without geophysics at Mocha, a good drilling target exists immediately west of the known porphyry-type mineralization. 39 The Company's geologists believe that the potential exists for discovery of a deposit in excess of 750 million tons at grades exceeding 0.5% copper. This estimate is based on known data and extrapolation of the size of the potential zone to the west and to depth. This estimate is also in line with other major copper deposits in Chile and to the south of Mocha within the same trend. The Company is confident the project is of high interest to major mining companies. This view is based not only upon the geologic factors discussed above, but also because world demand for copper is growing rapidly necessitating aggressive exploration for new copper deposits. The Company has already had numerous contacts with several major companies confirming this hypothesis. The Company believes that a property of the size discussed above would ultimately be developed into a mine, and that the Company's share of the project would be of such magnitude that it would add very dramatically to stockholder equity. Strategy for Mocha Management has determined that a flexible approach to Mocha in the next six months will maximize its value to the Company. The Company does not intend to fully explore the property on its own, but will at some point joint venture the property to a major mining company. The timing of signing such a joint venture is critical to the Company. The project will be more valuable to the Company shareholders if the company undertakes some geophysical work and preliminary drilling of its own to prove continuity of the mineral system to the west. This action will improve the Company's negotiating posture dramatically since the greatest exploration risk of the project is that the mineralization does not continue to the west, and such work will likely diminish this risk is successful. Therefore, the Company strategy can be summarized as follows; either 1. Immediately (within two months) joint venture the project to a major mining company, or; 2. Conduct an initial geophysical and drilling program on the project to be completed within four months and then seek to joint venture the project to a major mining company, this latter goal to be completed within seven months. It is the belief of management that path #2 would be preferable and would maximize the value of the Mocha property for the Company. However, the Company would not undertake any further exploration of the project unless the Company nets in excess of $2.5 million from this fundraising. The Company has allocated a maximum of $300,000 for further exploration at Mocha. See "Use of Proceeds." 40 However, since the Company is already in negotiations with a number of major companies on Mocha, it is possible, perhaps likely, that an offer will be received that is so advantageous to the Company that an immediate joint venture of the project would be both prudent and fiscally advantageous. Management will continue to evaluate Mocha closely as new developments occur. Other Chilean Opportunities The Company intends to expand its presence in Chile and currently is evaluating other mining opportunities which have presented themselves. Many attractive Chilean mining properties are owned or controlled by established Chilean families, some of whom, so far, have been unwilling to negotiate with major mining companies. The Company has not and will not comment on the reasons for these various states of impasse. Management has been approached by several large companies to act as an intermediary between the families and the major company to assist in negotiations. It is believed that by conducting negotiations and signing mineral deals, the Company can gain a percentage ownership, joint venture partnership and/or royalty interest in a number of ventures in Chile, thereby increasing the Company's chances of participation in a property that is ultimately successfully developed into a mine. Mexican Properties Manatial Project The Company has acquired four formerly producing mines; the Manantial, Zopilote, Jabalina and Frazadas located in the El Zopilote District, Nayarit, Mexico. The Company acquired the property from Roberto Whetton, the owner of the previous operator of the mines, Minera Nival. Under the terms of the acquisition the Company will spend a minimum of $250,000 annually on exploration and/or development until the mines are brought back into production. The Company will pay a 10% net profits royalty to Minera Nival to a maximum of $5,000,000. The Manantial Project consists of four concessions which total 458 hectares and is located 25 kilometers east of Ruiz, Nayarit, Mexico. Ruiz is 200 kilometers south of Mazatlan and 150 kilometers north of Puerto Vallarta. Tepic, the capital of Nayarit, is 65 kilometers south of Ruiz. (See Figure 4.) Mining by the Indians pre-dates Spanish colonization. The Spanish mined the area and developed a port at San Blas in conjunction with the mining operation. A German company operated the mines and a smelter from 1890 to 1910 when they shutdown due to the Mexican Revolution. Records indicate the Germans were mining high grade silver ores grading 1.5 kilograms silver per tonne (about 45 ounces) and an undisclosed amount of gold. 41 The mines are developed on silver, lead and zinc veins in andesite volcanic rocks and which are named the Manantial, Zopilote, Jabalina and Frazadas veins. The Minera Nival data indicate that reserves sufficient to operate a profitable mining operation can be developed by further exploration. The Company is planning an exploration drilling program to develop the necessary reserves to re-open the mines. (See Figure 5.) The Frazadas vein was being mined by Minera Nival and is developed on two levels, with 100 meters between levels. The vein averages 3 meters in width and grades 14% zinc, 2% lead, and 3 ounces silver per tonne. The vein extends for a known strike of 400 meters and is open down dip and on strike. The vein width and continuity make the Frazadas vein amenable to high productivity mechanized mining methods. The Zopilote vein is southwest of and sub-parallel to the Frazada vein. The mine workings consist of a 160 meter deep shaft with several levels developed, the extent of which is unknown. The German company records indicate that high grade silver with some lead and zinc were mined, and it appears that most of the early district production came from the Zopilote. The Zopilote mine is inaccessible and Minera Nival did no work on the vein. The Jabalina mine consists of a long drift developed on the westerly strike projection of the Zopilote vein. The workings are about 300 meters vertically below the Zopilote and terminate 600 meters from the down dip projection of the Zopilote. The Germans were driving to develop the vein at a lower elevation, but never reached their target. They did mine on at least two other different veins within this trend. While conducting exploration from the Jabalina tunnel, Minera Nival sampled a one meter vein that assayed 0.19 ounces gold per ton and 19.3 ounce silver per ton. The Company believes that reserves can be developed by extending the Jabalina drift 600 meters to the dip projection of the Zopilote and evaluating this 300 by 600 meter block of ground by drilling and raising. The Company also believes other targets may be of interest within the Jabalina mine. The Manantial vein consists of a least five veins averaging 1.5 meters in width and grading 13 to 20 ounces silver per ton with a significant gold credit. The mine is developed on two levels and is accessed by crosscuts from the surface. The mine is a complex of sub- parallel veins of varying strike and dip averaging 50 meters in length. Minera Nival drilling indicates zones between the veins contain disseminated and stockwork mineralization. The Manantial vein system will be explored by drilling to determine if it is a stockwork vein system and its potential. Overall, the Company believes the Zopilote District is a large mineral system that may be part of a volcanic caldera complex. A $250,000 exploration program is planned for the Summer of 1997. 42 Argentina Properties In January of 1997, the Company acquired an option to purchase twelve separate mine claim groups in La Rioja Province, Argentina. (See Figures 1 and 2.) Under the terms of the option agreement, the Company can purchase the properties on or before March 1, 2000 by the payment of $4.5 million in cash or $5.5 million in the Company's common shares. The original owners will retain a 1.9% net smelter return royalty on future production. The Company is required to spend $200,000 on the property prior to May 1, 1998, an additional $300,000 prior to March 1, 1999 and an additional $400,000 prior to March 1, 2000. The acquisition includes 12 separate properties which have all been advanced to the status of mines, meaning that the title to the mineral rights has been deeded. A brief description of the most advanced properties, which are known as Veta Capricho and Salto de Albi is included here. These properties are located at an average elevation of about 10,000 feet above sea level. Veta Capricho The Veta Capricho prospect, located in the Los Metalitos gorge, was acquired by the current owners in the early 1970's and has been held for approximately 25 years. Access to the region is generally possible via 4-wheel drive vehicle from Jague. The final 15 mile route to the prospect is currently undergoing improvement. This work is being partially funded by the Company and partially funded by the Provincial government of La Rioja Province. The prospect appears to be a series of stacked siliceous stratiform sulfide occurrences. The principal host rocks are quartz- mica schists, feldspathic gneisses and lesser amphibolite of the Precambrian Espinal Formation. Structure is dominated by a large north-south trending anticline, parallel to the gorge. The principal sulphide zone can be traced on surface for more than 6000 feet in a north-south direction, ranges in thickness from 3 feet to more than 60 feet, and dips to the west 30 degrees to 80 degrees, parallel to the stratigraphy. Abundant oxide iron, copper, and manganese stain define the zone at surface. The massive to disseminated unoxidized metal mineralization, principally seen in one short adit, consists of specular hematite, chalcocite, bornite, chalcopyrite, galena, and sphalerite. Quartz and possible carbonate minerals are the gangue minerals. Thirteen samples taken by Company personnel in January were located along approximately 1500 feet of strike length of the prospect. These samples returned an average grade of over 7.5% copper, 5% combined lead-zinc and 4 ounces of silver. 43 In a detailed surface sampling program conducted by the Company's personnel in April 1997, some 20 channel samples were collected which averaged 1.75% copper, 6% combined lead-zinc and 2 ounces of silver. The Company plans to conduct a diamond drilling programs to test the down dip extension of this promising zone. Salto de Albi The Salto de Albi porphyry copper system is located within the Albi ravine. The complex is roughly oval in shape, 3000 feet long in a northeast direction and 2000 feet wide. Surface outcrops are oxidized yellow and red-brown. Northeast-trending quartz-feldspar porphyry dikes, as much as tens of feet in width, are common along the northwest border of the complex. Copper-molybdenum mineralization appears to be best defined near the quartz-feldspar porphyry dikes and within intense potassically altered volcanic rocks. Historic sampling in the vicinity of the porphyry dikes has indicated a near vertical mineralized zone at surface exceeding 500 feet in width and 2500 feet in length with overall copper grades possibly exceeding 1% copper, with accompanying tin, silver and molybdenum credits. Lower grade copper values surround this higher grade zone. The Salto de Albi system is believed to have the potential to host in excess of 100,000,000 tons of porphyry mineralization. United States Properties The Company in 1995 and 1996 had focused its efforts on acquiring former producing silver properties in the United States with a strategy of exploring for additional reserves and if justified, re-opening the properties. However, due to the increasingly difficult regulatory environment prevalent in the United States, management, consistent with a majority of the North American mining industry, has chosen to re- focus the Company's efforts offshore in countries where the regulatory framework is not punitive and obstructionist, but is evaluated as being cooperative and amenable to capital investment. Mexico, Chile and Argentina are viewed as favorable by management. Although the United States properties host important silver and base metal mineralization and are long-term assets of the Company, no work is contemplated on these properties near term unless metal prices rise sufficiently to offset the regulatory risks of operating in the United States. Crescent Mine In February 1995, Celebration Mining, Inc., ("Celebration") a wholly owned subsidiary, entered into an agreement to acquire a long term mineral lease on the Crescent Mine. The Crescent Mine is an underground mine, located in the Coeur d'Alene Mining District of Shoshone County, Idaho, about five miles east of Kellogg, Idaho. 44 Operations of the Crescent Mine began prior to 1917 and produced in excess of 25 million ounces of silver. The mine is currently not in operation and is flooded to approximately the 1200 foot level. The most current ore reserve report that the Company has been able to obtain was prepared in 1985 by Norman A. Radford, a registered professional geologist. That report indicated that the Crescent Mine contained 141,000 tons of probable reserves averaging 31 ounces of silver per ton of mineralized material. At current silver prices, the Company cannot assure that any of the mineralization could be mined at a profit. The Crescent Mine property consists of 12 patented mining claims, associated unpatented claims and two Idaho state leases, and is located immediately adjacent to and west of the world-famous Sunshine Mine (Sunshine Mining Company, SSC-NYSE). The Sunshine Mine has produced nearly 400 million ounces of silver since its inception, making it the largest primary silver mine in the world. The structural and stratigraphic features which have produced the ore deposits in the Sunshine Mine are also present in the Crescent Mine. Host rocks in the Crescent Mine, in common with the rest of the District, are members of the Precambrian Belt Super Group. Three formations are present in the mine in descending order: Wallace, St. Regis, and Revett. The most favorable rocks in the Crescent Mine are the Lower St. Regis and Upper Revett quartzites. These rocks occur in the Crescent Mine from the 1,200-foot level downward. The Coeur d'Alene "Silver Belt" ore structures are frequently narrow, fragmented, and sinuous, and have exhibited great vertical continuity. For this reason, they have been discovered and mined at levels deeper than is generally the case in other mining districts. The ore at the Crescent Mine occurs in thin veins steeply dipping to the south. These veins may vary in thickness from several inches to several feet. The Alhambra and the Syndicate Faults are major reverse faults and both are present in the Crescent Mine. The Crescent is developed to a depth of 5,100 feet by two vertical shafts. The majority of past production from the Crescent Mine occurred in the Revett formation between the 3,100 level and the 4,300 level. In the mid-1980's, the No. 2 shaft was deepened to the 5,100 level, which opened an additional 800 feet of favorable Revett quartzites for development of the downward extensions of the East Footwall and Hook veins, the two major veins in the mine. The Company's timing to re-establish production from the Crescent will be dependent upon silver prices. Management estimates that a price of at least $6.00 per ounce would need to be sustained for a period of six months to justify the capital investment necessary to de- water the lower workings of the mine and rehabilitate the stopes. As of August 29, 1997, the Comex Spot price for silver was $4.67. The Company believes that a processing agreement for Crescent ore can be negotiated with the neighboring Sunshine Mine on a favorable basis. 45 During the 1996 fiscal year, the Company's field activities at the Crescent Mine were limited to an unsuccessful attempt to re-open the #3 level portal. The portal was filled with unconsolidated glacial till and it was determined that a much more expensive program will be required given the bad ground. Due to the low silver price, no attempt to dewater the lower mine was contemplated during the 1996 fiscal year. Vipont Mine The Vipont Mine is located in the Ashbrook Mining District, a remote area in the extreme northwestern corner of Box Elder County, Utah, approximately ten miles east of the Nevada state line and one mile south of the Idaho state line near the headwaters of the Little Birch Creek. It is accessible by asphalt, gravel and dirt roads. The mine property consists of 53 patented (deeded) mining claims covering nearly 1,000 acres with a 25% undivided interest owned by Celebration. The Vipont Mine has in the past been a significant silver producer. Its greatest period of activity was from 1919 through mid- 1923 after the passage of the Pittman Silver Purchase Act ("Pittman Act") which authorized the purchase of 200,000,000 ounces of silver. The Mine closed in August 1923 with the expiration of the Pittman Act after producing nearly 1,000,000 ounces of silver per year. Some leasing was done in the 1930's and the Mine was closed in 1942 when Congress passed War Order L-208 closing all gold and silver mines. The Company has no plans in the immediate future for any further development of the property. Conjecture Mine In late August 1995, the Company acquired six patented and six unpatented mining claims comprising the Conjecture Mine property. The Conjecture property is located in the Lakeview Mining District of Idaho, some 30 miles to the northwest of the Coeur d'Alene mining district. The rock groups of the Lakeview District are the same Precambrian belt series associated with the world-class silver deposits of the Coeur d'Alene mining district to the southeast The history of the Lakeview District in general, and the Conjecture Mine in particular, has shown sporadic high grade silver production from shallow workings since the late 1800's. Production on a neighboring property occurred as recently as 1987. However, within the Lakeview District, only the Conjecture Mine itself has been developed to any significant depth. In the early 1960's, Federal Resources of Salt Lake City, Utah invested approximately $3 million in shaft sinking and underground development at the Conjecture Mine. In all, Federal Resources completed a 2,000 foot deep vertical shaft and nearly 12,000 feet of drifts, cross-cuts and raises. This work established a block of mineralized material of 336,000 tons at a grade of 11 ounces per ton of silver, and .03 ounces of gold, with a lead and zinc credit. 46 An additional block of 370,000 tons of similar grade was listed as a possible block of mineralization between the levels. Since obtaining the property, the Company has not been able to reconfirm these estimates, although an independent report done in 1981, by Richard W. Morris, essentially verified the earlier numbers. The Company's geologists have noted the striking similarities between the Lakeview District and the nearby Coeur d'Alene District. High grade silver mineralization has been shown to extend laterally for over two miles, and vertically for over 3,000 feet in the Conjecture Mine. The same rock unit sequence (i.e., Wallace, St. Regis, Revett) is found in both districts, with the same important ore minerals (tetrahedrite, galena, sphalerite) defining productive ore shoots. However, within the Lakeview District, only the Conjecture shaft has penetrated the less favorable Wallace formation into the better quartzite units. Bismark Mine Property In September 1995, the Company obtained a 10-year lease on three patented mining claims in Shoshone County, known as the Bismark claims. The claims lie about one mile south of the main shaft of the Sunshine Mine and are surrounded by Sunshine holdings. The property is developed by a 1,500 foot adit which was driven to the northeast to intersect the Bismark vein. The Company has re-opened and re-timbered the portal of the Bismark adit to permit accessing and sampling of the Bismark vein. The geology of the Bismark claims, given the proximity to the Sunshine Mine, is highly favorable to ore deposition. The Bismark vein lies entirely with the Revett formation, which is the most favorable rock unit for ore emplacement in the Coeur d'Alene mining district. Limited exploration by Sunshine Mining Company on their 2,600 level established the downward projection of mineralization in the Bismark vein structure. Bismark Mining Company, the property owner and lessor, will receive a 2.5 percent net smelter return on commercial production from the claims under the terms of the Company's lease. Coeur d'Alene Syndicate Property No significant mineral production has occurred on the Coeur d'Alene Syndicate property and there are no known reserves. In September 1995, the Company acquired fee simple ownership of the 24 patented mining claims that comprise the property, located in Burke Canyon six miles northeast of Wallace, Idaho. The property is an undeveloped portion of ground centered between the Star-Morning Mine on the east and the Frisco and Black Bear Mines on the west. 47 Geologists have long considered the Syndicate property to be an outstanding exploration target where the highly productive Star fault turns to the southwest and intersects the Commander fault. This structural anomaly, occurring in favorable Revett and Burke formation quartzite rocks is exactly what develops major ore shoots within the Coeur d'Alene district. The property is currently developed by an adit from the Black Bear property, but could ultimately be accessed by the deep shafts of the Star Mine. The Liberal King Mine In the fourth quarter of Fiscal 1995, the Company acquired fee simple ownership of the Liberal King Mine, consisting of five patented claims located southwest of the Bunker Hill Mine in the Pine Creek area of the Coeur d'Alene Mining District. At the time the mine was last operated by Spokane National in the 1960's, that company reported a defined block of mineralized material totaling 81,000 tons at 12 percent zinc and 2.5 ounces of silver. In the early 1980's, Cominco- American conducted an exploration program on the Liberal King property in search of a large, stratabound zinc-silver deposit. Such potential has not been fully explored at this time. The Company has not been able to evaluate this property at this time, and no current reserve estimates can be given. Summary of U.S. Properties Overall, the Company's U.S. properties have low holding costs and are being held as part of the Company's strategy of acquiring undervalued base metal and silver assets which are currently out of favor. As noted above, the Company plans no significant expenditures on these properties until metal prices, particularly that of silver, rise significantly and secondly, until the regulatory climate improves markedly to allow the orderly and cost-effective permitting and operation of mining properties. Private Placements In July 1995, the Company completed a private placement of 8,700 shares through two Regulation S offerings, both at a price of $2.00 per share, for a total of $17,400. During September 1995, the Company completed a private placement of 179,000 shares of common stock through a domestic offering at a price of $1.50 per share for a total of $241,650 after expenses. During the twelve months ended September 30, 1996, the Company placed 1,949,332 shares of its common stock for $2,958,314 in cash. The Company also issued 406,050 shares of its common stock in lieu of outstanding debt of $570,919, plus accrued interest. The stock was issued at $1.50 per share for a total value of $609,075. 48 On January 30, 1997, the Company sold 200,000 Units at $0.75 to Britannia Holdings Limited ("Britannia"). Each Unit consisted of one share of Common Stock, and one Warrant. Each Warrant allows Britannia to purchase one share of Common Stock at $1.25 per share. The Warrants expire two years from issuance. The Company also granted Britannia the option to purchase 335,000 Units on or before February 14, 1997 and 600,000 Units on or before March 24, 1997. The Units were sold pursuant to Reg. S of the Securities Act of 1933. On the 30th day of January, 1997, the Company sold to Britannia Holdings Limited ("Britannia"), Channel Islands, 200,000 Units, at $0.75 per Unit or a total of $150,000. The Registrant also granted Britannia an option to purchase an additional 335,000 Units on February 14, 1997 and an additional 800,000 Units on March 3, 1997. Neither of the foregoing options has been exercised as of the date hereof. Each Unit consists of one share of Common Stock and one warrant to purchase one additional share of Common Stock at $1.25 per share. The warrants will expire two years from the date of closing of each transaction. The Units were issued in reliance upon the transaction exemption afforded by Regulation S, as promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. As of the 5th day of February, 1997, Britannia Holdings Limited had not exercised any warrants. On the 14th day of February, 1997, the Registrant sold to Britannia Holdings Limited ("Britannia"), Channel Islands, 335,000 Units, at $0.75 per Unit or a total of $251,250. The Registrant previously granted Britannia an option to purchase an additional 800,000 Units on March 3, 1997. The option exercise date of March 3, 1997 has been extend by mutual agreement of the parties to March 24, 1997. On January 30, 1997, the Registrant sold 200,000 Units to Britannia in consideration of $150,000 as previously reported on Form 8-K filed with the Commission. Each Unit consists of one share of Common Stock and one warrant to purchase one additional share of Common Stock at $1.25 per share. The warrants will expire two years from the date of closing of each transaction. The Units were issued in reliance upon the transaction exemption afforded by Regulation S, as promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. As of the 26th day of February, 1997, Britannia Holdings Limited had not exercised any warrants. On the 26th day of February, 1997, the Company sold to Louk Jongen, ("Jongen"), Holland, 100,000 Units, at $0.75 per Unit or a total of $75,000. Each Unit consists of one share of Common Stock and one warrant to purchase one additional share of Common Stock at $1.25 per share. The warrants will expire two years from the date of closing. The Units were issued in reliance upon the transaction exemption afforded by Regulation S, as promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. As of the 6th day of March, 1997, Jongen had not exercised any warrants. 49 On the 5th day of March, 1997, the Company sold to NCL Investments Limited ("NCL"), London, England, 136,000 Units, at $0.75 per Unit or a total of $102,000. Each Unit consists of one share of Common Stock and one warrant to purchase one additional share of Common Stock at $1.25 per share. The warrants will expire two years from the date of closing. The Units were issued in reliance upon the transaction exemption afforded by Regulation S, as promulgated by the Securities and Exchange Commission, under the Securities Act of 1933, as amended. As of the 6th day of March, 1997, NCL had not exercised any warrants. Competition The mining industry is very competitive. There is a high degree of competition to obtain favorable mining properties and suitable mining prospects for drilling, exploration, development and mining operations. The Company encounters competition from a handful of other similarly-situated mining companies in the silver mining industry in connection with the acquisition of properties capable of profitably producing silver and other mineralization. The Company is unable to ascertain the exact number of such competitor companies. Transactions with Centurion The Company has disclosed pertinent information and financial data with respect to its transactions with Centurion. See "Certain Transactions." Patents, Trademarks, Licenses, Franchises The Company does not own any patents, trademarks, licenses, franchises, or concessions, except for patented mining claims granted by governmental authorities and private land owners. See "Glossary." Seasonability The Company's business is generally not seasonal in nature except to the extent that weather conditions at certain times of the year may affect the Company's access to its properties. Government Regulation and Environmental Concerns U. S. Regulations The Company is committed to complying and, to its knowledge, is in compliance with all governmental and environmental regulations. The Company's activities in the United States are subject to extensive federal, state and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. The Company cannot predict the extent to 50 which future legislation and regulation could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's U.S. properties, including those with respect to unpatented mining claims. The Company's activities are not only subject to extensive federal, state, and local regulations controlling the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, the extent of which cannot be predicted. Also, as discussed above, permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. The Company is not presently aware of any specific material environmental constraint affecting its properties that would preclude the economic development or operation of any specific property. However, the general obstructionist regulatory environment within the United States impedes development of its properties and the Company plans to do limited work in the United States, unless metal prices rise significantly or the regulatory environment grows dramatically more favorable to industry. At present, the Company does not have any environmental control facilities. Thus, the Company has not made any material capital expenditures for environmental controls, other than the nominal costs of preparing the plans and contingencies for such environmental controls, measures and facilities as may be required in its future activities. If the Company becomes more active on its U.S. properties, it is reasonable to expect that compliance with environmental regulations will increase costs to the Company. Such compliance may include feasibility studies on the surface impact of the Company's proposed operations; costs associated with minimizing surface impact; water treatment and protection; reclamation activities, including rehabilitation of various sites; on-going efforts at alleviating the mining impact on wildlife; and permits or bonds as may be required to ensure the Company's compliance with applicable regulations. It is possible that the costs and delays associated with such compliance could become so prohibitive that the Company may decide to not proceed with the exploration, development, or mining operations on any of its mineral properties. 51 Offshore Regulation The Company is aware of comparable environmental regulation in offshore countries where it operates. The Company is committed to full compliance with these regulations and has engaged legal counsel in Mexico, Chile and Argentina who will, in part, assist the Company to assure compliance. The Company is prepared to engage additional professional, if necessary, to ensure regulatory compliance but in the near term expects its activities to require minimal regulatory oversight. If the Company expends the scope of its activities in the future it is reasonable to expect expenditures on compliance to rise. Based upon the experience of other companies with which the Company is familiar, management believes the costs of environmental regulation offshore will be somewhat lower than costs typical of the United States. Employees The Company has seven employees. The Company arranges for much of its work through contracts with various consultants. The Company may contract with additional consultants from time to time, as required by its operations. Consultants are treated as independent contractors. Centurion's Acquisition and Control of the Company In October 1991, Centurion entered into negotiations with the officers and directors of the Company for the acquisition and control of the Company. In November 1991, Centurion's Board of Directors approved this acquisition. Subsequently, Centurion entered into subscription and investment agreements with several of the Company's principal shareholders, whereby Centurion exchanged 174,743 restricted shares of Centurion stock and $1,600 cash for shares of the Company's common stock constituting 37.2 percent ownership of the Company's outstanding shares. On January 10, 1992, the Company's Board of Directors authorized the exchange of 100,000 post-split shares of the Company's common stock for approximately 4,196 acres of unpatented mining claims and state and private mineral leases from Centurion. On January 31, 1992, at the Company's annual shareholders meeting, the shareholders authorized the purchase of approximately 17,000 acres of mining properties from Centurion for 1,250,000 post-split shares of the Company's common stock. This acquisition of shares gave Centurion an 82.3 percent controlling interest in the Company. Because of the changes in the control of shareholdings brought about by the Reorganization with Celebration, Centurion currently holds approximately 14 percent of the Company's outstanding common stock. Of this, the Company has been granted an assignable option to repurchase up to half of Centurion's position at a price of $1.75 at any time prior to October 1, 1998. 52 Subsidiaries The Company currently has four subsidiaries. Celebration Mining Corporation was incorporated in the State of Washington in February 1994. In conjunction with pursuing its activities in Mexico, Chile and Argentina, the Company has established wholly owned subsidiaries in each country. Minera Plata Real was incorporated in Mexico in February 1997. Minera Plata Real was incorporated in Chile in June 1997. Minera Plata Real was incorporated in Argentina in March 1997. Reorganization with Celebration In May and June 1995, the Company's management began negotiations with management of Celebration regarding a merger or other reorganization plan of the two companies. On June 28, 1995, the boards of directors of both companies approved a reorganization and the companies signed an agreement based on a share exchange. The Company would acquire 100 percent of Celebration's interest in the Vipont Mine Joint Venture, the Crescent Mine Lease, the Australia Joint Venture, and the option rights to acquire up to 50 percent of the mineral rights on the Prospect Mine Property in Madison County, Montana. The Celebration shareholders approved the Reorganization and share exchange agreement at an August 8, 1995 shareholder meeting. In exchange for 100 percent of the issued and outstanding Celebration shares, the Company agreed to issue to the Celebration shareholders 4,143,750 shares of the Company's common stock that together would represent ownership of 63 percent of the Company's shareholdings outstanding immediately following the Reorganization. Also, the Company agreed to honor all of the stock rights held by various Celebration shareholders and which were subject to certain conditions and events. Some of those stock rights had been granted contingent upon the repayment of notes, and others had been granted as options under consultant agreements. In total, those stock rights permitted the purchase or receipt of approximately 1,755,000 additional shares of the Company's common stock. If all of the shares underlying various stock rights were added to the initial group of 4,143,750 shares exchanged in the Reorganization, that would result in a total issuance from the share exchange of approximately 5,898,750 shares, or 71 percent ownership by the Celebration shareholders. However, to date, none of the overhanging stock rights have been exercised. In December 1995, stock rights to receive approximately 190,795 shares were extinguished when the Company converted debt of $570,919 in principal, plus interest, by issuing common stock. The noteholders of that debt amount received approximately 406,050 shares in full satisfaction of the debt. 53 - --------------------------------------------------------------------- MANAGEMENT - --------------------------------------------------------------------- The following table sets forth the name, age and position of each Officer and Director of the Company: Name Age Position Howard M. Crosby 45 President and a member of the Board of Directors Robert E. Jorgensen 44 Executive Vice President, Treasurer and a member of the Board of Directors John Ryan 35 Vice President of Corporate Development and a member of the Board of Directors Thomas Henricksen 50 Secretary and a member of the Board of Directors Jerry Stacey 52 Vice President of Operations Ronald Kitching 66 Member of the Board of Directors Kevin Stulp 41 Member of the Board of Directors The authorized number of directors of the Company is presently fixed at ten. Each director serves for a term of one year that expires at the following annual shareholders' meeting. Each officer serves at the pleasure of the Board of Directors and until a successor has been qualified and appointed. There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer. Set forth below is certain biographical information regarding each director and executive officer of the Company: Howard M. Crosby - President and a member of the Board of Directors. Since February 1994, Mr. Crosby is the President and a member of the Board of Directors. Since 1989, Mr. Crosby has been president of Crosby Enterprises, Inc., a family-owned business advisory and public relations firm. From September 1992 to May 1993, Mr. Crosby was employed by Digitran Systems, Inc., of Logan, Utah, in the marketing department. In May of 1993, Mr. Crosby entered into a business consulting relationship with Centurion Mines Corporation, and has 54 served as president and director of Mammoth Mining Company and Gold Chain Mining Company, both Centurion subsidiaries. In July, 1992, Mr. Crosby filed a Chapter 13 petition for bankruptcy. The reorganization plan was approved in October 1992. Mr. Crosby received a B.A. degree from the University of Idaho in 1974. Robert E. Jorgensen - Executive Vice President, Treasurer and a member of the Board of Directors Since August 1995, Mr. Jorgensen has been the Executive Vice President, Treasurer and a member of the Board of Directors of the Company. Mr. Jorgensen has served as vice-president, secretary and director of Celebration Mining Company, a Nevada public company. From 1987 to 1991, Mr. Jorgensen was an investment broker and owner of RCL Northwest, Inc., a regional investment firm. Mr. Jorgensen was a broker with Cohig & Associates, Inc., from January 1992 to May 1992. In May 1992, Mr. Jorgensen retired from the brokerage business and has since been a private investor. Mr. Jorgensen filed for protection under Chapter 7 of the Bankruptcy Code in August 1992. Mr. Jorgensen received a degree in Business Administration from the University of Idaho. John Ryan - Vice President of Corporate Development and a member of the Board of Directors Since April 8, 1997, Mr. Ryan has been a member of the Board of Directors and since September 1996, Mr. Ryan has been Vice President of Corporate Development. Mr. Ryan is a professional mining engineer. Mr. Ryan has served as a consultant in mine engineering services, and will continue in these activities during his tenure, as well as, engage in other matters in accordance with the direction and assignment of the Board of Directors. In addition to his professional degree in Mining Engineering, which he received from the University of Idaho, Mr. Ryan also holds a juris doctorate (J.D.) law degree from the Boston College School of Law. Thomas Henricksen - Secretary and a member of the Board of Directors Since February 5, 1997, has been the Secretary and a member of the Board of Directors of the Company. Mr. Henricksen is a professional geologist who is currently working as an independent consulting geologist specializing in precious and base metal exploration projects in North and South America. From 1991 to July 1996, Mr. Henricksen was regional manager for Kennecott Exploration, where he was responsible for overseeing all exploration activities in Alaska and the Pacific Northwest. Prior to working for Kennecott, Mr. Henricksen was senior geologist for U.S. Borax from 1977 to 1991. Mr. Henricksen holds a Ph.D. in economic geology from Oregon State University and a B.S. degree in geology from the University of Wisconsin-Oshkosh. 55 Jerry Stacey - Vice President of Operations. Since August 1995, Mr. Stacey has been the Vice President of Operations. Mr. Stacey is a professional mining engineer with over 20 years experience in open pit and underground mining. Between 1974 and 1981, Mr. Stacey worked in senior supervisory positions as a Shift Foreman for the Anaconda Company; as mine superintendent for Day Mines at the Sherman Mine, mining 1,000 tons per day of silver ore; as mine manager for Choctaw Mining supervising the construction and operation of a tungsten mine and mill complex; as mine manager for Mountain Mineral's barite mines in British Columbia; and as a mine manager at the Goodnews Bay platinum placer operation. In 1981, Mr. Stacey formed General Mine Services Corp., a mine consulting and contracting firm for junior mining and exploration companies, where he continued as CEO until 1994, when he joined with Celebration Mining Company and has continued full time as Vice President of Operations with the Company. His current responsibilities focus on the engineering, design, installation, and operation of complete mine and metallurgical plants involving base and precious metals and industrial minerals. Mr. Stacey received a B.S. Degree in Mining Engineering from Montana Tech in 1974 while working in Butte, Montana mines. Ronald Kitching - Member of the Board of Directors. Since August 1995, Mr. Kitching has been a member of the Board of Directors of the Company. Prior to his retirement five years ago, Mr. Kitching was involved in the mining industry for over 35 years holding various positions, including serving as president of Overland Drilling Company, an Australian exploration drilling company, and as co-founder of Glindeman-Kitching Enterprises, an exploration drilling company. Mr. Kitching has served as a director for Celebration Mining Company since May 1994. Kevin Stulp - Member of the Board of Directors Mr. Stulp was appointed to the Board of Directors of the Company to fill the vacancy created by the resignation of Hal Cameron. Since August 1995, Mr. Stulp has been an independent consultant in the fields of volume electronics and manufacturing, general business consulting, business strategy, business use of the Internet, automation and integration through computers, and financial analysis. From July 1994 to July 1995, Mr. Stulp was Director of Manufacturing Reengineering for Compaq Computer Corporation, Houston, Texas. From September 1992 to June 1994, Mr. Stulp was Director of Manufacturing for Compaq Computer Corporation. From September 1986 to September 1992, Mr. Stulp was PCA Operations Manager for Compaq Computer Corporation. From December 1983 to September 1986, Mr. Stulp held various positions with Compaq Computer Corporation, including industrial engineer, new products planner and manufacturing manager. From July 1980 to December 1983, Mr. Stulp was a financial planner with Texas Instruments, Houston, 56 Texas. Mr. Stulp holds the degree of Masters in Business Administration and the degree of Bachelor of Science Mechanical Engineering, both from the University of Michigan, and the degree of Bachelor of Science from Calvin College, Grand Rapids, Michigan. Indemnification The Company's Bylaws provide that the Company's directors and officers will be indemnified to the fullest extent permitted by the Utah Corporation Code, however, such indemnification shall not apply to acts of intentional misconduct; a knowing violation of law; or, any transaction where an officer or director personally received a benefit in money, property, or services to which to the director was not legally entitled. The Company has been advised that in the opinion of the Securities and Exchange Commission indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. - --------------------------------------------------------------------- CERTAIN TRANSACTIONS - --------------------------------------------------------------------- Certain of the directors and/or officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration and development and, consequently, there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by such directors and officers involving the Company, as the case may be, will be made in accordance with their duties and obligation to deal fairly and in good faith with the Company and such other companies. In addition, such directors and officers are required to declare and refrain from voting on any matter in which such directors and officers may have a conflict of interest. In this respect, Howard Crosby, who was the President of Celebration and of the Company at the time of the Reorganization, refrained from voting on any matter related to the Reorganization or any other matter pertaining to both companies. The Company has engaged in transactions with its officers, directors and principal shareholders, including the issuance of the initial shares of the Company. Such transactions may be considered as not having occurred at arm's length. The Company may be engaged in transactions with management and others involving conflicts of interest, including conflicts on salaries and other payments to such parties, as well as business opportunities which may arise. In this regard, the directors of the Company are involved in other companies and may have conflicts of interest in allocating time between the Company and other entities to which they are affiliated. 57 Relationships and Transactions Pertaining to the Company. During Fiscal 1994, the Company carried over the previous balance owed by Centurion of $5,055 and loaned Centurion $8,075, resulting in cumulative total advances made by the Company to Centurion of $13,130. Also during Fiscal 1994, Centurion accrued $54,335 of the Company's taxes, loaned $83,700 to the Company, and paid $140,932 of the Company's expenses (including certain land costs), resulting in total advances made by Centurion to the Company of $278,967. Centurion repaid these and previous amounts by paying certain of the Company's expenses and by transferring to the Company $467,236 of mineral properties. Thus, for Fiscal 1994 transactions between the Company and Centurion, including balance carryovers, the net cumulative result was a balance of $265,838 owed by the Company to Centurion. During Fiscal 1995, Centurion made net total advances to the Company of $38,086. The net result was a balance of approximately $300,000 owed by the Company to Centurion, which the Company repaid prior to the end of Fiscal 1995 by issuing 200,000 shares of its common stock to Centurion at the then prevailing market price of $1.50 per share. Relationships and Transactions Pertaining to Celebration. In May 1994, Celebration issued, pursuant to Board resolution, an aggregate of 1,000,000 shares of common stock to Extol International Corporation, an affiliate of Howard M. Crosby, an officer and director of the Company, and 500,000 shares of Common Stock to Robert Jorgensen, an officer and director of the Company, in exchange for a transfer of the rights under an option on the Montana Property. Messrs. Crosby and Jorgensen are considered founders of the Company. The Company has not received a fairness opinion or other valuation of the rights transferred in exchange for the shares issued to Mr. Jorgensen and Extol International Corporation. The cost basis of the rights under the Montana Property was estimated to be $4,000. The perceived value of the shares issued was determined as of the time of transfer by Messrs. Crosby and Jorgensen as sole officers and directors of the Company. The determination was not based on arms length negotiations. In June 1994, the Company repaid to Crosby Enterprises, Inc., an affiliate of Howard M. Crosby, $20,000 for funds advanced on the Montana Property prior to the transfer of the rights under the option to the Company. In August 1994, Celebration issued 100,000 shares of Common Stock to Ronald Kitching, a director, as compensation for his services as a director. Messrs. Crosby and Jorgensen also received compensation from the Company as executive officers. 58 In August 1994, Thomas Miller, a director of Celebration until August 8, 1995, received options to purchase up to 400,000 shares as compensation for his consulting services in field exploration management through August 1995. Mr. Miller was also an officer, director and principal shareholder of United Silver Mines, Inc., the Company's Joint Venture Partner on the Vipont Property and its subsidiary, Bannock Silver Mining Company. - --------------------------------------------------------------------- MANAGEMENT REMUNERATION - --------------------------------------------------------------------- Summary Compensation. The following table sets forth the compensation paid by Royal during each of the last three fiscal years to its Chief Executive Officer, and to the other four most highly compensated officers and executive officers, but only if the total annual salary and bonus of any such executive officer exceeded $100,000 for Fiscal 1995 (the "Named Executive Officers"). This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. SUMMARY COMPENSATION TABLE
(a) (b) (c) (d) (e) (f)[1] (g) (h) (i) Crosby 1996 $78,000 $0 $0 $ 0 0 $0 $0 President 1995 $48,000 $0 $0 $ 0 0 $0 $0 1994 $16,000[2] $0 $0 $40,000 0 $0 $0 1993 $0 $0 $0 $ 0 0 $0 $0 Named Executive Officers - ------ None n/a n/a n/a n/a n/a n/a n/a n/a
(a) Name and principal position. (b) Year. (c) Salary($)(1). (d) Bonus($). (e) Other annual compensation($). Long-Term Compensation. Awards. (f) Restricted stock. (g) Options. Payouts. (h) LTIP payouts($). (i) All other compensation. [1] The above shares were issued for Directors fees, for service to the Company. No awards were made for service to Celebration. [2] This represents salary received as an officer of Celebration, $4,000 per month, beginning with June 1994. 59 Other than the Company's Stock Option and Award Plan, there are no retirement, pension, or profit sharing plans for the benefit of the Company's officers and directors. Option/SAR Grants Table. Information concerning individual grants of stock options, whether or not in tandem with stock appreciation rights ("SARs"), and freestanding SARs made during Fiscal 1996 to the CEO and each of the Named Executive Officers, if any, is reflected in the table below.
Potential Realizable Value at Assumed Alterative to Annual Rates of Stock (f) and (g) Price Appreciation Grant Date Individual Grants for Option Term Value (a) (b) (c) (d) (e) (f) (g) (h) Number of Percent of Securities Total Options/ Grant Underlying SARs Granted Exercise Expira- Date Options/SAR to Employees or Base tion Present Name Granted (#) in Fiscal Year Price Date 5%($) 10%($) Value $ Crosby 0 0 n/a n/a n/a n/a n/a Named Executive Officers None n/a n/a n/a n/a n/a n/a n/a
Aggregated Option/SAR Exercises and Fiscal 1996 Year-End Option/SAR Value Table. The following table sets forth certain information with respect to each exercise, if any, of stock options and SARs during Fiscal 1996 by the CEO and each of the Named Executive Officers, if any, and the Fiscal 1996 year-end value of unexercised options and SARs. The dollar values in columns (c) and (e) are calculated by determining the difference between the fair market value of the underlying stock and the exercise price or base price of the options at exercise or Fiscal 1996 year-end, respectively. The stock's fair market value on September 30, 1996 was $1.1875 per share. There are no outstanding option awards to management. Even if there were, it is possible they might never be exercised. Actual gains realized, if any, on stock option exercises and Common Stock holdings are dependent on the future performance and value of the Common Stock and overall stock market conditions. There can be no assurance that projected gains and values would be realized. 60
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996 AND OPTION/SAR VALUES AT SEPTEMBER 30, 1996 (a) (b) (c) (d) (e) Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/SARs Options/SARs at FY-End (#) at FY-End($) Dollar Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($) Unexercisable Unexercisable Crosby 0 $0 0/0 0/0 Executive Officers None n/a n/a n/a n/a
Long-Term Incentive Plan Awards. The Company does not have any formalized long-term incentive plan (excluding restricted stock, stock option and SAR plans) that provides compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year, whether such performance is measured by reference to financial performance of the Company or an affiliate, the Company's stock price, or any other measure. Compensation of Directors. Directors receive for their services a retainer fee payable in shares of the Company's Common Stock, currently at the rate of 2,500 shares per quarter of completed service. During Fiscal 1996, 150,000 shares were awarded to directors as compensation. The Board has not implemented a plan to award options, authorized under the Company's Stock Option and Award Plan and none have been granted. There are no contractual arrangements with any member of the Board of Directors, other than the employment and salary arrangements for compensating two of its members for their service as executive officers: Howard Crosby as President and CEO, and Robert Jorgensen as Executive Vice President and Treasurer. Compensation Committee Interlocks and Insider Participation. There are no compensation committee interlocks. With respect to insider participation, Howard Crosby, Hal Cameron and Carlos Chavez, participated in deliberations of the Company's Board of Directors during Fiscal 1996, concerning executive officer compensation. 61 Board of Directors Report on Executive Compensation. The following is a summary of the Board of Directors Report: It is the Board's responsibility to review and set compensation levels of the executive officers of the Company, evaluate the performance of management and consider management appointments and related matters. All decisions are decisions of the full Board. The Board considers the performance of the Company and how compensation paid by the Company compares to compensation generally in the mining industry and among similar companies. In establishing executive compensation, the Board bases its decisions, in part, on achievement and performance regarding broad-based objectives and targets relating to the continued acquisition of favorable silver properties and the progress of exploration and development of such properties, as well as the Company's financial performance. For Fiscal 1996, the Company's executive compensation policy consisted of two elements: base salary and stock awards. The policy factors which determine the setting of these compensation elements are largely aimed at attracting and retaining executives considered essential to the Company's long-term success. The granting of stock is designed as an incentive for executives to keep management's interests in close alignment with the interests of shareholders. The Company's executive compensation policy seeks to engender committed leadership to favorably posture the Company for continued growth, stability and strength of shareholder equity. The Company paid salaries to its officers for the fiscal year- ended September 30, 1996, as follows: Howard Crosby, $78,000 yearly President Robert Jorgensen, $72,000 yearly Executive Vice President and Treasurer Jerry Stacey, $70,000 yearly Vice President of Operations John Ryan, $48,000 yearly Vice President of Corporate Development
These amounts were approved by the Board in recognition of the work and efforts and in completing the acquisition of a large number of silver mining properties prior to the end of Fiscal 1996. 62 Further, the Board recognized the significant role of these four individuals in managing the Company's principal office in Spokane, Washington and in raising funds for the Company's exploration and development activities. Finally, the Board of Directors took into account the reasonableness of these salaries in comparison with Executive salaries within the mining region. On the basis of the above factors, the Board determined that these salaries were proper and fitting. No other officers received a salary during Fiscal 1996. With respect to stock awards during Fiscal 1996, the Board of Directors did not change the amount of shares, 2,500 per quarter, which each director is entitled to receive as partial compensation for service to the Company. The Board believes that executive compensation during Fiscal 1996 substantially reflects the Company's compensation policy and the Board anticipates paying a like sum during the fiscal year ending September 30, 1997. On January 8, 1997, the Company filed a Form S-8 Registration Statement with the Commission registering 831,775 shares of Common Stock for resale by certain shareholders of the Company. The Form S-8 is incorporated herein by reference as if set forth in full. - --------------------------------------------------------------------- PRINCIPAL SHAREHOLDERS - --------------------------------------------------------------------- Security Ownership of Certain Beneficial Owners and Management. The following table sets forth as of October 4, 1996, the beneficial ownership of Common Stock with respect to: (1) All persons known to the Company to be the beneficial owners of more than five percent of the outstanding shares of Common Stock (the "Principal Shareholders"); (2) Each director and director nominee of the Company; (3) Each Named Executive Officer (as that term is defined in the section entitled "Executive Compensation," below) who is listed in the "Summary Compensation Table," below; and, (4) All directors and executive officers as a group. At August 31, 1997, the number of shares of common stock of the Company issued and outstanding was 13,406,732. 63
50% of 100% of Common Stock Number of Percent Offering Offering Beneficially Owned Shares of Class Sold [7] Sold [8] 1. Name and Address of Principal Shareholders Centurion Mines Corporation 1,146,180 8.55% 6.99% 5.91% 331 South Rio Grande, Suite 201 Salt Lake City, UT 84101 Howard Crosby [1] 606,000 4.52% 3.69% 3.12% 105 N. First, Suite 232 Sandpoint, ID 83864 Robert E. Jorgensen [2] 587,000 4.38% 3.58% 3.02% 2719 W. Strong Rd. Spokane, WA 99208 Britannia Holdings Ltd. [3] 2,135,000 15.92% 13.01% 11.00% Kings House, The Grange St. Peter Port Guernsey, GY1 2QJ Channel Island 2. Directors Howard Crosby [1] 606,000 4.52% 3.69% 3.12% Robert E. Jorgensen [2] 587,000 4.38% 3.58% 3.02% Thomas Henricksen [4] 5,500 0.04% 0.03% 0.03% John Ryan [5] 30,000 0.22% 0.18% 0.15% Ronald Kitching 157,500 1.17% 0.96% 0.81% Kevin Stulp 164,000 1.22% 1.00% 0.85% 3. Named Executive Officers (Excluding Any Director Named Above) Jerry Stacy [6] 22,800 0.17% 0.14% 0.12% 4. All Directors and Executive Officers as a Group (7 Persons) 1,572,800 11.72% 9.58% 8.10%
All shares are owned beneficially and of record, unless otherwise noted. [1] Mr. Crosby is a director, executive officer and 50% shareholder of Extol International Corp., a privately-held Washington corporation. As a 50% shareholder, Mr. Crosby holds indirect beneficial ownership of one-half of the restricted shares retained by Extol following the closing of the share exchange with Celebration. Also, the Board approved the release of a previously authorized grant of 200,000 restricted shares to Crosby Enterprises, Inc. for its work in putting together for the Company no fewer than five major business proposals, culminating in the reorganization with Celebration. Mr. Crosby holds indirect beneficial ownership of those restricted shares as a director, executive officer and majority shareholder of Crosby Enterprises, a private, closely-held Washington corporation. Mr. Crosby holds all remaining shares in his name, 15,000 shares of which he received in Fiscal 1995 as partial compensation for his service as a director and executive officer. 64 Does not include Warrants to purchase 850,000 shares of Common Stock. [2] The Company notes that in addition to the awards of shares for his service as a director and officer of the Company, Mr. Jorgensen initially received 550,000 restricted shares as part of the share exchange with Celebration. Does not include Warrants to purchase 550,000 shares of Common Stock. [3] Does not include Warrants to purchase 2,135,000 shares of Common Stock. [4] Does not include Warrants to purchase 125,000 shares of Common Stock. [5] Does not include Warrants to purchase 200,000 shares of Common Stock. [6] Does not include Warrants to purchase 300,000 shares of Common Stock. [7] Does not include Warrants issued in connection with this offering to purchase up to 3,000,000 shares of Common Stock. [8] Does not include Warrants issued in connection with this offering to purchase up to 6,000,000 shares of Common Stock. - --------------------------------------------------------------------- DESCRIPTION OF THE SECURITIES - --------------------------------------------------------------------- Description of Units Each Unit consists of one (1) share of the Company's Common Stock, $0.01 par value per share, and one (1) Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants"). Each Redeemable Warrant ("Redeemable Warrant") entitles the holder to purchase one share of Common Stock at a price of $1.40, until September 1, 2000. The Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 for ninety (90) consecutive trading days. No fractional shares will be issued upon exercise of the Redeemable Warrants. The exercise price of the Redeemable Warrants is subject to adjustment in certain cases and the Company has the option of extending the Redeemable Warrant exercise dates. The Common Stock and Redeemable Warrants will be separately transferable immediately upon issuance. The Company is presently authorized to issue 100,000,000 shares of its $0.01 par value Common Stock. Presently 13,406,732 shares are issued and outstanding and a maximum of 6,000,000 Units are offered for sale pursuant to this Prospectus. The holders of the Company's Common 65 Stock are entitled to one vote per share on each matter submitted to vote at any meeting of shareholders. Shares of Common Stock do not carry cumulative voting rights and, therefore, a majority of the outstanding Common Stock will be able to elect the entire Board of Directors and, if they do so, minority shareholders would not be able to elect any members to the Board of Directors. Upon the close of the offering, the public shareholders may be able to elect the Board of Directors. Rights of Common Stock Shareholders Shares of Common Stock do not carry cumulative voting rights and, therefore, a majority of the outstanding Common Stock will be able to elect the entire Board of Directors and, if they do so, minority shareholders would not be able to elect any members to the Board of Directors. See "Capitalization" and "Risk Factors - Cumulative Voting, Preemptive Rights and Control." Shareholders of the Company have no preemptive rights to acquire additional shares of Common Stock or other securities. The Common Stock is not subject to redemption and carries no subscription or conversion rights. In the event of liquidation of the Company, the shares of Common Stock are entitled to share equally in corporate assets after satisfaction of all liabilities. The shares of Common Stock, when issued, will be fully paid and non-assessable. There are no outstanding options, warrants or rights to purchase shares of the Company's Common Stock, other than as disclosed herein. Dividends Holders of Common Stock are entitled to receive such dividends as the Board of Directors may from time to time declare out of funds legally available for the payment of dividends. The Company seeks growth and expansion of its business through the reinvestment of profits, if any, and does not anticipate that it will pay dividends in the foreseeable future. Description of Redeemable Warrants The Redeemable Warrants will be issued under warrant certificates (the "Warrant Certificate") to be dated as of the date of this Prospectus, between the Company and OTC Stock Transfer, as Warrant Agent (the "Warrant Agent"). A copy of the Redeemable Warrant Certificate is filed as an exhibit to the registration statement and also may be examined at the office of the Company or of the Warrant Agent. The following summary of certain provisions of the Warrant Certificate does not purport to be complete and is qualified in its entirety by reference to the Warrant Certificates. 66 Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $1.40 per share, until September 1, 2000. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock is above $3.00 per share for ninety (90) consecutive trading days. At the time a Redeemable Warrant is exercised, the exercise price for the Redeemable Warrant shall be paid in full. Prior to expiration, the Redeemable Warrants may be exchanged, transferred or exercised by the registered Warrantholder by presenting the Redeemable Warrants to the Warrant Agent. See "Risk Factors - Redeemable Warrants." The Redeemable Warrants do not confer on the holders thereof any voting or other rights of a stockholder of the Company. The Company will have authorized and reserved for sale the stock purchasable upon exercise of the Redeemable Warrants. When delivered, such shares of stock shall be fully paid and non-assessable. The Exercise Price and the number of shares issuable upon exercise of the Redeemable Warrants are subject to adjustment upon the occurrence of certain events, including the issuance of any Common Stock as a dividend or any stock split or reverse split as a dividend. Adjustments in the number of shares issuable or in the Exercise Price or both shall also be made in the event of any merger other reorganization. The Warrant Certificates will provide that the Company and the Warrant Agent may, without the consent of the holders of the Redeemable Warrants, make changes in the Warrant Certificates which do not adversely effect, alter or change the rights, privileges or immunities of the registered holders of the Redeemable Warrants. The Company may pay a solicitation fee of 10% of the exercise price of the Warrants to any NASD registered representative who, if after one year from the effective date of the registration statement the Warrants are called, causes the exercise thereof prior to the expiration as set forth in the Warrant Agreement, subject however, to the provisions of the NASD Notice to Members 81-38 (September 22, 1981). NASD Notice to Member 81-38 provides that an NASD registered representative may not receive compensation as a result of any of the following transactions: (1) the exercise of Redeemable Warrants where the market price of the underlying security is lower than the exercise price; (2) the exercise of Redeemable Warrants held in any discretionary account (3) the exercise of Redeemable Warrants where disclosure of compensation arrangements has not been made in documents provided to customers both as part of the original offering and at the time of exercise; and, (4) the exercise of Redeemable Warrants in unsolicited transactions. 67 Unless granted an exemption from Rule 10b-6 of the Securities and Exchange Act of 1934, the Selling Agent and any soliciting broker/dealers will be prohibited from engaging in any market making activities with regards to the Company's securities for the period from nine (9) business days prior to any solicitation of the exercise of any Warrants until the later of the termination of the solicitation activity or the termination (by waiver or otherwise) of any right that the Selling Agent and soliciting broker/dealers may have to receive a fee for the exercise of Warrants following such solicitation. As a result, the Selling Agent and soliciting broker/dealers may be unable to continue to provide a market for the Company's securities during certain periods while the Warrants are exercisable. Other Warrants Currently, there are Warrants to purchase 6,686,666 shares of Common Stock at various prices. The foregoing number does not include the Redeemable Warrants which are part of this offering. Preferred Stock. 10,000,000 shares of preferred stock, $0.01 par value (the "Preferred Shares") are authorized for issuance. No Preferred Shares are issued and outstanding and there are no plans to issue any Preferred Shares at the present time. The relative rights, preferences, designations, rates, conditions, privileges, limitations, dividend rates, conversion rights, preemptive rights, voting rights, rights and terms of redemption, liquidation preferences and sinking terms thereof shall be determined by the Board of Directors, without any further vote or action by shareholders. The Board of Directors, without shareholder approval may issue Preferred Shares with dividend rights, liquidation preferences or other rights that are superior to the rights of holders of Common Stock. Transfer Agent OTC Stock Transfer, 2310 East 2100 South, Salt Lake City, Utah 84115 is the transfer agent for the Company's $0.01 par value Common Stock and Redeemable Warrants. The Company's Common Stock is traded on the Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol RSMI. The prices listed below were obtained from the National Quotation Bureau, Inc., and are the highest and lowest bids reported during each fiscal quarter for the period December 31, 1994, through September 30, 1996. These bid prices are over-the-counter market quotations based on interdealer bid prices, without markup, markdown, or commission and may not necessarily represent actual transactions: 68 Fiscal Quarter Ended High Bid ($) Low Bid ($) - -------------------- ------------ ----------- December 31, 1994 4.125 3.000 March 31, 1995 2.500 1.125 June 30, 1995 3.750 0.875 September 29, 1995 3.124 2.750 December 31, 1995 2.87 2.43 March 31, 1996 2.75 2.25 June 30, 1996 2.94 1.62 September 30, 1996 2.12 1.00 December 31, 1996 1.35 0.75 March 31, 1997 1.56 0.91 June 30, 1997 1.15 0.63
On September 21, 1997, the average of the high bid and low ask quotation for the Company's common shares as quoted on the NASDAQ Bulletin Board was $0.75. The approximate number of holders of common stock of record on September 21, 1997, was 605. Since its inception, the Company has not paid any dividends on its common shares. The Company does not anticipate that dividends will be paid in the foreseeable future. There is no market for the Redeemable Warrants and none is expected to develop. In the event a market for the Redeemable Warrants develops, the shares of Common Stock and Redeemable Warrants may be traded separately. See "Risk Factors - No Market for the Warrants." - --------------------------------------------------------------------- PLAN OF OFFERING - --------------------------------------------------------------------- The Company through its Officers and Directors is offering to the public 6,000,000 Units of the Company consisting of one (1) share of $0.01 par value Common Stock, and one (1) Redeemable Common Stock Warrant. The Units are offered on a "best efforts - no Units minimum - 6,000,000 Units maximum" basis, at a purchase price of $0.75 per Unit. The Company will use its best efforts to find purchasers for the Units offered hereby within a period of ninety (90) days from the date of this Prospectus, subject to an extension for an additional period not to exceed ninety (90) days (a total of one hundred eighty (180) days). The Company's Officers and Directors will receive no commissions or any other form of remuneration in connection with the sale of the Units. 69 The Company may utilize the services of registered broker/dealers (the "Selling Agents") who are licensed members of the National Association of Securities Dealers (the "NASD") to sell the Units offered hereby. In that event, such Selling Agents will receive up to ten percent (10%) of the purchase price as expenses and sales commissions. If no Selling Agents are utilized, the net proceeds to the Company of the offering will be increased accordingly and added to the Company's working capital. The Company has not received any indications of interest from any member of the NASD. No assurance can be given that any NASD member will participate in the offering, and even if they do participate there is no commitment as to the actual amount of participation. - --------------------------------------------------------------------- LITIGATION - --------------------------------------------------------------------- The Officers and Directors of the Company certify that to the best of their knowledge, neither the Company nor any of its Officers and Directors are parties to any legal proceeding or litigation. Further, the Officers and Directors know of no threatened or contemplated legal proceedings or litigation. None of the Officers and Directors have been convicted of a felony or none have been convicted of any criminal offense, felony and misdemeanor relating to securities or performance in corporate office. To the best of the knowledge of the Officers and Directors, no investigations of felonies, misfeasance in office or securities investigations are either pending or threatened at the present time. - --------------------------------------------------------------------- LEGAL MATTERS - --------------------------------------------------------------------- Legal matters in connection with the Common Stock of the Company to be issued in connection with the offering will be passed upon for the Company by Conrad C. Lysiak, Attorney and Counselor at Law, West 601 First Avenue, Suite 503, Spokane, Washington 99204. - --------------------------------------------------------------------- EXPERTS - --------------------------------------------------------------------- The financial statements of the Company appearing in this Prospectus and the Registration Statement have been examined by the accounting firm of Williams & Webster, P.S., Certified Public Accountants, 601 West Riverside, Suite 1970, Spokane, Washington 99201, as indicated in its report contained herein. Such financial statements are included in this Prospectus in reliance upon the said report, given upon such firm's authority as an expert in auditing and accounting. 70 - --------------------------------------------------------------------- ADDITIONAL INFORMATION - --------------------------------------------------------------------- The Company has filed with the Securities and Exchange Commission, 450 Fifth Street, N.W. Washington D.C. 20549, a registration statement under the Act, as amended with respect to the Units offered hereby. This Prospectus does not contain all of the information set forth in the registration statement, exhibits and schedules thereto. For further information with respect to the Company and the Units, reference is made to the registration statement, exhibits and schedules, copies of which may be obtained from the Commission's principals officers in Washington, D.C., upon payment of the fees prescribed by the Commission. 71 ROYAL SILVER MINES, INC. (A Development Stage Company) Audited Financial Statements September 30, 1996 and 1995 72 C O N T E N T S Independent Auditors' Reports . . . . . . F-1 Balance Sheets . . . . . . . . . F-2 Statements of Operations . . . . . . . . F-3 Statements of Stockholders' Equity . . . . . . F-4 Statements of Cash Flows . . . . . . . F-10 Notes to the Financial Statements . . . . . . F-13 73 Williams & Webster, P.S. Certified Public Accountants Seafirst Financial Center 601 W. Riverside, Suite 1970 Spokane, WA 99201-0611 Tel: (509) 838-5111 Fax: (509) 624-5001 The Board of Directors Royal Silver Mines, Inc. (A Development Stage Company) Spokane, Washington INDEPENDENT AUDITOR'S REPORT We have audited the accompanying balance sheet of Royal Silver Mines, Inc. (a development stage company) as of September 30, 1996, and the related statements of operations, shareholders' equity, and cash flows for the year then ended, and from inception on February 17, 1994 through September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Royal Silver Mines, Inc. as of September 30, 1996, and the results of their operations and their cash flows for the year then ended and from inception on February 17, 1994 through September 30, 1996 in conformity with generally accepted accounting principles. Williams & Webster, P.S. Certified Public Accountants Spokane, Washington December 13, 1996 F-1 74 ROYAL SILVER MINES, INC. (A Development Stage Company) BALANCE SHEETS
September 30, September 30, 1996 1995 ASSETS CURRENT ASSETS Cash $ 688,716 $ 151,698 Note receivable 100,000 - Interest receivable 333 - Prepaid expenses 17,391 4,350 __________ ___________ TOTAL CURRENT ASSETS 806,440 156,048 __________ ___________ MINERAL PROPERTIES 4,785,665 3,869,515 PROPERTY AND EQUIPMENT Furniture and equipment 15,802 11,629 Less - accumulated depreciation (2,809) (589) __________ ___________ TOTAL PROPERTY AND EQUIPMENT 12,993 11,040 __________ ___________ OTHER ASSETS Deferred debt issuance costs, net - 19,736 Organization costs, net 259 359 __________ ___________ TOTAL OTHER ASSETS 259 20,095 __________ ___________ TOTAL ASSETS $ 5,605,357 $ 4,056,698 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 25,135 $ 60,026 Payable to related parties 289 289 Accrued expenses 34,443 90,088 Notes payable 60,000 670,919 __________ __________ TOTAL CURRENT LIABILITIES 119,867 821,322 __________ ___________ LONG-TERM DEBT - - COMMITMENTS AND CONTINGENCIES - - SHAREHOLDERS' EQUITY Common stock, $.01 par value; 40,000,000 shares authorized, 10,649,854 and 7,757,063 shares issued and outstanding, respectively 106,499 77,571 Additional paid-in capital 8,436,808 4,120,540 Deficit accumulated during development stage (3,057,817) 962,735 __________ ___________ TOTAL SHAREHOLDERS' EQUITY 5,485,490 3,235,376 __________ ___________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,605,357 $ 4,056,698 ========== ===========
The accompanying notes are an integral part of these financial statements. F-2 75 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
Period From February 17, 1994 Ten months (inception) Year ended ended through September 30, September 30, September 30, 1996 1995 1996 _____________ _____________ _____________ REVENUES $ - $ - $ - ___________ ___________ ___________ GENERAL AND ADMINISTRATIVE EXPENSES Mineral leases 8,122 843 8,965 Depreciation and amortization 35,736 59,822 98,069 Officers and directors compensation 492,715 209,733 831,948 Other administrative expenses 1,298,975 273,246 1,652,006 ___________ ___________ ___________ Total expenses 1,835,548 543,644 2,590,988 ___________ ___________ ___________ OPERATING LOSS (1,835,548) (543,644) (2,590,988) ___________ ___________ ___________ OTHER EXPENSES Interest expense (9,534) (62,557) (72,091) Loss on disposition of assets (200,000) (144,738) (344,738) ___________ ___________ ___________ Total other expenses (209,534) (207,295) (416,829) ___________ ___________ ___________ NET LOSS $(2,045,082) $ (750,939) $(3,007,817) =========== =========== =========== NET LOSS PER COMMON SHARE $ (0.22) $ (0.17) $ (0.53) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,221,191 6,342,816 5,596,841 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 76 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Total Common Stock Additional Number Paid-in Accumulated Stockholders of Shares Amount Capital Deficit Equity Balance 02/17/94 - $ - $ - $ - $ - _________ ________ _________ __________ __________ Issuance in May 1994 of shares at $.002 per share to officers and directors in exchange for assignment of mining property option 2,250,000 22,500 (18,500) - 4,000 Issuance in July 1994 of shares for cash at $.402 in private placement, net of costs 1,050,000 10,500 411,116 - 421,616 Issuance in August 1994 of shares to a director in exchange for services, valued at $.417 per share 150,000 1,500 61,000 - 62,500 Net loss for the year ended November 30, 1994 - - - (211,796) (211,796) _________ ________ __________ __________ _________ Balance, November 30, 1994 3,450,000 34,500 453,616 (211,796) 276,320 _________ ________ __________ __________ _________
The accompanying notes are an integral part of these financial statements. F-4 77 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued) Total Common Stock Additional Number Paid-in Accumulated Stockholders of Shares Amount Capital Deficit Equity Balance, forward 11/30/94 3,450,000 34,500 453,616 (211,796) 276,320 _________ ________ __________ __________ _________ Issuance of shares in debt offering at $.03 per share 416,250 4,163 9,712 - 13,875 Issuance of shares for mineral properties valued at $1.00 per share 262,500 2,625 259,875 - 262,500 Issuance of shares for cash at $1.00 per share 15,000 150 14,850 - 15,000 Stock issuance costs - - (58,202) - (58,202) Issuance of shares to acquire Consolidated Royal Mines, Inc. at $.15 per share 2,434,563 24,346 335,750 - 360,096 Issuance of shares to directors and employees for services at prices ranging from $2.00 to $2.50 per share 12,750 127 29,473 - 29,600 _________ ________ __________ __________ _________ Balance forward 6,591,063 65,911 1,045,074 (211,796) 899,189 _________ ________ __________ __________ _________
The accompanying notes are an integral part of these financial statements. F-5 78 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
Total Common Stock Additional Number Paid-in Accumulated Stockholders of Shares Amount Capital Deficit Equity Balance, forward 6,591,063 65,911 1,045,074 (211,796) 899,189 _________ ________ __________ __________ _________ Issuance of shares in exchange for mineral properties at prices ranging from $3.13 to $3.25 per share 800,000 8,000 2,530,126 - 2,538,126 Issuance of shares for cash at prices ranging from $1.50 to $2.00 per share 166,000 1,660 247,340 - 249,000 Issuance of shares in exchange for debt at $1.50 per share 200,000 2,000 298,000 - 300,000 Net loss for the ten months ended September 30, 1995 - - - (750,939) (750,939) _________ ________ __________ __________ _________ Balance, September 30, 1995 7,757,063 $ 77,571 $4,120,540 $ (962,735) $3,235,376 _________ ________ __________ __________ _________ Issuance of shares for cash at $1.50 per share 1,176,832 11,769 1,754,010 - 1,765,779 _________ ________ __________ __________ _________ Balance forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155 _________ ________ __________ __________ _________
The accompanying notes are an integral part of these financial statements. F-6 79 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
Total Common Stock Additional Number Paid-in Accumulated Stockholders of Shares Amount Capital Deficit Equity Balance, forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155 _________ ________ __________ __________ _________ Issuance of shares to directors and employees for services at $1.50 per share 222,700 2,227 331,823 - 334,050 Issuance of shares in exchange for debt and accrued interest at $1.50 per share 406,050 4,060 605,015 - 609,075 Issuance of shares for cash at $2.20 per share 150,000 1,500 328,500 - 330,000 Issuance of warrants for cash at $.05 per warrant - - 41,068 - 41,068 Issuance of shares for cash at $1.62 per share 65,000 650 104,650 - 105,300 Issuance of shares for cash to directors and employees at prices ranging from $1.62 to $2.08 per share 107,500 1,075 181,175 - 182,250 _________ ________ __________ __________ _________ Balance forward 9,885,145 98,852 7,466,781 (962,735) 6,602,830 _________ ________ __________ __________ _________
The accompanying notes are an integral part of these financial statements. F-7 80 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
Total Common Stock Additional Number Paid-in Accumulated Stockholders of Shares Amount Capital Deficit Equity Balance, forward 9,885,145 98,852 7,466,781 (962,735) 6,602,830 _________ ________ __________ __________ _________ Issuance of shares for cash at $0.75 per share 200,000 2,000 147,985 - 149,985 Issuance of shares for cash at $1.70 per share 250,000 2,500 422,500 - 425,000 Cancellation of 35,000 shares received in exchange for return of mining property (35,000) (350) (109,025) - (109,375) Payment to Centurion Mines for option to repurchase stock - - - (50,000) (50,000) Issuance of shares for joint venture in mining property at $1.50 per share 100,000 1,000 149,000 - 150,000 Repurchase of 25,000 shares issued for joint venture at $1.40 per share (25,000) (250) (34,750) - (35,000) _________ ________ __________ __________ _________ Balance forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508 __________ ________ __________ __________ _________
The accompanying notes are an integral part of these financial statements. F-8 81 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
Total Common Stock Additional Number Paid-in Accumulated Stockholders of Shares Amount Capital Deficit Equity Balance, forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508 _________ ________ __________ __________ _________ Issuance of shares for mining property at $1.50 per share 20,000 200 29,800 - 30,000 _________ ________ __________ __________ _________ Issuance of shares to noteholders for extension of notes at $1.50 per share 39,375 394 58,669 - 59,063 Issuance of shares for services at $1.50 per share 215,334 2,153 320,848 - 323,001 Stock issuance costs - - (15,000) - (15,000) Net loss for the year ended September 30, 1996 - - - (2,045,082) (2,045,082) _________ ________ __________ __________ _________ Balance, September 30, 1996 10,649,854 $106,499 $8,436,808 $(3,057,817) $5,485,490 ========== ======== ========== =========== ==========
The accompanying notes are an integral part of these financial statements. F-9 82 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS
From February 17, For the year For the Ten 1994 (Inception) Ended Months Ended Through September 30, September 30, September 30, 1996 1995 1996 Cash flows from operating activities: Net loss $ (2,045,082) $ (750,939) $ (3,007,817) ______________ ______________ ______________ Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 35,736 59,822 100,616 Issuance of common stock for services 657,051 29,600 749,151 Write-off of joint venture costs 150,000 - 150,000 Changes in assets and liabilities: Note receivable (100,000) - (100,000) Interest receivable (333) - (333) Prepaid expenses (13,041) 22,627 (17,391) Other assets 19,836 (23,137) (3,801) Accounts payable (34,891) 53,727 25,135 Accrued expenses (55,645) 90,088 34,443 Payable to related parties - 300,289 300,289 ______________ ______________ ______________ Net cash used in operating activities (1,386,369) (217,923) (1,769,708) ______________ ______________ ______________ Cash flows from investing activities: Purchase and development of mineral properties (979,043) (455,418) (1,604,836) Purchase of fixed assets (4,173) (11,629) (15,802) ______________ ______________ ______________ Net cash provided used in investing activities (983,216) (467,047) (1,620,638) ______________ ______________ ______________
The accompanying notes are an integral part of these financial statements. F-10 83 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Continued)
From February 17, For the year For the Ten 1994 (Inception) Ended Months Ended Through September 30, September 30, September 30, 1996 1995 1996 Cash flows from financing activities: Stock issuance and offering costs (15,000) (58,202) (144,835) Proceeds received on long-term debt - 675,000 675,000 Payments made on notes payable (40,000) (74,206) (114,206) Issuance of common stock for cash 2,958,314 264,000 3,659,814 Payment for option to re- purchase stock (50,000) - (50,000) Issuance of common stock for accrued interest 38,158 - 38,158 Issuance of common stock for extension of notes payable maturation 59,063 - 59,063 Payment for return of stock issued for mining property interest (35,000) - (35,000) Payment of joint venture costs (50,000) - (50,000) Issuance of warrants for cash 41,068 - 41,068 ______________ ______________ ______________ Net cash provided by financing activities 2,906,603 806,592 4,079,062 Net increase - cash $ 537,018 $ 121,622 $ 688,716 ______________ ______________ ______________ Cash, beginning of period 151,698 30,076 - Cash, end of period $ 688,716 $ 151,698 $ 688,716 ============= ============ ============
The accompanying notes are an integral part of these financial statements. F-11 84 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Continued)
From February 17, For the year For the Ten 1994 (Inception) Ended Months Ended Through September 30, September 30, September 30, 1996 1995 1996 ______________ ______________ ______________ Supplemental cashflow disclosure: Income taxes $ - $ 250 $ 350 Interest $ 5,715 $ 17,683 $ 23,398 Non-cash financing activities: Common stock issued for services rendered $ 657,051 $ 29,600 $ 749,151 Common stock issued for mineral properties $ 180,000 $ 2,800,626 $ 2,980,626 Common stock issued for exchange for debt $ 570,917 $ 313,875 $ 922,950 Common stock issued in acquisition of Consolidated Royal Mines, Inc. $ - $ 360,096 $ 360,096 Option rights acquired in exchange for a payable $ - $ - $ 79,000 Common stock issued for assignment of mining property options $ - $ - $ 4,000
The accompanying notes are an integral part of these financial statements. F-12 85 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS. Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969 under the laws of the State of Utah primarily for the purpose of acquiring and developing mineral properties. Royal conducts its business as a "junior" natural resource company, meaning that it intends to receive income from property sales or joint ventures with larger companies. Celebration Mining Company (Celebration), currently a wholly-owned subsidiary of Royal was incorporated for the purpose of identifying, acquiring, exploring and developing mining properties. Celebration was organized on February 17, 1994 as a Washington Corporation. Celebration has not yet realized any revenues from its planned operations. On August 8, 1995, Royal and Celebration completed an Agreement and Plan of Reorganization whereby the Company issued 4,143,750 shares of its common stock and 1,455,000 warrants in exchange for all of the outstanding common stock of Celebration. Pursuant to the reorganization the name of the Company was changed to Royal Silver Mines, Inc. Immediately prior to the Agreement and Plan of Reorganization, the Company had 2,375,463 common shares issued and outstanding. The acquisition was accounted for as a purchase by Celebration of Royal, because the shareholders of Celebration control the company after the acquisition. Therefore, Celebration is treated as the acquiring entity. There was no adjustment to the carrying value of the assets or liabilities of Royal in the exchange as the market value approximated the net carrying value. Royal is the acquiring entity for legal purposes and Celebration is the surviving entity for accounting purposes. The $4,785,665 cost of mineral properties included in the accompanying balance sheet as of September 30, 1996 is related to exploration properties. The Company has not determined whether the exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company's investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development and upon future profitable production. The ultimate realization of the Company's investment in exploration properties cannot be determined at this time and, accordingly, no provision for any asset impairment that may result, in the event the Company is not successful in developing or selling these properties, has been made in the accompanying financial statements. F-13 86 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS - continued. The Company is actively seeking additional capital and management believes the properties can ultimately be sold or developed to enable the Company to continue its operations. However, there are inherent uncertainties in mining operations and management cannot provide assurances that it will be successful in this endeavor. Furthermore, the Company is in the development stage as it has not realized any significant revenues from its planned operations. NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Accounting Method. The Company's financial statements are prepared using the accrual method of accounting. Loss Per Share. Loss per share was computed by dividing the net loss by the weighted average number of shares outstanding during the year The weighted average number of shares was calculated by taking the number of shares outstanding and weighing them by the amount of time they were outstanding. The outstanding warrants were not included in the computation of loss per share because the exercise price of the outstanding warrants is higher than the market price of the stock, thereby causing the warrants to be antidilutive. Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Mineral Properties. Costs of acquiring, exploring and developing mineral properties are capitalized by project area. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. Mineral properties are periodically assessed for impairment of value and any losses are charged to operations at the time of impairment. F-14 87 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued. Mineral Properties - continued. Should a property be abandoned, its capitalized costs are charged to operations. The Company charges to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area. Concentration of Risk. The Company maintains its cash accounts in primarily one commercial bank in Spokane, Washington. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company's cash balance exceeds that amount by $588,716 at September 30, 1996. Provision For Taxes. At September 30, 1996, the Company had net operating loss carryforwards of approximately $3,130,000 that may be offset against future taxable income through 2011 No tax benefit has been reported in the financial statements as the Company believes there is a 50% or greater chance the net operating loss carryforwards will expire unused. Accordingly, the potential tax benefits of the net operating loss carryforwards are offset by a valuation allowance of the same amount. Recently Issued Accounting Standards. In March 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Impairment of Long-Lived Assets." This new standard is effective for years beginning after December 15, 1995 and would change the Company's method of determining impairment of long-lived assets. Although the Company has not performed a detailed analysis of the impact of this new standard on the Company's financial statements, the Company does not believe that adoption of the new standard will have a material effect on the financial statements. In October 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Stock-Based Compensation " (FAS 123). The new statement is effective for fiscal years beginning after December 15, 1995. F-15 88 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued. Recently Issued Accounting Standards - continued. FAS 123 encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. Companies that do not adopt the fair value accounting rules must disclose the impact of adopting the new method in the notes to the financial statements. Transactions in equity instruments with non-employees for goods or services must be accounted for on the fair value method. The Company currently intends to adopt the fair value accounting prescribed by FAS 123. However, the Company intends to continue its analysis of FAS 123 to determine its ultimate effect in the future. Restatement. The restatement of the financial statements have resulted in certain changes in presentation which have no effect on the net losses or shareholder's equity for September 30, 1995 or the year then ended. NOTE 3 - MINERAL PROPERTIES. Utah Mining Property Joint Venture. In October 1994, Celebration and United Silver Mine, Inc., (United) entered into a joint venture agreement, whereby Celebration could acquire up to an 80% interest in a mining property located in the State of Utah. Under the terms of the agreement, United contributed real properties for an initial 75% interest in the joint venture, and Celebration was to remove all liens associated with the real properties by paying $175,000 to a bank which was the primary lien holder for its initial 25% interest in the venture. Celebration expended $175,000 to purchase the aforementioned promissory note. The property was auctioned in a public auction in May, 1995 and by virtue of Celebration's first position lien, Celebration was able to successfully bid the full amount of the underlying promissory note. Although additional expenditures have been made on the property through September 30, 1996, no further funds toward the joint venture have been expended by Celebration, which owns an undivided 25% interest in the property. F-16 89 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 3 - MINERAL PROPERTIES (Continued). Shoshone County Idaho Mineral Lease. In February 1995, Celebration entered into an agreement to acquire a fifty-year renewable mineral lease on a property in Shoshone County, Idaho. The mining property consists of twelve patented claims and associated Idaho state leases. In connection with this lease, Celebration paid $50,000 and issued 175,000 shares of common stock. In addition, 10,000 shares were issued to a new director for his assistance in obtaining this lease. Celebration subsequently paid $950,000 for the option of extending its lease for an additional forty-nine years. When, and if, the property achieves gross sales of $40,000,000, Celebration will be obligated to pay an additional .5% royalty on future sales. Furthermore, beginning after September 1, 1995, and at such time as the average price of silver has reached $6.00 per ounce for a 30-day period, Celebration is obligated to spend not less than $2,000,000 during the subsequent 36 months to de-water and repair the mine. Thereafter, Celebration will be required to maintain the mine in a condition to allow it to be put into production within sixty days. There are certain claims by the U.S. Environmental Protection Agency and the County on this property for which the lessor is obligated to pay. In the event these claims are not satisfactorily resolved, they may effect Celebration's rights to the property. Australian Mineral Property Joint Venture. In March 1995, Celebration entered into a joint venture agreement with an Australian company for exploration of a certain mineral property in Australia. Under the original terms of the joint venture agreement, Celebration acquired a 10% interest by paying $100,000 in April 1995. No additional funds where paid or required to be paid subsequent to the initial payment. Washington and Idaho Mineral Properties. During the year ended September 30, 1995, Celebration purchased through the issuance of 800,000 shares of its common stock, various mineral properties located in the States of Washington and Idaho. The mineral properties were recorded at the fair market value of the shares paid on the date of issuance ranging from $3.13 to $3.25 per share for a total purchase price of $2,538,126. F-17 90 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 3 - MINERAL PROPERTIES (Continued). In May 1996, the Company sold back the Frisco Standard Silver Mine to its original seller in exchange for the same price (35,000 shares of Royal stock) received by the seller when the mine was purchased. The shares received were cancelled and no gain or loss was recorded on the transaction. The Company's proposed future mining activities will be subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays, affect the economics of a project, and cause changes or delays in the Company's activities. The total mineral properties at September 30, 1996 are classified as follows: Mineral properties under joint ventures $ 366,510 Other mineral properties 4,419,155 ____________ Total Mineral Properties $ 4,785,665 ============ The Company's mineral properties are valued at the lower of cost or net realizable value. NOTE 4 - PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets of five years. NOTE 5 - INTANGIBLE ASSETS. Deferred debt issuance costs and organization costs are recorded at cost. Amortization of these intangible assets is determined using the straight-line method over the expected useful lives of the assets as follows: Description Useful Lives ___________________________ ____________ Deferred debt issuance costs 1 year Organization costs 5 years F-18 91 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 6 - COMMON STOCK. During the year ended November 30, 1994, Celebration issued 1,500,000 shares of common stock to directors for services rendered, valued at $.003 to $.625 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, the Company issued 12,750 shares of common stock to directors and employees for services rendered, valued at prices ranging from $2.00 to $2.50 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, Celebration issued 975,000 shares of common stock in exchange for mineral properties (See Note 3) and sold 176,000 shares of common stock for $264,000 cash. The Company issued 200,000 shares of its common stock during the year ended September 30, 1995 in lieu of outstanding debt that was owed to Centurion Mines Corporation (Centurion), a related entity. The stock was issued at $1.50 per share in payment of $300,000 of the then outstanding debt (See Note 10). The Company also issued 277,500 shares in connection with the issuance of notes payable (See Note 9). (See also the disclosure in Note 1). During the year ended September 30, 1996, the Company sold 1,949,332 shares of its common stock for $2,958,314 in cash. The Company also issued 222,700 shares to directors and employees for services rendered valued at $1.50 per share, which is the fair market value of the shares on the date of issuance. Also during the year ended September 30, 1996, the Company issued 100,000 shares of its common stock for a joint venture in a mining property and 20,000 common shares for a mining property (See Note 12). The stock issued was valued at $1.50 per share, which is the fair market value to the shares at the date of issuance. In the same twelve-month period, the Company also issued 406,050 shares of its common stock in payment of outstanding debt of $570,917 and accrued interest of $38,158. The stock was issued at $1.50 per share for a total value of $609,075. In addition, the Company issued 39,375 shares of common stock to noteholders for extending the maturity date of their loans. Again, the shares were valued at $1.50 each, which is the fair market value of the shares when issued. F-19 92 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS. In January 1992, the shareholders of Royal approved a 1992 Stock Option and Stock Award Plan under which up to ten percent of the issued and outstanding shares of the Company's common stock could be awarded based on merit of work performed. As of September 30, 1996, 12,750 shares of common stock have been awarded under the Plan. Also during the year ended September 30, 1996, the Company issued 215,334 shares of its common stock for services received. The shares were valued at $1.50 per share, which is the fair market value of the shares at the date of issuance. Celebration, prior to the exchange agreement with Royal, had granted securities to certain shareholders which represented rights to purchase or receive shares of Celebration's common stock. These options were assumed by the Company after the merger at a rate of 1.5 shares for each option still outstanding. Thus, the Company has granted options, with varying conditions and requirements, to purchase a total of 1,455,000 shares of its common stock. There are 255,000 of the stock options exercisable at $1.50 per share which expire March 21, 2000. The remaining 1,200,000 stock options are exercisable at $0.93 per share and expire on August 31, 2001. As of September 30, 1996, none of these options have been exercised. On January 9, 1996, the Board of Directors approved the issuance of warrants to two of its officers to purchase a total of 300,000 shares for a purchase price of $2.50 per share, exercisable from the date of issuance until January 9, 1999. On March 22, 1996, the Board of Directors approved the issuance of warrants to an investor to purchase 625,000 shares of common stock of the Company in partial completion of a private placement of stock. These warrants are exercisable until September 30, 1998, at a price of $1.50 per share, which is 67% of the closing price on March 22, 1996. On April 10, 1996, following the close of the second quarter of fiscal 1996, the Board of Directors authorized the issuance of 420,666 warrants to unaffiliated investors as part of the private placement of stock. These warrants are exercisable until April 12, 1997 at prices ranging from $2.50 to $2.625 per share. As of September 30, 1996, 320,666 warrants have been issued (but not exercised) for a total amount of $41,068. F-20 93 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 8 - ADDITIONAL PAID-IN CAPITAL. The following is a summary of additional paid-in capital at September 30, 1996 and September 30, 1995:
September 30, September 30, 1996 1995 _____________ _____________ Applicable to: Common stock $8,395,740 $4,120,540 Stock warrants 41,068 - __________ __________ $8,436,808 $4,120,540 ========== ==========
NOTE 9 - NOTES PAYABLE. In February 1995, Celebration raised $555,000 through the issuance of promissory notes. During the second quarter ended March 31, 1996, $470,000 of the total amount plus accrued interest of $29,265 was converted into 332,800 shares of the Company's common stock, leaving an amount owing of $85,000, which was further reduced by cash payments to $60,000 at September 30, 1996. The notes bear interest at 10% per annum and will be due on the earlier of January 1, 1997 or the closing of any public offering of equity securities by the Company. The note holders also received 277,500 shares of Celebration's common stock. A 10% commission was charged by an underwriter on the sale of almost all of the notes. In April 1995, Celebration raised $120,000 in 10% convertible debentures. In late 1995, $105,000 of the total amount plus accrued interest of $4,810 was converted into 73,250 shares of the Company's common stock, leaving an amount owing of $15,000. During the third quarter ended September 30, 1996, this remaining $15,000 plus accrued interest was paid. NOTE 10 - RELATED PARTY TRANSACTIONS. After receiving advances from a related party for payment of operating expenses, the Company approved the issuance of 200,000 shares of common stock in payment of $300,000 of the then outstanding balance (See Note 6). The balance outstanding at September 30, 1996 was $289. F-21 94 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 11 - FUTURE LEASE OBLIGATIONS. The Company is obligated under its lease arrangements to make additional lease payments subsequent to September 30, 1996 as follows:
Year Ended September 30, Amount 1997 $ 9,440 1998 4,500 1999 4,500 2000 and thereafter 22,500 _________ Total $ 40,940 =========
NOTE 12 - OPTIONS WITH PLACER MINING CORPORATION. In April 1996, the Company entered into an option with Placer Mining Corporation ("Placer") of Kellogg, Idaho whereby the Company could acquire a joint venture interest in the Bunker Hill Mine, a silver-lead-zinc mine in Shoshone County, Idaho. After issuing 100,000 shares valued at $1.50 per share and spending a non-refundable $50,000 on this option, the Company elected to renegotiate this option agreement and entered into a second option agreement with Placer on September 18, 1996. In the second agreement, the Company paid $100,000 in September 1996 for the nonassignable option of acquiring a 100% interest in the Bunker Hill Mine. In order to exercise this option, the Company must issue 500,000 shares of its common stock to Placer by May 10, 1997 and pay Placer either $7,000,000 by that date or $4,000,000 by that date and $3,500,000 by May 10, 1998. Under the terms of this agreement, the Company will pay Placer a 2 3/4% net smelter return royalty in perpetuity with stipulated annual advance minimum royalty payments to Placer ranging from $100,000 (in 1999) to $250,000 (in years 2002 through 2010). All advance minimum royalties paid are to be credited against actual production royalties. At September 30, 1996, the Company had expended $101,715 in option and related expenses toward the purchase of the Bunker Hill Mine. These costs are included in the cost of mineral properties (Note 3) on the Company's balance sheet. F-22 95 ROYAL SILVER MINES, INC. (A Development Stage Company) Notes to the Financial Statements September 30, 1996 NOTE 13 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION. In September 1996, the Company executed an agreement with Centurion Mines Corporation ("Centurion") whereby the Company acquired an option from Centurion to purchase up to 800,000 shares of its common stock held by Centurion for the exercise price of $1.75 per share during the two-year period ending September 30, 1998. The cost of this two-year stock purchase option was $50,000, which was paid by the Company and charged to stockholders' equity (accumulated deficit). At September 30, 1996, no shares were acquired from Centurion under this option agreement. 96 ROYAL SILVER MINES, INC. (A Development Stage Company) FINANCIAL STATEMENTS June 30, 1997 and September 30, 1996 97 C O N T E N T S Accountant's Review Report F-1 Balance Sheets F-2 - F-3 Statements of Operations F-4 Statements of Stockholders' Equity F-5 - F-9 Statements of Cash Flows F-10 - F-11 Notes to the Financial Statements F-12 - F-24 98 The Board of Directors Royal Silver Mines, Inc. (A Development Stage Company) Spokane, Washington ACCOUNTANT'S REVIEW REPORT We have reviewed the accompanying balance sheet of Royal Silver Mines, Inc. (a development stage company) as of June 30, 1997, and the related statements of operations, shareholders' equity, and cash flows for the nine months ended June 30, 1997 and 1996, and for the period from February 17, 1994 (inception) through June 30, 1997. The review was conducted in a accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Royal Silver Mines, Inc. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. The balance sheet for the year ended September 30, 1996 was audited by us and we expressed an unqualified opinion on it in our report dated December 13, 1996. We have not performed any auditing procedures since that date. Williams & Webster, P.S. Certified Public Accountants Spokane, Washington July 23, 1997 F-1 99 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
June 30, September 30, 1997 1996 (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 1,123,602 $ 688,716 Note receivable 100,000 100,000 Interest receivable 5,958 333 Prepaid expenses 5,153 17,391 ----------- ----------- TOTAL CURRENT ASSETS 1,234,713 806,440 ----------- ----------- MINERAL PROPERTIES 4,727,096 4,785,665 ----------- ----------- PROPERTY AND EQUIPMENT Mining equipment 133,534 - Furniture and equipment 15,185 15,802 Less accumulated depreciation (6,610) (2,809) ----------- ----------- TOTAL PROPERTY AND EQUIPMENT 142,109 12,993 ----------- ----------- OTHER ASSETS Investments 70,000 - Organization costs, net 184 259 ----------- ----------- TOTAL OTHER ASSETS 70,184 259 ----------- ----------- TOTAL ASSETS $ 6,174,102 $ 5,605,357 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 100 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
June 30, September 30, 1997 1996 (Unaudited) (Audited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 15,355 $ 25,135 Payable to related parties - 289 Accrued expenses 17,987 34,443 Notes payable - 60,000 ----------- ----------- TOTAL CURRENT LIABILITIES 33,342 119,867 ----------- ----------- LONG-TERM DEBT - - ----------- ----------- COMMITMENTS AND CONTINGENCIES - - ----------- ----------- SHAREHOLDERS' EQUITY Common stock, $.01 par value; 40,000,000 shares authorized, 13,423,904 and 10,649,854 shares issued and outstanding, respectively 133,751 106,499 Additional paid-in capital 10,512,117 8,436,808 Deficit accumulated during development stage (4,505,108) (3,057,817) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 6,140,760 5,485,490 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,174,102 $ 5,605,357 =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 101 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Operations, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
Three months ended June 30, June 30, 1997 1996 REVENUES $ - $ - GENERAL AND ADMINISTRATIVE EXPENSES Mineral properties 22,732 2,758 Depreciation and amortization 10,683 616 Officers and directors compensation 85,499 54,999 Other general and administrative 272,799 219,682 ------------ ----------- Total expenses 391,713 278,055 ------------ ----------- OPERATING (LOSS) (391,713) (278,055) ------------ ----------- OTHER INCOME (EXPENSES) Interest income 16,190 Interest expense - (2,159) Loss on disposition of assets - - ------------ ----------- Total other income (expenses) 16,190 (2,159) ------------ ----------- NET LOSS $ (375,523) $ (280,214) ------------ ----------- NET LOSS PER COMMON SHARE $ (0.03) $ (0.03) ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 13,423,904 9,396,915 ============ =========== The accompanying notes are an integral part of these financial statements. F-4a 102 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Operations, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS (Continued) February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 REVENUES $ - $ - $ - ------------ ----------- ------------ GENERAL AND ADMINISTRATIVE EXPENSES Mineral properties 261,619 8,122 270,584 Depreciation and amortization 28,855 21,776 126,924 Officers and directors compensation 329,911 266,215 1,161,859 Other general and administrative 843,070 633,871 2,495,076 ------------- ----------- ------------ Total expenses 1,463,455 929,984 4,054,443 ------------- ----------- ------------ OPERATING (LOSS) (1,463,455) (929,984) (4,054,443) ------------- ----------- ------------ OTHER INCOME (EXPENSES) Interest income 20,190 20,190 Interest expense (2,257) (7,409) (74,348) Loss on disposition of assets (1,769) - (346,507) ------------- ----------- ------------ Total other income (expenses) 16,164 (7,409) (400,665) ------------- ----------- ------------ NET LOSS $ (1,447,291) $ (937,393) $ (4,455,108) ------------- ----------- ------------ NET LOSS PER COMMON SHARE $ (0.12) $ (0.11) $ (0.64) ============= =========== ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,804,654 8,742,325 6,974,672 ============= =========== ============
F-4b 103 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance February 17, 1994 - $ - Issuance in May 1994 of shares at $0.002 per share to officers and directors in exchange for assignment of mining property option 2,250,000 22,500 Issuance in July 1994 of shares for cash at $0.402 in private placement, net of costs. 1,050,000 10,500 Issuance in August 1994 of shares to a director in exchange for services, valued at $0.417 150,000 1,500 Net loss for the year ended November 30, 1994 - - --------- -------- Balance, November 30, 1994 3,450,000 34,500 Issuance of shares in debt offering at $0.03 per share 416,250 4,163 Issuance of shares for mineral properties valued at $1.00 per share 262,500 2,625 Issuance of shares for cash at $1.00 per share 15,000 150 Stock issuance costs - - --------- -------- Balance forward 4,143,750 41,438 --------- -------- The accompanying notes are an integral part of these financial statements. F-5a 104 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance February 17, 1994 $ - $ - $ - Issuance in May 1994 of shares at $0.002 per share to officers and directors in exchange for assignment of mining property option (18,500) - 4,000 Issuance in July 1994 of shares for cash at $0.402 in private placement, net of costs. 411,116 - 421,616 Issuance in August 1994 of shares to a director in exchange for services, valued at $0.417 61,000 - 62,500 Net loss for the year ended November 30, 1994 - (211,796) (211,796) --------- ---------- ---------- Balance, November 30, 1994 453,616 (211,796) 276,320 Issuance of shares in debt offering at $0.03 per share 9,712 - 13,875 Issuance of shares for mineral properties valued at $1.00 per share 259,875 - 262,500 Issuance of shares for cash at $1.00 per share 14,850 - 15,000 Stock issuance costs (58,202) - (58,202) --------- ---------- ---------- Balance forward $ 679,851 $ (211,796) $ 509,493 --------- ---------- ----------
F-5b 105 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward 4,143,750 $ 41,438 Issuance of shares to acquire Consolidated Royal Mines, Inc. at $0.15 per share 2,434,563 24,346 Issuance of shares to directors and employees for services at prices ranging from $2.00 to $2.50 per share 12,750 127 Issuance of shares in exchange for mineral properties at prices ranging from $3.13 to $3.25 per share 800,000 8,000 Issuance of shares for cash at prices ranging from $1.50 to $2.00 per share 166,000 1,660 Issuance of shares in exchange for debt at $1.50 per share 200,000 2,000 Net loss for the ten months ended September 30, 1995 - - --------- -------- Balance, September 30, 1995 7,757,063 $ 77,571 --------- -------- The accompanying notes are an integral part of these financial statements. F-6a 106 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 679,851 $ (211,796) $ 509,493 Issuance of shares to acquire Consolidated Royal Mines, Inc. at $0.15 per share 335,750 - 360,096 Issuance of shares to directors and employees for services at prices ranging from $2.00 to $2.50 per share 29,473 - 29,600 Issuance of shares in exchange for mineral properties at prices ranging from $3.13 to $3.25 per share 2,530,126 - 2,538,126 Issuance of shares for cash at prices ranging from $1.50 to $2.00 per share 247,340 - 249,000 Issuance of shares in exchange for debt at $1.50 per share 298,000 - 300,000 Net loss for the ten months ended September 30, 1995 - (750,939) (750,939) ----------- ---------- ----------- Balance, September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376 ----------- ---------- -----------
F-6b 107 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward September 30, 1995 7,757,063 $ 77,571 Issuance of shares for cash at $1.50 per share 1,176,832 11,769 Issuance of shares to directors and employees for services at $1.50 per share 222,700 2,227 Issuance of shares in exchange for debt and accrued interest at $1.50 per share 406,050 4,060 Issuance of shares for cash at $2.20 per share 150,000 1,500 Issuance of warrants for cash at $0.05 per warrant - - Issuance of shares for cash at $1.62 per share 65,000 650 Issuance of shares for cash to directors and employees at prices ranging from $1.62 to $2.08 per share 107,500 1,075 Issuance of shares for cash at $0.75 per share 200,000 2,000 Issuance of shares for cash at $1.70 per share 250,000 2,500 ---------- --------- Balance forward 10,335,145 $ 103,352 ---------- --------- The accompanying notes are an integral part of these financial statements. F-7a 108 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376 Issuance of shares for cash at $1.50 per share 1,754,010 - 1,765,779 Issuance of shares to directors and employees for services at $1.50 per share 331,823 - 334,050 Issuance of shares in exchange for debt and accrued interest at $1.50 per share 605,015 - 609,075 Issuance of shares for cash at $2.20 per share 328,500 - 330,000 Issuance of warrants for cash at $0.05 per warrant 41,068 - 41,068 Issuance of shares for cash at $1.62 per share 104,650 - 105,300 Issuance of shares for cash to directors and employees at prices ranging from $1.62 to $2.08 per share 181,175 - 182,250 Issuance of shares for cash at $0.75 per share 147,985 - 149,985 Issuance of shares for cash at $1.70 per share 422,500 - 425,000 ----------- ---------- ----------- Balance forward $ 8,037,266 $ (962,735) $ 7,177,883 ----------- ---------- -----------
F-7b 109 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward 10,335,145 $ 103,352 Cancellation of 35,000 shares received in exchange for return of mining property (35,000) (350) Payment to Centurion Mines for options to repurchase stock - - Issuance of shares for joint venture in mining property at $1.50 per share 100,000 1,000 Repurchase of 25,000 shares issued for joint venture at $1.40 per share (25,000) (250) Issuance of shares for mining property at $1.50 per share 20,000 200 Issuance of shares to noteholders for extension of notes at $1.50 per share 39,375 394 Issuance of shares for services at $1.50 per share 215,334 2,153 Stock issuance costs - - Net loss for the year ended September 30, 1996 - - ---------- --------- Balance, September 30, 1996 10,649,854 $ 106,499 ---------- --------- The accompanying notes are an integral part of these financial statements. F-8a 110 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 8,037,266 $ (962,735) $ 7,177,883 Cancellation of 35,000 shares received in exchange for return of mining property (109,025) - (109,375) Payment to Centurion Mines for options to repurchase stock - (50,000) (50,000) Issuance of shares for joint venture in mining property at $1.50 per share 149,000 - 150,000 Repurchase of 25,000 shares issued for joint venture at $1.40 per share (34,750) - (35,000) Issuance of shares for mining property at $1.50 per share 29,800 - 30,000 Issuance of shares to noteholders for extension of notes at $1.50 per share 58,669 - 59,063 Issuance of shares for services at $1.50 per share 320,848 - 323,001 Stock issuance costs (15,000) - (15,000) Net loss for the year ended September 30, 1996 - (2,045,082) (2,045,082) ----------- ------------ ------------ Balance, 09/30/96 $ 8,436,808 $(3,057,817) $ 5,485,490 ----------- ----------- -----------
F-8b 111 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward 10,649,854 $ 106,499 Issuance of shares for cash at $0.75 per share 2,491,000 24,910 Stock issuance costs - - Issuance of shares to directors and employees for services at $1.00 per share 80,000 800 Issuance of shares for services at $1.25 per share 98,250 982 Payment for extension of warrants for one year - - Issuance of shares to directors and employees for services at $1.00 per share 30,500 305 Issuance of shares for services at $1.00 per share 25,500 255 Payment for extension of warrants for one year - - Net loss for the nine months ended June 30, 1997 - - ---------- --------- Balance, June 30, 1997 13,375,104 $ 133,751 ========== ========= The accompanying notes are an integral part of these financial statements. F-9a 112 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 8,436,808 $ (3,057,817) $ 5,485,490 Issuance of shares for cash at $0.75 per share 1,843,340 - 1,868,250 Stock issuance costs (30,000) - (30,000) Issuance of shares to directors and employees for services at $1.00 per share 79,200 - 80,000 Issuance of shares for services at $1.25 per share 121,829 - 122,811 Payment for extension of warrants for one year 3,000 - 3,000 Issuance of shares to directors and employees for services at $1.00 per share 30,195 - 30,500 Issuance of shares for services at $1.00 per share 25,245 - 25,500 Payment for extension of warrants for one year 2,500 - 2,500 Net loss for the nine months ended June 30, 1997 - (1,447,291) (1,447,291) ------------ ------------ ----------- Balance, June 30, 1997 $ 10,512,117 $ (4,505,108) $ 6,140,760 ============ ============ ===========
F-9b 113 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Cash Flows, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS
Period from February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 Cash flows from operating activities: Net loss $ (1,447,291) $ (937,393) $ (4,455,108) Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of equipment 1,769 - 1,769 Depreciation and amortization 28,855 21,776 129,471 Issuance of common stock for services 258,811 239,850 1,007,964 Write-off of joint venture costs - - 150,000 Changes in assets and liabilities: Note receivable - - (100,000) Prepaid expenses (11,563) 547 (28,956) Interest receivable (5,625) - (5,958) Mineral properties 238,887 - 238,887 Other assets - - (3,801) Accounts payable (9,780) (56,489) 15,355 Accrued expenses (16,456) (15,622) 17,987 Payable to related parties (289) - 300,000 ------------ ----------- ------------ Net cash used in operating activities (962,682) (747,331) (2,732,390) ------------ ----------- ------------ Cash flows from investing activities: Sale of assets 500 - 500 Purchase and development of mineral properties (180,318) (975,851) (1,785,154) Purchase of investments (70,000) - (70,000) Purchase of fixed assets (136,364) (3,003) (152,166) ------------ ----------- ------------ Net cash provided used in investing activities (386,182) (978,854) (2,006,820) ------------ ----------- ------------ The accompanying notes are an integral part of these financial statements. F-10a 114 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Cash Flows, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS Period from February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 Cash flows from financing activities: Stock issuance and offering costs (30,000) (15,000) (174,835) Proceeds received on long-term debt - - 675,000 Payments made on notes payable (60,000) (15,000) (174,206) Issuance of common stock for cash 1,868,250 1,945,779 5,528,064 Payment for extension of warrants 5,500 - 5,500 Payment for option to repurchase stock - - (50,000) Issuance of common stock for accrued interest - - 38,158 Issuance of common stock for extension of notes payable maturation - - 59,063 Payment for return of stock issued for mining property interest - - (35,000) Payment of joint venture costs - - (50,000) Issuance of warrants for cash - 41,068 41,068 ------------ ------------ ------------ Net cash provided by financing activities 1,783,750 1,956,847 5,862,812 ------------ ------------ ------------ Net increase in cash $ 434,886 $ 230,662 $ 1,123,602 ------------ ------------ ------------
F-10b 115 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS
Period from February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 Net increase in cash (balance forward) $ 434,886 $ 230,662 $ 1,123,602 Cash, beginning of period 688,716 151,698 - ----------- --------- ----------- Cash, end of period $ 1,123,602 $ 382,360 $ 1,123,602 =========== ========= =========== Supplemental cashflow disclosure: Income taxes $ - $ - $ 350 Interest $ 6,042 $ - $ 29,440 Non-cash financing activities: Common stock issued for services rendered $ 258,811 $ 239,850 $ 1,007,964 Common stock issued for mineral properties $ - $ - $ 2,980,626 Common stock issued for exchange for debt $ - $ 609,075 $ 922,950 Common stock issued in acquisition of Consolidated Royal Mines, Inc. $ - $ - $ 360,096 Option rights acquired in exchange for a payable$ - $ - $ 79,000 Common stock issued for assignment of mining property options $ - $ - $ 4,000
The accompanying notes are an integral part of these financial statements. F-11 116 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969 under the laws of the State of Utah primarily for the purpose of acquiring and developing mineral properties. Royal conducts its business as a "junior" natural resource company, meaning that it intends to receive income from property sales or joint ventures with larger companies. Celebration Mining Company (Celebration), currently a wholly-owned subsidiary of Royal was incorporated for the purpose of identifying, acquiring, exploring and developing mining properties. Celebration was organized on February 17, 1994 as a Washington Corporation. Celebration has not yet realized any revenues from its planned operations. On August 8, 1995, Royal and Celebration completed an Agreement and Plan of Reorganization whereby the Company issued 4,143,750 shares of its common stock and 1,455,000 warrants in exchange for all of the outstanding common stock of Celebration. Pursuant to the reorganization the name of the Company was changed to Royal Silver Mines, Inc. Immediately prior to the Agreement and Plan of Reorganization, the Company had 2,375,463 common shares issued and outstanding. The acquisition was accounted for as a purchase by Celebration of Royal, because the shareholders of Celebration control the company after the acquisition. Therefore, Celebration is treated as the acquiring entity. There was no adjustment to the carrying value of the assets or liabilities of Royal in the exchange as the market value approximated the net carrying value. Royal is the acquiring entity for legal purposes and Celebration is the surviving entity for accounting purposes. The $4,727,096 cost of mineral properties included in the accompanying balance sheet as of June 30, 1997 is related to exploration properties. The Company has not determined whether the exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company's investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development and upon future profitable production. The ultimate realization of the Company's investment in exploration properties cannot be determined at this time and, accordingly, no provision for any asset impairment that may result, in the event the Company is not successful in developing or selling these properties, has been made in the accompanying financial statements. F-12 117 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued) The Company is actively seeking additional capital and management believes the properties can ultimately be sold or developed to enable the Company to continue its operations. However, there are inherent uncertainties in mining operations and management cannot provide assurances that it will be successful in this endeavor. Furthermore, the Company is in the development stage as it has not realized any significant revenues from its planned operations. NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Method The Company's financial statements are prepared using the accrual method of accounting. Loss Per Share Loss per share was computed by dividing the net loss by the weighted average number of shares outstanding during the year The weighted average number of shares was calculated by taking the number of shares outstanding and weighing them by the amount of time they were outstanding. The outstanding warrants were not included in the computation of loss per share because the exercise price of the outstanding warrants is higher than the market price of the stock, thereby causing the warrants to be antidilutive. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Mineral Properties Costs of acquiring, exploring and developing mineral properties are capitalized by project area. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. Mineral properties are periodically assessed for impairment of value and any losses are charged to operations at the time of impairment. F-13 118 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Should a property be abandoned, its capitalized costs are charged to operations. The Company charges to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area. Concentration of Risk The Company maintains its cash accounts in primarily one commercial bank in Spokane, Washington. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. One of the Company's cash accounts is a business checking account with a balance of $104,037 and a certificate of deposit in the amount of $5,000 at June 30, 1997 which in aggregate exceed the FDIC threshold by $9,037. The remaining cash account is a "liquid asset account" in the amount of $1,014,565, which is invested in a portfolio of U.S. Treasury notes/bonds. Provision For Taxes At June 30, 1997, the Company had net operating loss carryforwards of approximately $4,100,000 that may be offset against future taxable income through 2011. No tax benefit has been reported in the financial statements as the Company believes there is a 50% or greater chance the net operating loss carryforwards will expire unused. Accordingly, the potential tax benefits of the net operating loss carryforwards are offset by a valuation allowance of the same amount. Recently Issued Accounting Standards In March 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Impairment of Long-Lived Assets." This new standard is effective for years beginning after December 15, 1995. In complying with this standard, the Company has reviewed its long-lived assets at June 30, 1997 and concluded that no events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company does not believe that adoption of the new standard will have a material effect on its financial statements in the current fiscal year. F-14 119 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In October 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Stock-Based Compensation" (FAS 123). The new statement is effective for fiscal years beginning after December 15, 1995. FAS 123 encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. Companies that do not adopt the fair value accounting rules must disclose the impact of adopting the new method in the notes to the financial statements. Transactions in equity instruments with non-employees for goods or services must be accounted for on the fair value method. The Company currently intends to adopt the fair value accounting prescribed by FAS 123. However, the Company intends to continue its analysis of FAS 123 to determine its ultimate effect in the future. NOTE 3 - MINERAL PROPERTIES Utah Mining Property Joint Venture In October 1994, Celebration and United Silver Mine, Inc., (United) entered into a joint venture agreement, whereby Celebration could acquire up to an 80% interest in a mining property located in the State of Utah. Under the terms of the agreement, United contributed real properties for an initial 75% interest in the joint venture, and Celebration was to remove all liens associated with the real properties by paying $175,000 to a bank which was the primary lien holder for its initial 25% interest in the venture. Celebration expended $175,000 to purchase the aforementioned promissory note. The property was auctioned in a public auction in May, 1995 and by virtue of Celebration's first position lien, Celebration was able to successfully bid the full amount of the underlying promissory note. Although additional expenditures have been made on the property through June 30, 1997, no further funds toward the joint venture have been expended by Celebration, which owns an undivided 25% interest in the property. Shoshone County Idaho Mineral Lease (Crescent Mine) In February 1995, Celebration entered into an agreement to acquire a fifty-year renewable mineral lease on a property in Shoshone County, Idaho. The mining property consists of twelve patented claims and associated Idaho state leases. In connection with this lease, Celebration paid $50,000 and issued 175,000 shares of common stock. In addition, 10,000 shares were issued to a new director for his assistance in obtaining this lease. Celebration subsequently paid F-15 120 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 3 - MINERAL PROPERTIES (Continued) $950,000 for the option of extending its lease for an additional forty-nine years. When, and if, the property achieves gross sales of $40,000,000, Celebration will be obligated to pay an additional 0.5% royalty on future sales. Furthermore, beginning after September 1, 1995, and at such time as the average price of silver has reached $6.00 per ounce for a 30-day period, Celebration is obligated to spend not less than $2,000,000 during the subsequent 36 months to de-water and repair the mine. Thereafter, Celebration will be required to maintain the mine in a condition to allow it to be put into production within sixty days. There are certain claims by the U.S. Environmental Protection Agency and the County on this property for which the lessor is obligated to pay. In the event these claims are not satisfactorily resolved, they may effect Celebration's rights to the property. Australian Mineral Property Joint Venture In March 1995, Celebration entered into a joint venture agreement with an Australian company for exploration of a certain mineral property in Australia. Under the original terms of the joint venture agreement, Celebration acquired a 10% interest by paying $100,000 in April 1995. No additional funds where paid or required to be paid subsequent to the initial payment. Washington and Idaho Mineral Properties During the year ended September 30, 1995, Celebration purchased through the issuance of 800,000 shares of its common stock, various mineral properties located in the States of Washington and Idaho. The mineral properties were recorded at the fair market value of the shares paid on the date of issuance ranging from $3.13 to $3.25 per share for a total purchase price of $2,538,126. In May 1996, the Company sold back the Frisco Standard Silver Mine to its original seller in exchange for the same price (35,000 shares of Royal stock) received by the seller when the mine was purchased. The shares received were canceled and no gain or loss was recorded on the transaction. The Company's proposed future mining activities will be subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays, affect the economics of a project, and cause changes or delays in the Company's activities. F-16 121 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 3 - MINERAL PROPERTIES (Continued) Chilean Properties During the quarter ended June 30, 1997, the Company acquired options on a 100-square mile concession in northern Chile known as Mocha. The Mocha prospect is a large porphyry copper system at the northern end of one of the world's most prolific copper belts. Under the terms of the first of the option agreements, the Company can acquire a 100% interest in the concession by cash payments of $371,000 and work commitments of $200,000 on or before August 1, 2000. In another agreement on an adjoining privately owned property, which covers the bulk of the known resource at Mocha, Royal Silver has the option to acquire a 100% interest in the property, less a 2% retained net smelter return royalty, for cash payments of $5,000,000 in a series of payments ending June 23, 2002. Argentina Properties On February 10, 1997 the Company announced that it has negotiated an option to buy 12 different potential mine sites in Argentina. Under the agreement, the Company can buy the properties on or before March 1, 2000, by paying $4,500,000 in cash or $5,500,000 in Royal Silver common stock, subject to certain conditions including the Seller's retention of a 1.95% net smelter royalty on the mines. To date, none of the properties have been acquired. Mexico Properties On January 20, 1997, the Company executed an agreement to acquire four mining concessions in Nayarit, Mexico. The agreement calls for a purchase price of $5,000,000 to be paid at the rate of 10% of pre-tax net profits from production. Under the agreement, the Company is obligated to pay the property owner $50,000 per year or, alternatively, to spend $250,000 on exploration and development annually until the properties are brought into production or forfeited. At June 30, 1997, no funds had been expended to maintain, acquire, explore or develop the aforementioned Mexican properties. F-17 122 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 3 - MINERAL PROPERTIES (Continued) Mexico Properties (continued) The total mineral properties of the Company at June 30, 1997 are classified as follows: Mineral properties under joint ventures $ 366,510 Other mineral properties 4,360,586 Total Mineral Properties $ 4,727,096 The Company's mineral properties are valued at the lower of cost or net realizable value. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets of five years. NOTE 5 - INVESTMENTS During the quarter ended June 30, 1997, the Company invested $70,000 in 200,000 shares of Metalline Mining stock. This investment represents approximately 5.7% of the total outstanding stock in Metalline Mining at the time of purchase. This stock is being valued at cost, which is substantially less than the market value of $1.68 per share at June 30, 1997. NOTE 6 - INTANGIBLE ASSETS Deferred debt issuance costs and organization costs are recorded at cost. Amortization of these intangible assets is determined using the straight-line method over the expected useful lives of the assets as follows: Description Useful Lives Deferred debt issuance costs 1 year Organization costs 5 years F-18 123 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 7 - COMMON STOCK During the year ended November 30, 1994, Celebration issued 1,500,000 shares of common stock to directors for services rendered, valued at $.003 to $.625 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, the Company issued 12,750 shares of common stock to directors and employees for services rendered, valued at prices ranging from $2.00 to $2.50 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, Celebration issued 975,000 shares of common stock in exchange for mineral properties (See Note 3) and sold 176,000 shares of common stock for $264,000 cash. The Company issued 200,000 shares of its common stock during the year ended September 30, 1995 in lieu of outstanding debt that was owed to Centurion Mines Corporation (Centurion), a related entity. The stock was issued at $1.50 per share in payment of $300,000 of outstanding debt (See Note 9). The Company also issued 277,500 shares in connection with the issuance of notes payable (See Note 9). (See also the disclosure in Note 1). During the year ended September 30, 1996, the Company sold 1,949,332 shares of its common stock for $2,958,314 in cash. The Company also issued 222,700 shares to directors and employees for services rendered valued at $1.50 per share, which is the fair market value of the shares on the date of issuance. Also during the year ended September 30, 1996, the Company issued 100,000 shares of its common stock for a joint venture in a mining property and 20,000 common shares for a mining property (See Note 11.) The stock issued was valued at $1.50 per share, which is the fair market value of the shares at the date of issuance. In the same twelve-month period, the Company also issued 406,050 shares of its common stock in payment of outstanding debt of $570,917 and accrued interest of $38,158. The stock was issued at $1.50 per share for a total value of $609,075. In addition, the Company issued 39,375 shares of common stock to noteholders for extending the maturity date of their loans. Again, the shares were valued at $1.50 each, which is the fair market value of the shares when issued. Also during the year ended September 30, 1996, the Company issued 215,334 shares of its common stock for services received. The shares were valued at $1.50 per share, which was the fair market value of the shares at the date of issuance. F-19 124 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 7 - COMMON STOCK (Continued) On January 30, 1997, the Company sold 200,000 "units" at $0.75 per unit for $150,000 cash. Each unit consists of one share of common stock and one warrant to purchase one additional share of common stock at $1.25 per share within the next two years. The Company also granted the purchaser an option to purchase an additional 335,000 units, which were exercised on February 14, 1997 for $0.75 per unit, and an additional 1,600,000 units which were exercised on March 17, 1997 for $0.75 per unit. On February 7, 1997, The Company filed Form SB-2 with the Securities and Exchange Commission in order to register 625,000 warrants, 625,000 common stock shares issuable upon the exercise of those warrants, and 166,000 shares of common stock held outside the Company. During the nine months ended June 30, 1997, the Company issued 234,250 shares of its common stock for services received. The shares were valued at prices ranging from $1.00 to $1.25 per share, which was the fair market value of the shares at the date of issuance. NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS In January 1992, the shareholders of Royal approved a 1992 Stock Option and Stock Award Plan under which up to ten percent of the issued and outstanding shares of the Company's common stock could be awarded based on merit of work performed. As of June 30, 1997, 12,750 shares of common stock have been awarded under the Plan. Celebration, prior to the exchange agreement with Royal, had granted securities to certain shareholders which represented rights to purchase or receive shares of Celebration's common stock. These options were assumed by the Company after the merger at a rate of 1.5 shares for each option still outstanding. Thus, the Company has granted options, with varying conditions and requirements, to purchase a total of 1,455,000 shares of its common stock. There are 255,000 of the stock options exercisable at $1.50 per share which expire March 21, 2000. The remaining 1,200,000 stock options are exercisable at $0.42 per share and expire on August 31, 2001. As of June 30, 1997, none of these options have been exercised. On January 9, 1996, the Board of Directors approved the issuance of warrants to two of its officers to purchase a total of 300,000 shares for a purchase price of $2.50 per share, exercisable from the date of issuance until January 9, 1999. As of June 30, 1997, none of these warrants have been exercised. F-20 125 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS (Continued) On March 22, 1996, the Board of Directors approved the issuance of warrants to an investor to purchase 625,000 shares of common stock of the Company in partial completion of a private placement of stock. These warrants are exercisable until September 30, 1998, at a price of $1.50 per share, which is 67% of the closing price on March 22, 1996. On April 10, 1996, following the close of the second quarter of fiscal 1996, the Board of Directors authorized the issuance of 420,666 warrants to unaffiliated investors as part of the private placement of stock. These warrants were originally exercisable until April 12, 1997 at prices ranging from $2.50 to $2.625 per share. 120,000 of these warrants were extended for one year (until April 12, 1998) in exchange for cash payments received of $3,000 in March and April 1997. The balance of these warrants expired unexercised at April 12, 1997. On October 15, 1996, the Board of Directors approved the issuance of warrants to employees and consultants to purchase 600,000 shares of the Company's common stock at a price of $1.50 per share. The warrants, which are exercisable for a five-year period , were issued as compensation for services performed. As of June 30, 1997, none of the warrants have been exercised. On February 15, 1997, the Board of Directors approved the issuance of warrants to employees and consultants to purchase 750,000 shares of the Company's common stock at a price of $1.20 per share. As of June 30, 1997, none of the warrants have been exercised. In the three months ended March 31, 1997, the Board of Directors approved the issuance of warrants to investors to purchase 2,491,000 shares of the Company's common stock as part of the private placement of stock. These warrants are exercisable until March 26, 1999 at a price of $1.25 per share. None of these warrant have been exercised as of June 30, 1997. On April 25, 1997, the Board of Directors approved the issuance of warrants to consultants to purchase 200,000 shares of the Company's common stock at a price of $1.125 per share during the three-year period ending April 30, 2000. As of June 30, 1997, none of these warrants have been exercised. F-21 126 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 9 - ADDITIONAL PAID-IN CAPITAL The following is a summary of additional paid-in capital at June 30, 1997 and September 30, 1996:
June 30, September 30, 1997 1996 Applicable to: Common stock $ 10,465,549 $ 8,395,740 Stock warrants 46,568 41,068 ------------ ----------- $ 10,512,117 $ 8,436,808 ============ ===========
NOTE 10 - NOTES PAYABLE In February 1995, Celebration raised $555,000 through the issuance of promissory notes. During the second quarter ended March 31, 1996, $470,000 of the total amount plus accrued interest of $29,265 was converted into 332,800 shares of the Company's common stock, leaving an amount owing of $85,000, which was further reduced by cash payments to $35,000 at December 31, 1996. The notes bear interest at 10% per annum and are payable upon demand. The note holders also received 277,500 shares of Celebration's common stock. A 10% commission was charged by an underwriter on the sale of almost all of the notes. In April 1995, Celebration raised $120,000 in 10% convertible debentures. In late 1995, $105,000 of the total amount plus accrued interest of $4,810 was converted into 73,250 shares of the Company's common stock, leaving an amount owing of $15,000. During the fourth quarter ended September 30, 1996, this remaining $15,000 plus accrued interest was paid. NOTE 11 - RELATED PARTY TRANSACTIONS After receiving advances from a related party for payment of operating expenses, the Company approved the issuance of 200,000 shares of common stock in payment of $300,000 of the then outstanding balance (See Note 6). The balance outstanding at June 30, 1997 was $0. F-22 127 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 12 - FUTURE LEASE OBLIGATIONS The Company is obligated under its lease arrangements to make additional lease payments subsequent to June 30, 1997 as follows:
Year Ended September 30, Amount 1997 $ 5,351 1998 4,500 1999 4,500 2000 and thereafter 22,500 -------- Total $ 36,851 ========
NOTE 13- OPTIONS WITH PLACER MINING CORPORATION In April 1996, the Company entered into an option with Placer Mining Corporation ("Placer") of Kellogg, Idaho whereby the Company could acquire a joint venture interest in the Bunker Hill Mine, a silver-lead-zinc mine in Shoshone County, Idaho. After issuing 100,000 shares valued at $1.50 per share and spending a non-refundable $50,000 on this option, the Company elected to re-negotiate this option agreement and entered into a second option agreement with Placer on September 18, 1996. In the second agreement, the Company paid $100,000 in September 1996 for the non-assignable option of acquiring a 100% interest in the Bunker Hill Mine. In order to exercise this option, the Company must issue 500,000 shares of its common stock to Placer by May 10, 1997 and pay Placer either $7,000,000 by that date or $4,000,000 by that date and $3,500,000 by May 10, 1998. Under the terms of this agreement, the Company will pay Placer a 2 3/4% net smelter return royalty in perpetuity with stipulated annual advance minimum royalty payments to Placer ranging from $100,000 (in 1999) to $250,000 (in years 2002 through 2010). All advance minimum royalties paid are to be credited against actual production royalties. Subsequent to March 31, 1997, due to regional environmental concerns and the prospect of related litigation, the Company concluded that it would not exercise its option on the Bunker Hill Mine. Accordingly, the $238,887 in option costs and related expenses toward the purchase of this property were written off during the quarter ended March 31, 1997. F-23 128 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 14 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION In September 1996, the Company executed an agreement with Centurion Mines Corporation ("Centurion") whereby the Company acquired an option from Centurion to purchase up to 800,000 shares of its common stock held by Centurion for the exercise price of $1.75 per share during the two-year period ending September 30, 1998. The cost of this two-year stock purchase option was $50,000, which was paid by the Company and charged to stockholders' equity (accumulated deficit). Effective April 15, 1997, the aforementioned stock option agreement was renegotiated (at no cost to the Company) and amended to extend the exercise period until September 30, 1999 and to revise the exercise price to $1.50 per share during this same period. At June 30, 1997, no shares were acquired from Centurion under this option agreement. F-24 129 UNTIL OCTOBER 1, 1997, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. TABLE OF CONTENTS Prospectus Summary . . 7 ROYAL SILVER MINES, INC. Risk Factors . . . 9 Dilution . . . . 14 6,000,000 Units consisting Selected Financial Data . 15 of 1 shares of Common Stock Management's Discussion and 1 Redeemable Common and Analysis of Stock Warrants Financial Condition and Results of Operations . 16 Use of Proceeds . . 19 Dividend Policy . . 20 Glossary . . . 21 Business . . . . 33 __________________________ Management . . . 53 PROSPECTUS Certain Transactions . 56 __________________________ Management Remuneration . 58 Principal Shareholders . 62 DATED: OCTOBER 1, 1997 Description of the Securities64 Plan of Distribution . . 68 ROYAL SILVER MINES, INC. Litigation . . . 69 10220 North Nevada Legal Matters . . . 69 Suite 270 Experts . . . . 69 Spokane, Washington 99218 Additional Information . 70 (509) 466-3144 Financial Statements . F-1 No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer contained in this Prospectus and, if given or made, such information must not be relied upon as having been authorized by the Company. Neither the deliver nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy an security other than the shares of Common Stock offered by this Prospectus, nor does it constitute an offer to sell or a solicitation of an offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, to any person to whom it is unlawful to make such offer or solicitation. 130 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 22. Indemnification of Directors and Officers. The only statutes, charter provisions, bylaws or other arrangements under which any controlling person, Director or Officer of the Registrant is insured or indemnified in any manner against liability which he may incur in his capacity as such are set forth below. The Utah Statutes provides for indemnification where a person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in right of a corporation), by reason of fact he is or was a Director, Officer, employee or agent of a corporation or serving another corporation at the request of the corporation, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. Lack of good faith is not presumed from settlement or nolo contendere plea. Indemnification of expenses (including attorneys' fees) allowed in derivative actions except in the case of misconduct in performance of duty to corporation unless the Court decides indemnification is proper. To the extent any such person succeeds on the merits or otherwise, he shall be indemnified against expenses (including attorneys' fees). Determination that the person to be indemnified met applicable standards of conduct, if not made by the Court, is made by the Board of Directors by majority vote of quorum consisting of the Directors not party to such action, suit or proceeding or, if a quorum is not obtainable or a disinterested quorum so directs, by independent legal counsel or by the stockholders. Expenses may be paid in advance upon receipt of undertakings to repay unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. The Corporation may purchase indemnity insurance. In so far as indemnification for liability arising from the Securities Act of 1933 may be permitted to Directors, Officers or persons controlling the Company, it has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. 131 ITEM 23. Other Expenses of Issuance and Distribution. The following table sets forth all expenses in connection with the issuance and distribution of the shares being registered. All the amounts shown are estimates, except the registration fee. Registration Fee - SEC . . . . $ 4,363.63 NASD Fee . . . . . . . 5,000.00 Printing and Engraving . . . . 2,000.00 Legal Fees and Disbursements . . . 15,000.00 Accounting Fees . . . . . 2,000.00 Transfer Agent Fees . . . . . 1,000.00 Blue Sky Fees and Expenses . . . 636.37 Selling Agent Commission . . . . 600,000.00 TOTAL . . . . . . . $630,000.00
132 ITEM 24. Recent Sales of Unregistered Securities. The following table set forth information as to recent sales of the Registrant's Common Stock since the formation of the Registrant, all of which shares were not registered under the Securities Act of 1933, as amended:
Amount of Shares Consideration Date of Name of Owner Acquired Cash/Other Sale - --------------------------------------------------------------------- 144 "RESTRICTED" SECURITIES Spenst Hansen 20,000 Director Services 01/01/94 4734 South 2700 West Salt Lake City, UT 84127 James Kontes 10,000 Director Services 01/01/94 P. O. Box 112 Firth, ID 83236 H. E. Cameron 10,000 Director Services 01/01/94 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Alan Seelos 10,000 Director Services 01/01/94 150 South 600 East #5-B Salt Lake City, UT 84102 A. Franklin Adams & 10,000 Officer Services 01/01/94 M. Lee Adams 5738 South Redwood Road #127 Salt Lake City, UT 84123 Barry F. Katona 10,000 Director Services 01/01/94 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Crosby Enterprises, Inc. 400,000 Finder's Fee 02/02/94 105 North First Mining Property Suite 232 Acquisition and Sandpoint, ID 83864 Montanore 133 Keystone Surveys, Inc 400,000 Finder's Fee 02/02/94 331 South Rio Grande Mining Property Suite 208 Acquisition and Salt Lake City, UT 84101 Montanore Spenst Hansen 100,000 Officer and 03/17/94 4734 South 2700 West Director Services Salt Lake City, UT 84127 Hal E. Cameron 50,000 Director Services 03/17/94 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Alan Seelos 50,000 Director Services 03/17/94 150 South 600 East #5-B Salt Lake City, UT 84102 James C. Kontes 50,000 Director Services 03/17/94 P. O. Box 112 Firth, ID 83236 Barry F. Katona 50,000 Director Services 03/17/94 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Howard Crosby 5,000 Director Services 04/01/95 105 North First Avenue Suite 232 Sandpoint, ID 83864 Spenst Hansen 2,500 Director Services 04/01/95 4734 South 2700 West Salt Lake City, UT 84127 E. Hal Cameron 5,000 Director Services 04/01/95 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Laroy Orr 2,500 Officer Services 04/01/95 1020 Adams Avenue Ogden, UT 84404 Carlos M. Chavez 5,000 Director Services 05/01/95 815 Yale Avenue Salt Lake City, UT 84105 134 R. Allison Carman 1,000 Consulting Services 05/01/95 4287 South 4580 West Salt Lake City, UT 84120 Howard Crosby 5,000 Director Services 06/30/95 105 North First Avenue Suite 232 Sandpoint, ID 83864 Spenst Hansen 2,500 Director Services 06/30/95 4734 South 2700 West Salt Lake City, UT 84127 E. Hal Cameron 5,000 Director Services 06/30/95 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Laroy Orr 2,500 Officer Services 06/30/95 1020 Adams Avenue Ogden, UT 84404 Extol Inter- national Corp. 425,000 Officer/Director 06/28/95 105 North First Services and Suite 232 Founding Stock Sandpoint, ID 83864 Extol Inter- national Corp. 1,075,000 Officer/Director 06/28/95 105 North First Services and Suite 232 Founding Stock Sandpoint, ID 83864 Lovon Fausett 37,500 Mining Property 06/28/95 P. O. Box 968 Acquisition Osburne, ID 83849 Fausett International 187,500 Mining Property 06/28/95 P. O. Box 968 Acquisition Osburne, ID 83849 William Jacobson 37,500 Mining Property 06/28/95 P. O. Box 631 Acquisition Mullen, ID 83846 Robert E. Jorgensen 200,000 Officer/Director 06/28/95 10220 Nevada Services and Suite 270 Founding Stock Spokane, WA 99218 135 Robert E. Jorgensen 550,000 Officer/Director 06/28/95 10220 Nevada Services and Suite 270 Founding Stock Spokane, WA 99218 Craig C. Condron 12,000 Basis is $0.42 06/28/95 7205 West Kendick Road per share, as Nine Mile Falls, WA 99026 adjusted for splits Craig C. Condron & Linda Condron 18,750 Basis is $0.42 06/28/95 7205 West Kendick Road per share, as Nine Mile Falls, WA 99026 adjusted for splits Brush Prairie Minerals 25,000 Mining Property 08/30/95 905 North Pines Road Acquisition Suite A Spokane, WA 99206 Washington Mining Co. 200,000 Mining Property 08/30/95 905 North Pines Road Acquisition Suite A Spokane, WA 99206 Conjecture Silver Mines, Inc. 80,000 Mining Property 08/30/95 6619 North Cedar Road Acquisition Suite A Spokane, WA 99208 Centurion Mines Corporation 50,000 Debt Conversion 08/31/95 P. O. Box 2365 at $1.50 per share Salt Lake City, UT 84110 Centurion Mines Corporation 50,000 Debt Conversion 08/31/95 P. O. Box 2365 at $1.50 per share Salt Lake City, UT 84110 Centurion Mines Corporation 50,000 Debt Conversion 08/31/95 P. O. Box 2365 at $1.50 per share Salt Lake City, UT 84110 Centurion Mines Corporation 50,000 Debt Conversion 08/31/95 P. O. Box 2365 at $1.50 per share Salt Lake City, UT 84110 136 Joyce & Welson Stump Living Trust 3,000 $1.50 per share 09/05/95 1313 Campbell Toledo, OH 43607 Carl F. Peterson 10,000 $1.50 per share 09/06/95 27670 Groesbeck Hwy Roseville, MI 48066 IRA F/B/O Israel A. Englander 166,000 $1.50 per share 09/07/95 c/o Millennium Partners 111 Broadway New York, NY 10006 Laroy Orr 2,500 Consulting Services 11/20/95 1020 Adams Avenue Ogden, UT 84404 Craig C. Condron 18,334 Note Conversion 12/29/95 7205 West Kendick Road Nine Mile Falls, WA 99026 Elite Discount Health Foods 18,334 Note Conversion 12/29/95 6700 West Charleston Las Vegas, NV 89102 Joseph A. Tedesco 18,334 Note Conversion 12/29/95 3904 South Ridgeview Spokane, WA 99206 Binder 1989 Trust 18,334 Note Conversion 12/29/95 276 East Hillcrest Drive Suite 203 Thousand Oaks, CA 91360 Peter H. Morkill 18,334 Note Conversion 12/29/95 13212 Bracken Fern Drive Gig Harbor, WA 98332 F. E. Hambleton 73,334 Note Conversion 12/29/95 920 N.W. View Ridge Court Camas, WA 98607 Bruce W. Franklin 18,334 Note Conversion 12/29/95 3631 Brookside Drive Bloomfield, MI 48302 Robert H. Laugen 7,334 Note Conversion 12/29/95 15904 North Scribner Branch Road Spokane, WA 99207 137 Howard Stang 7,334 Note Conversion 12/29/95 20307 North Little Spokane Drive Colbert, WA 99005 Michael L. Wallach 18,334 Note Conversion 12/29/95 12117 Riverwood Spokane, WA 99218 Paul H. Swy 7,334 Note Conversion 12/29/95 290 Substation Road Temperance, MI 48182 Robert C. Roosen Trust 18,334 Note Conversion 12/29/95 2756 North Green Valley Parkway Suite 700 Henderson, NV 89104 Invest L'Inc Bridge Fund 18,334 Note Conversion 12/29/95 1901 North Rosette Road Suite 1030 Schauburg, IL 60195 Charles W. Wafer 36,666 Note Conversion 12/29/95 17684 Los Morros Rancho Sante Fe, CA 92067 Gregg Longmeier 7,334 Note Conversion 12/29/95 16008 North Dalton Road Spokane, WA 99208 Frances G. Strickfaden 18,334 Note Conversion 12/29/95 4212 Wellington Drive Fort Collins, CO 80526 Reisha Forshpan 7,334 Note Conversion 12/29/95 3177 Dona Marta Drive Studio City, CA 91604 John P. Bender 7,334 Note Conversion 12/29/95 1194 Eagle Nest Court Milton, MI 48381 James F. O'Connell 7,334 Note Conversion 12/29/95 400 South Jefferson Suite 450 Spokane, WA 99204 Charles Wafer 22,000 Basis is $0.42 as 12/29/95 17684 Los Morros adjusted for splits Rancho Santa Fe, CA 92067 138 D. R. Shipman 22,000 Basis is $0.42 as 12/29/95 716 LaSalle Street adjusted for splits Ottowa, IL 61350 Dennis W. Garland & 11,000 Basis is $0.42 as 12/29/95 Alice C. Garland adjusted for splits 13801 North Riverbluff Land Spokane, WA 99208 Leonard M. Tweten 22,000 Basis is $0.42 as 12/29/95 1301 Spring Street adjusted for splits #273 Seattle, WA 98104 Frances G. Strickfaden 18,750 Basis is $0.42 as 01/11/96 4212 Wellington Drive adjusted for splits Fort Collins, CO 80526 Fred Hoeppner 12,000 Basis is $0.42 as 01/19/96 1573 South Unita Way adjusted for splits Denver, CO 80231 Edward A. Gray 7,500 Basis is $0.42 as 01/29/96 11419 115th Lane N.E. adjusted for splits Kirkland, WA 98033 Edward Gray 3,750 Note Extension 03/20/96 11419 115th Lane N.E. Kirkland, WA 98033 Paul Brown 9,375 Note Extension 03/20/96 11709 North Fairwood Drive Spokane, WA 99218 D.R. Shipman 9,375 Note Extension 03/20/96 716 LaSalle Street Ottowa, IL 61350 Dennis Garland 9,375 Note Extension 03/20/96 13801 N. Riverbluff Lane Spokane, WA 99208 Howard Crosby 40,000 $1.62 per share 07/23/96 105 North First Avenue Suite 232 Sandpoint, ID 83864 Robert Jorgensen 17,500 $1.62 per share 07/23/96 2719 West Strong Road Sandpoint, ID 83864 139 Spenst Hansen 40,000 $1.62 per share 07/23/96 4734 South 2700 West Salt Lake City, UT 84127 Centurion Mines Corporation 100,000 $1.50 per share 07/23/96 P. O. Box 2365 Salt Lake City, UT 84110 John Ryan 10,000 $1.62 per share 07/23/96 619 Lunceford Lane Couer d'Alene, ID 83814 Ben Pellum 50,000 $1.62 per share 07/23/96 3864 South 1845 West #E204 West Valley, UT 84119 Keystone Surveys 15,000 $1.62 per share 07/23/96 331 South Rio Grande Suite 208 Salt Lake City, UT 84101 Cohig & Associates 15,000 Finder's Fee 07/29/96 6300 South Syracuse Way Mining Property Suite 430 Englewood, CO 80111 J. Wylie Harris, Jr. 60,000 Consulting Fees 02/21/97 602 N. Main Street Property Salem, AK 72576 REGULATION "S" SECURITIES Metallurgical Refining 3,700 $1.70 per share 07/18/95 P. O. Box 81 Australian JV Brisbane Market QLD 4106 Australia Ages, (AUST) Pty, Ltd. 5,000 $1.70 per share 07/18/95 463 Savages Road Australian JV Brookfield Queensland 4609 Australia Delten Trading, S.A. 200,000 $1.50 per share 10/04/95 60 Market Street Belize City, Belize CJC Holdings Pty, Ltd. 20,000 $1.50 per share 12/20/95 16 Ord Street Western Perth Western Australia 140 James Oleynick 50,000 $1.50 per share 12/20/95 1500 - 700 West Georgia Street Vancouver, B.C. Canada V7Y 1J1 James W. Prier, ITF RRSP 15,000 $1.50 per share 12/20/95 1715 - 750 West Pender Street Vancouver, B.C. Canada V6C 2T8 Jonathan A. Rubenstein 50,000 $1.50 per share 12/20/95 205 - 10711 Cambie Road Richmond, B.C. Canada V6X 3G5 Internation Consultant 25,000 $1.50 per share 12/29/95 475 Keith Road West Vancouver, B.C. Canada V7T 1L6 Killeba Holdings, Ltd. 200,000 $1.50 per share 01/11/96 102 Langeherrentaise Street Antwerten 2018 Belgium Shelley Mason 20,000 $1.50 per share 03/14/96 3441 Dundas Street Vancouver, B.C. Canada V5K 1R5 Pacific Int'l Securities 34,000 $1.50 per share 04/01/96 1500 - 700 West Georgia Street Vancouver, B.C. Canada V7Y 1J1 Jim Oleynick 34,000 $1.50 per share 04/01/96 1500 - 700 West Georgia Street Vancouver, B.C. Canada V7Y 1J1 Thomas E. Rafael & RRSP 23 5,000 $1.50 per share 04/20/96 475 Keith Road West Vancouver, B.C. Canada V7T 1L6 Stephen Katz 50,000 $1.50 per share 04/04/96 1758 West 4th Avenue Vancouver, B.C. Canada 141 Int'l Consultants 41,000 $1.50 per share 05/06/96 475 Keith Road West Vancouver, B.C. Canada V7T 1L6 Rush & Company 150,000 $2.20 per share 05/14/96 100 Wall Street New York, NY 10005 Siegler & Co. 250,000 $1.70 per share 07/01/96 Nominees for Femitage Global Mining Investment Fund, Ltd. Chemical Bank Ground Floor/Receiving Window 4 New York Plaza New York, NY Newark Sales Corp. 200,000 $0.75 per share 08/19/96 377 Langleleem Street Antwerten 2018 Belgium Britannia Holdings 200,000 $1.00 per share 01/29/97 Limited Kings House, The Grange St. Peter Port Guernsey, GY1 2QJ Channel Island Britannia Holdings 335,000 $1.00 per share 02/14/97 Limited Kings House, The Grange St. Peter Port Guernsey, GY1 2QJ Channel Island Louk Jongen 100,000 $1.00 per share 02/25/97 Total Investment Services b.v. Ooisestraat 4 4054 MN Echteld Holland NCL Investment Limited 136,000 $1.00 per share 03/04/97 Barlett House 9 - 12 Basinghall Street London, England EC2V 5NS Credit Suisse 100,000 $1.00 per share 03/07/97 (UK) Limited Five Cabot Square London, England E14 4QR 142 Britannia Holdings 1,600,000 $1.00 per share 03/24/97 Limited Kings House, The Grange St. Peter Port Guernsey, GY1 2QJ Channel Island Portsalon Investment 20,000 $1.25 per share 03/25/97 Seefeldstr. 214 Zurich 8034 Switzerland 143 ITEM 25. Exhibits. The following documents are incorporated herein by reference from the Registrant's Form 10, as filed with the Securities and Exchange Commission. Number Document - --------------------------------------------------------------------- 3.1 Articles of Incorporation. 3.2 Articles of Amendment. 3.3 Amendment to Articles of Incorporation Limiting Director Liability. 3.4 Bylaws. 10.1 Sale of Mining Properties By Centurion Mines Corporation to Royal Minerals, Inc. - June 1992 through September 1993. 10.2 Deed with Reservation of Mineral Royalty - January 1992 to Kennecott. 10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to Kennecott. 10.4 July 1992 Kennecott Option to Purchase 6,320 acres. 10.5 Deed and Assignment with Reservation of Mineral Royalty - August 1992 (16,880 acres) to Kennecott. 10.6 Deed and Assignment with Reservation of Mineral Royalty - December 1992 (6,320 acres) to Kennecott. The following documents are incorporated herein by reference from the Registrant's Current Report on Form 8-K, dated August 8, 1995, as filed with the Securities and Exchange Commission: 2.01 Agreement and Plan of Reorganization. 3.05 Articles of Share Exchange (Utah). 3.06 Articles of Share Exchange (Washington). 4.01 Subscription and Investment Agreement. 4.02 Stock Purchase Option Certificate. 19.01 Material Furnished to Celebration Securityholders. 20.01 Letter from Royal to Share Exchange Securityholders. 144 The following documents are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Commission on July 17, 1995. 4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1 to the Plan. The following documents are incorporated herein by reference from the Registrant's Form SB-2 Registration Statement filed with the Commission on February 10, 1997: 10.7 Vipoint Joint Venture Agreement. 10.8 Option to Joint Venture with Placer Mining Corporation, dated April 19, 1996. 10.9 Amendment to Option to Joint Venture with Placer Mining Corproation dated the 22nd day of July, 1996. 10.10 Exploration Agreement and Purchase/Joint Venture Option. 10.11 Purchase Agreement with Imperial Energy Corp. The following documents are incorporated herein by reference from the Registrant's Form SB-2 Registration Statement filed with the Commission on September 12, 1997: 5.1 Opinion of Conrad C. Lysiak. The following documents are included as exhibits hereto: 10.12 Unilateral option to Purchase Mining Concessions from Sociedad de Exploarciones Y Explotaciones Mineras Oregon Limitada. 10.13 Modification of Unilateral Purchase Option Contract of Mining Concessions. 10.14 Unilateral option to Purchase Mining Concessions from Compania Minera San Enrique S.C.M. Y Otra. 24.1 Consent of Williams and Webster, P.S. 24.2 Consent of Conrad C. Lysiak. 28.1 Warrant Agreement. 28.2 Selling Agent Agreement. All other schedules and exhibits are omitted, as the required information is not applicable or is not present in amount sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. 145 ITEM 26. Undertakings. A. The undersigned Registrant hereby undertakes: To provide to the Underwriters, if any, at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. B. The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and, (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. 2. That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. C. Insofar as indemnification for liabilities arising under the securities Act of 1933 may be permitted to Directors, Officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, Officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by a Director, Officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and shall be governed by the final adjudication of such issue. 146 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing of this Form SB-2 Registration Statement and has duly caused this Amendment No. 1 to the Form SB-2 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Spokane, Washington, on this 29th day of September, 1997. ROYAL SILVER MINES, INC. BY: /s/ Howard M. Crosby, President KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Howard M. Crosby as true and lawful attorney-in-fact and agent, with full power of substitution, for his and in his name, place and stead, in any and all capacities, to sign any and all amendment (including post-effective amendments) to this registration statement, and to file the same, therewith, with the Securities and Exchange Commission, and to make any and all state securities law or blue sky filings, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying the confirming all that said attorney-in-fact and agent, or any substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Form SB-2 Registration Statement has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Howard M. Crosby President and a member September 29, 1997 of Directors /s/ Robert E. Jorgensen Executive Vice President September 29, 1997 Treasurer and a member of the Board of Directors /s/ John Ryan Vice President of September 29, 1997 Corporate Development and Member of the Board of Directors /s/ Thomas Henricksen Secretary and a member September 29, 1997 of Board of Directors /s/ Jerry Stacey Vice President September 29, 1997 of Operations /s/ Ronald Kitching Member of the Board September 29, 1997 of Directors /s/ Kevin Stulp Member of the Board September 29, 1997 of Directors 147 EXHIBIT INDEX The following documents are incorporated herein by reference from the Registrant's Form 10, as filed with the Securities and Exchange Commission. Number Document - --------------------------------------------------------------------- 3.1 Articles of Incorporation. 3.2 Articles of Amendment. 3.3 Amendment to Articles of Incorporation Limiting Director Liability. 3.4 Bylaws. 10.1 Sale of Mining Properties By Centurion Mines Corporation to Royal Minerals, Inc. - June 1992 through September 1993. 10.2 Deed with Reservation of Mineral Royalty - January 1992 to Kennecott. 10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to Kennecott. 10.4 July 1992 Kennecott Option to Purchase 6,320 acres. 10.5 Deed and Assignment with Reservation of Mineral Royalty - August 1992 (16,880 acres) to Kennecott. 10.6 Deed and Assignment with Reservation of Mineral Royalty - December 1992 (6,320 acres) to Kennecott. The following documents are incorporated herein by reference from the Registrant's Current Report on Form 8-K, dated August 8, 1995, as filed with the Securities and Exchange Commission: 2.01 Agreement and Plan of Reorganization. 3.05 Articles of Share Exchange (Utah). 3.06 Articles of Share Exchange (Washington). 4.01 Subscription and Investment Agreement. 4.02 Stock Purchase Option Certificate. 19.01 Material Furnished to Celebration Securityholders. 20.01 Letter from Royal to Share Exchange Securityholders. 148 The following documents are incorporated herein by reference from the Registrant's Form S-8 Registration Statement filed with the Commission on July 17, 1995. 4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1 to the Plan. The following documents are incorporated herein by reference from the Registrant's Form SB-2 Registration Statement filed with the Commission on February 10, 1997: 10.7 Vipoint Joint Venture Agreement. 10.8 Option to Joint Venture with Placer Mining Corporation, dated April 19, 1996. 10.9 Amendment to Option to Joint Venture with Placer Mining Corproation dated the 22nd day of July, 1996. 10.10 Exploration Agreement and Purchase/Joint Venture Option. 10.11 Purchase Agreement with Imperial Energy Corp. The following documents are incorporated herein by reference from the Registrant's Form SB-2 Registration Statement filed with the Commission on September 12, 1997: 5.1 Opinion of Conrad C. Lysiak. The following documents are included as exhibits hereto: 10.12 Unilateral option to Purchase Mining Concessions from Sociedad de Exploarciones Y Explotaciones Mineras Oregon Limitada. 10.13 Modification of Unilateral Purchase Option Contract of Mining Concessions. 10.14 Unilateral option to Purchase Mining Concessions from Compania Minera San Enrique S.C.M. Y Otra. 24.1 Consent of Williams and Webster, P.S. 24.2 Consent of Conrad C. Lysiak. 28.1 Warrant Agreement. 28.2 Selling Agent Agreement. All other schedules and exhibits are omitted, as the required information is not applicable or is not present in amount sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.
EX-10 2 1 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile REPERTORY N0. 364 UNILATERAL OPTION TO PURCHASE MINING CONCESSIONS COMPANIA MINERA ROYAL SILVER LIMITADA FROM SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA ***** ***************** ************************************** 25864/M28&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&/but. In Santiago, Chile, on the thirty first of July of 1997, before me, ALBERTO HERMAN MONTAUBAN, attorney, Notary Public replacing the head of office of the Twenty second Notary of this jurisdictional territory Mr. Humberto Santelices Narducci, posted to this city, number zero forty-seven Avenida El Bosque Norte, Las Condes, have appeared: Mr. JAIME ALFREDO ARIAS FARIAS, Chilean, married, geologist, National ID number five million, one hundred eighty-one thousand, seventy-six dash seven, representing, as will be accredited by SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA, both domiciled for this purpose in Antofagasta, 1932 Bernardo O'Higgins Avenue, Suite 41, and passing through this city, hereafter also called the "Offering party", and CESAR ANDRES LOPEZ ALARCON, Chilean, married, attorney, National ID number nine million, five hundred eighty-one thousand, one hundred twenty-six dash four, representing, as will be accredited, "ROYAL SILVER MINES INC." and the latter, in turn, representing MINERA ROYAL SILVER LIMITADA, draft transfer company, Tax ID number seventy-seven million, three thousand four hundred ten dash eight, both residing, for these purposes, at Calle Bombero Adolfo Ossa 1010, Suite 501, Santiago, hereafter also known as "Royal Silver" or the "Beneficiary"; those who appear here are of legal age, and have accredited their identity with me with the documents referred to, do declare: FIRST: Mining Properties and statements.- A) SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA is the owner of the rights of the following mining exploration concessions in process, located in the mining seat of Mocha, Huara-Pisagua Commune, Iquique Province, First Region of Tarapaca, named: ONE) "BERMEJOS", registered on page 470 under the number 308 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte 2 corresponding to the year 1997. TWO) "QUIMLI", registered on page 471 under the number 309 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THREE) "ZAPATA", registered on page 469 under the number 307 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FOUR) "ORAN', registered (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile on page 468 under the number 306 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIVE) "POSITOS", registered on page 467 under the number 306 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIX) "GLADIOLO", registered on page 443 under the number 281 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVEN) "VIOLETA", registered on page 416 under the number 254 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHT) "ITURBE", registered on page 480 under the number 318 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINE) "HUMAHUACHA", registered on page 481 under the number 319 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TEN) "GUEMES", registered on page 482 under the number 320 in the Registry of Discoveries of the Conservator of (handwritten note in right margin) 1917 Mines of Pozo Almonte corresponding to the year 1997. ELEVEN) "AGASTACO", (handwritten note) 28/453 registered on page 483 under the number 321 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWELVE) "MATAN", registered on page 480 under the number 322 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTEEN) "ANTILLA", registered on page 478 under the number 316 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FOURTEEN) "TAFI", registered on page 477 under the number 315 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTEEN) "ANDALGALA", 3 registered on page 476 under the number 314 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTEEN) "CHEPES", registered on page 473 under the number 311 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTEEN) "TORTOLAREJOS", registered on page 509 under the number 347 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile EIGHTEEN) "MALBRAN", registered on page 472 under the number 310 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETEEN) "PATQUIA", registered on page 475 under the number 313 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY) "CHUMBICHA", registered on page 474 under the number 312 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-ONE) "PENA", registered on page 508 under the number 346 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-TWO) "TARTAGAL", registered on page 479 under the number 317 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-THREE) "CAFAYALE", registered on page 415 under the number 253 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-FOUR) "TINOGASTA", registered on page 466 under the number 304 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-FIVE) "JACHAL", registered on page 465 under the number 303 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-SIX) "ROQUE", registered on page 507 under the number 345 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-SEVEN) "HONDO", registered on page 506 under the number 344 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-EIGHT) "ESTERO", registered on page 505 under the number 343 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. TWENTY-NINE) "RECREO", registered on page 504 under the number 342 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte (Handwritten note) (49) 4 corresponding to the year 1997. THIRTY) "MODESTO", registered on page 503 under the number 341 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-ONE) "OMISTE", registered on page 502 under the number 340 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile THIRTY-TWO) "SARAVIA", registered on page 501 under the number 339 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-THREE) "CHARCAS", registered on page 500 under the number 338 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-FOUR) "LLANO", registered on page 499 under the number 337 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-FIVE) "MONTE", registered on page 498 under the number 336 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-SIX) "FRIAS", registered on page 493 under the number 331 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-SEVEN) "VILLAZON", registered on page 497 under the number 335 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-EIGHT) "MAESTRO", registered on page 496 under the number 334 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. THIRTY-NINE) "CHICHASO", registered on page 495 under the number 333 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY) "CAMACHO", registered on page 494 under the number 331 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-ONE) "AYACUCHO", registered on page 492 under the number 330 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-TWO) "PALMERO", registered on page 491 under the number 329 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-THREE) "BENINO", registered on page 490 under the number 328 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-FOUR) "COLQUE", registered on page 489 under the number 327 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-FIVE) "ESPOSOS", registered on page 488 under the number 326 in the 5 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-SIX) "QUIJARRO", registered on page 487 under the number 325 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-SEVEN) "SUIPACHA", registered on page 486 under the number 324 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-EIGHT) "BUSTILLOS", registered on page 485 under the number 323 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FORTY-NINE) "RON", registered on page 456 under the number 294 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY) "DANTAS", registered on page 457 under the number 295 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-ONE) "FREITAS", registered on page 458 under the number 296 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-TWO) "GOUVEA", registered on page 459 under the number 297 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-THREE) "LEMOS", registered on page 460 under the number 298 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-FOUR) "MORONHA", registered on page 462 under the number 300 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-FIVE) "JOHANNA", registered on page 463 under the number 301 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997.FIFTY-SIX) "BELEN", registered on page 446 under the number 284 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-SEVEN) "YOVANKA", registered on page 464 under the number 302 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. FIFTY-EIGHT) "NOBUCO", registered on page 461 under the number 299 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile 6 FIFTY-NINE) "VIRGINIA", registered on page 448 under the number 286 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY) "MARGARITA", registered on page 444 under the number 282 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-ONE) "CASCADA", registered on page 450 under the number 288 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-TWO) "TULIPAN", registered on page 449 under the number 287 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-THREE) "RODRIGO", registered on page 447 under the number 285 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-FOUR) "MARYLIN", registered on page 445 under the number 283 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-FIVE) "BARTOLO", registered on page 442 under the number 280 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-SIX) "GUMIEL", registered on page 432 under the number 270 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-SEVEN) "CAMPERO", registered on page 433 under the number 271 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-EIGHT) "TUMUSLA", registered on page 434 under the number 272 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SIXTY-NINE) "RICO", registered on page 435 under the number 273 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY) "ANILLO", registered on page 436 under the number 274 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-ONE) "SOLIS", registered on page 451 under the number 289 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-TWO) "CAMERINO", registered on page 452 under the number 290 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-THREE) "CABRAL", registered on page 453 under the number 291 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-FOUR) "RIBEIRO", registered on page 454 under the number 292 in the Registry of 7 Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-FIVE) "GUANABARA", registered on page 455 under the number 293 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-SIX) "PARI", registered on page 417 under the number 255 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-SEVEN) "PARADETI", registered on page 418 under the number 256 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-EIGHT) "MOXAS", registered on page 419 under the number 257 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SEVENTY-NINE) "MAMORE", registered on page 420 under the number 258 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY) "ABUNA", registered on page 421 under the number 259 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-ONE) "FORTIN", registered on page 437 under the number 275 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-TWO) "CUELLAR", registered on page 438 under the number 276 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-THREE) "SEOANE", registered on page 439 under the number 277 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-FOUR) "JUNIN", registered on page 440 under the number 278 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-FIVE) "INGAVI", registered on page 441 under the number 279 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile EIGHTY-SIX) "ITENES", registered on page 422 under the number 260 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-SEVEN) "BAURES", registered on page 423 under the number 261 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-EIGHT) "COIMBRA", registered on page 424 under the number 262 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. EIGHTY-NINE) "CELSO", registered on page 425 under the number 263 in the Registry of Discoveries 8 of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETY) "CASTEDO", registered on page 427 under the number 265 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETY-ONE) "BALLIVIAN", registered on page 426 under the number 264 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETY-TWO) "WARNES", registered on page 428 under the number 266 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETY-THREE) "MOLDES", registered on page 429 under the number 267 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETY-FOUR) "IRALA", registered on page 430 under the number 268 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. NINETY-FIVE) "SENDA", registered on page 431 under the number 269 in the Registry of Discoveries of the Conservator of Mines of Pozo Almonte corresponding to the year 1997. SECOND: The Offering party declares and guarantees that with regard to the mining concessions noted in the first clause preceding, he has exclusive and inclusive ownership rights; these were acquired under just deed, in good faith, in accordance with law, rules and other applicable norms; that the process of constituting these is being carried out according to the law, rules and other applicable norms; that they have no mortgages, obligations, prohibitions, litigations, embargoes nor any other legal or voluntary measure which may affect, perturb or embarrass their free disposition or alienation and with their mineral patents current; that other concessions of his ownership and/or of related persons do not exist nor are known - understanding as such, for the purposes of this contract, those referred to under Article 100 of Law 18045 - which are in effect in the area noted in the "Cadastral Plan" (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile which, signed by the parties, is added as a private attachment to this contract, understood to form a part of the same. The foregoing is without prejudice of the real prohibitions and obligations which are constituted by this instrument. The circumstances and events to which the preceding statement refer have for "Royal Silver" the character of being essential and definitive for the completion of this contract and the eventual completion of the proposed sale and purchase contract. THIRD: By means of the present document, the offering party offers 9 irrevocably a purchase option and unilaterally obliges itself to sell, cede and transfer to Compania Minera Royal Silver Limitada, represented on this record by Mr. Cesar Andres Lopez Alarcon, the mining exploration concessions noted in the first clause of this contract. For the purposes mentioned, the offering party of course and by means of this instrument expresses his consent to the eventual sale and purchase of said mining concessions. The beneficiary, for his part, in this record declares the offer and the purchase option received and reserves the ability to freely act on it within the time limits and the conditions stipulated in the present contract. Also comprised in the current contract: a) The inherent water rights, or according to the dispositions of article 110 of the Mining Code, those which correspond according to Mining Concessions, those which are constituted or acquired by the Offering Party or persons related to it in regard to the Mining Concessions and those who benefit or could benefit the Mining Concessions and that the Offering Party and persons related to it may come to possess, have, use or dispose of any title; b) The rights of any kind over superficial terrain, including ownership and/or easements, which might come to correspond to the Mining Concessions and/or that the Offering Party or persons related to it may obtain as a fruit of the Mining Concessions: c) any other petition or manifestation, be this pure and simple, or in the use of a preferred right which may be conferred by a previous petition, which the Offering Party or persons related to it may present in the Area of Interest, indicated in the cadastral plan attached to the current instrument, as well as the mining concessions which may be derived from them; and d) in general, all other rights and goods which currently may belong to or may come to belong in the future to the Offering Party or persons related to it and which may be necessary or convenient to construct and/or develop and/or exploit a mine and/or factory and which may be found in the Area of Interest. All of the rights and goods mentioned in the preceding four paragraphs are understood to be ceded and transferred by the Offering Party to the Beneficiary, at the moment Royal Silver exercises its option, without further cost to the latter, and without prejudice, that the Offering Party, in order to put into practical effect that which is agreed to, should as soon as possible: i) obtain from the persons related to it the transfer in its favor, to later be included in the Contract, of those rights and goods mentioned in the preceding which are in their name, or whose possession, free use of and/or mere occupation may be in the hands of such related persons; ii) deliver all the legal records on said rights and goods to Royal Silver; iii) submit, together with Royal Silver, however many public and/or private documents may be required to 10 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile expressly include said rights and goods in the Contract; and, iv) at the time of inclusion in the Contract, show that the events indicated in the First Article are in effect and therefore, will make similar declarations concerning those contained in the article just alluded to. On its part, the Offering Party is obliged to carry out, opportunely and in its case, all the actions, steps and paperwork which may be necessary or pertinent to the correct and proper constitution, protection and shielding of the Mining Concessions, as for example, a manifestation of the use of the preferential right which may be conferred by a petition, request for survey, opposition to a request for a survey and/or suits for nullification of superposed concessions and the relocation of meets and bounds and for the processing and/or extension, in its case, of the mining concessions that may eventually be constituted by the Offering Party, by itself or through third parties, in the superficial area of the Mining Concessions. All costs which occur on the occasion of compliance with the obligations indicated in this clause to the Offering Party, will be the exclusive obligation of the Beneficiary. The cost of making and shielding new mining possessions or exploration concessions on lands located within the Area of Mining Concessions and which the Offering Party may present upon previous request, expressly and in writing by Royal Silver, will be the obligation of the latter. Lack of compliance with the obligations mentioned in this clause on the part of the Offering Party will empower Royal Silver to carry out itself the paperwork that should have been done by the former. With the aim that Royal Silver may proceed with the paperwork that the Offering Party should have done, the latter confers a free and special mandate on Royal Silver, as far reaching as the law may require, so that it, by means of its directors or guardians which it may specially designate, may represent the Offering Party legally or extra-legally, and may in its name carry out all the paperwork, steps, measures and actions necessary or conducive to the proper formation, protection and shielding of the Mining Concessions, being provided for in this case with the powers in both sub-paragraphs of the Seventh Article of the Code of Civil Procedure, which are given as reproduced. The delivery of this mandate to Royal Silver in no case obligates the latter to exercise it; if it exercises it, it will not be obliged to make report and does not revoke other powers which may have been given previously. FOURTH: The parties agree that the present option contract will be governed by the dispositions of Article 169 of the Mining Code, and additionally, by Articles 99 and 101 of the Business Code, in such a way that it is absolutely within the 11 power of "Royal Silver" to manifest or not its consent to perfect the proposed purchase and sale contract. FIFTH: In the event that "Royal Silver" opts to purchase the mining exploration concessions offered in sale, it should so indicate by means of a written public document made before the same Notary who authorizes this contract, or before the person who replaces or substitutes for him under any title, within the limit of three years from the date of the present instrument. By the simple act of subscription by "Royal Silver" or its assignee to the referred public document of acceptance, it will be understood that the purchase/sale has been perfected, (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile with the understanding that it is composed of this option contract and said acceptance document. The holder of an authorized copy of both documents is empowered to require the pertinent registrations, sub-registrations and annotations. SIXTH: If the beneficiary declares its intent not to reach an agreement on the proposed purchase and sale contract at any time within the three year limit stipulated in the previous clause, and declares it thusly by means of a public document before the Notary who authorizes it, or does not pay completely and opportunely any of the payments of the price which are stipulated in the seventh clause, the purchase option and the irrevocable offer formulated by the present instrument, will no longer, ipso facto, be valid, and in that event the beneficiary renounces requesting the return of any amounts which it may have delivered to the Offering Party, these amounts remaining for the benefit of the latter as indemnization for any and all obligations contracted in anticipation. In this case, there will be an immediate lifting of all prohibitions and obligations which may have been formed by reason of this contract, with no further step than showing to the respective Conservator of Mines the corresponding document of public declaration or by a certificate from the Notary who carries out this function which shows that the stipulated time limits have expired without the beneficiary having accepted the offer and exercised the option or not having made the stipulated payment of the price. SEVENTH: The price of the proposed purchase/sale is the amount equivalent in pesos of national currency to $356,000 dollars of the United States of America, at the average bank dollar established in conformity with number six of Title 1 of Chapter 1 of the Compendium of International Exchange Norms by the Chilean Central Bank, for the day before the payment is made, and is to be found published in the Official Newspaper on the day of payment, commonly called the "observed dollar"; on the dates of payment, and under the form 12 and conditions which follow: a) the sum equivalent in pesos of the national currency of $25,000 dollars of the United States of America which will be paid by this act by cash payment, on check number 31467 of ABN Amro Bank [Chile], of an equal amount and which the Offering Party declares receiving to its complete and total satisfaction; b) The sum equivalent in national currency of $25,000 dollars of the United States of America, payable no later than three months from the date of this contract; c) The sum equivalent in national currency of $25,000 dollars of the United States of America payable six months from the date of the present document; d The sum equivalent in national currency of $25,000 dollars of the United States of America payable nine months from the date of the present document; e) With the sum equivalent in national currency of $25,000 dollars of the United States of America payable twelve months from the date of the present document; f) With the sum equivalent in national currency of $25,000 dollars of the United States of America payable fifteen months from the date of the present document; g) With the sum equivalent in national currency of (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile $25,000 dollars of the United States of America payable eighteen months from the date of the present document; h) With the sum equivalent in national currency of $25,000 dollars of the United States of America payable twenty-one months from the date of the present document; and i) With the sum equivalent in national currency of $156,000 dollars of the United States of America payable thirty-six months from the date of the present document. In addition, and having it understood that it not be a part of the previously indicated price, "Royal Silver" is obligated by this document to spend, within the time limit of three years from the date of this contract, the sum equivalent in pesos of the national currency to $200,000 dollars of the United States of America to cover, and without this enumeration being restrictive, the costs related to the formation of the definitive mining property in the individually noted concessions of the first clause, geological, geochemical, and geophysical surveys, ditches, probes, proposals for and operation of measurements, and in general, all types of investigation which will allow a qualitative and quantitative evaluation of the exploration concessions already noted individually. With all this, in the event that "Royal Silver" exercises the option and declares its willingness to accept the offer while the time limit of thirty-six months stipulated in this clause is still pending, it 13 will be a condition for the exercise of the option and the acceptance to be valid that "Royal Silver" make ahead of time all the payments for the purchase and sale price which might be pending, and which in the same fashion, may have spent and so have credited to the Offering Party, by means of receipts, invoices, honorarium vouchers, and other basic pertinent documentation, the sum of $200,000 dollars referred to in this clause. The making of each of the payments of the price will be done at the place of business of "Royal Silver", upon the signing by the Offering Party of the corresponding public document of receipt. In this case, it will be understood that the payment obligation has been complied with integrally and completely, with the delivery to the Notary who authorizes this document, or his successor or replacement, of a promissory note made out to the Offering Party, in pesos of the national currency for the amount of the stipulated payment, calculated in the way described in this clause. The Notary will deliver to the Offering Party the corresponding promissory note upon the signing of the corresponding document of receipt. EIGHTH: The Offering Party delivers to the Beneficiary the individual mining concessions in the first clause, expressly authorizing "Royal Silver" to be able, at the corresponding legal opportunity, by the persons it may designate, to enter its own materials into the mining properties, and to carry out in them every type of work of prospecting, reconnaissance, searching, and in general, investigations which permit a qualitative and quantitative evaluation of the concessions, and to introduce into the concessions all types of equipment and machinery to carry out the work of reconnaissance and prospecting and to install camps for the personnel who will work in them, and the Offering Party should facilitate whatever is necessary for these purposes. "Royal Silver" is obligated to (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile deliver to the Offering Party a report on the exploratory work carried out and its results, in the event the option is not exercised or it is nullified for any of the causes stipulated in the sixth clause. NINTH: The Offering Party makes, in this action, a voluntary prohibition that it will not damage, remove, or carry out actions and contracts regarding the mining concessions indicated in the first clause, without previous written consent from "Royal Silver", whose respective registration in the Registry of Prohibitions of the Conservator of Mines can be required by the holder of an authorized copy of this document. The foregoing is without prejudice to the registering of the present contract with the Registry of 14 Mortgages and Obligations in conformity with Article 169 of the Mining Code. TENTH: If, during the time this contract is in force, the beneficiary thinks it necessary or convenient to request concessions for mining exploration or exploitation, concessions for water use, civil and mining easements, concessions, free loans or destinations of superficial soil, it may do so assuming their costs, understanding that they form a part of the option for all legal purposes. In the event that the option contract becomes void for any cause, the concessions or rights which may have been obtained over the shielded terrain by the belongings which are a subject of the present contract, will be transferred to the Offering Party without any cost to the latter. ELEVENTH: Without prejudice from Article 1901 of the Civil Code, "Royal Silver" may at any time, being authorized from now on by the Offering Party without need for prior notice, sell, cede, transfer, or by any means dispose of all or part of its rights in this contract, if the purchaser or cessionary always states in the contract which serves as title to his acquisition that he will comply with exactly the same and all of the obligations which "Royal Silver" has contracted by virtue of this contract, in the same terms and as if this contract had been agreed to by said cessionary and obligating itself to impose the same obligations to any later cessionary. TWELFTH: It will correspond to "Royal Silver" to assume the obligation to shield the mining concessions which are the subject of this contract by means of the complete and timely payment of the respective mining patents prior to receipt of proofs of the respective payments given by the Offering Party. THIRTEENTH: The mining concessions are sold as is, in the condition they may be in on the day of agreement to this contract, with all of their uses, customs, rights and active and passive easements, free from debt, obligations, prohibitions, litigations, embargoes, purchase/sale contracts for in situ minerals, rents, or any other kind of action or contract, obligations, real and personal rights which may impede the free use, enjoyment, disposition and delivery of the mining concessions indicated individually in the first clause and in the same conditions stated in the second clause. The Offering Party will be responsible for the guarantee required by the law. FOURTEENTH: The present contract will obligate all successors to any deed of the Offering Party. FIFTEENTH: In the event of the termination of this option contract, "Royal Silver" will have 90 days to (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile 15 vacate the concessions and to remove from them all the machinery, equipment and construction which may have been placed on them. In the event that "Royal Silver" finds itself impeded by weather conditions or other unavoidable causes, the time limit will be extended for a reasonable period after the impediment has been removed. SIXTEENTH: It is noted and declared that this present contract is governed by Chilean law. The same is agreed to with respect to the proposed sale/purchase contract, as well as the eventual modifications of either one. SEVENTEENTH: The expenses and fees which are generated on the occasion of this present contract and on the offered purchase/sale contract, and the fees for registrations in the respective Conservator of Mines, will be the responsibility of "Royal Silver". This latter will not respond to any instance of taxes and other personal charges to the Offering Party which derive from the option and/or the purchase/sale referred to. EIGHTEENTH: All difficulties, differences of opinion, disputes or controversies which may come up between the Offering Party, on the one hand, and "Royal Silver" and/or its cessionaries on the other hand, related to the stipulations of the present contract, which may be related to its validity, interpretation, compliance or resolution, will be resolved by an arbitrator. The parties designate by this action for that purpose Mr. Samuel Lira Ovalle and in the event that he can not or does not wish to accept the charge, they designate Mr. Juan Luis Ossa Bulnes, and in the event that he, in turn can not or will not accept the charge, the parties designate Mr. Claudio Illanes Rios, who will have the character of arbitrating arbitrator. Mr. Lira, or Mr. Ossa, or Mr. Illanes, as may be the case, is empowered to decide on the rules of procedure, including that concerning the form of notification of the parties, but should in any case make the first notification personally, or in compliance with the statutes of Article 44 of the Civil Procedure Code. If the previously named persons are unavailable, the Arbitrator will be designated by common agreement between the parties, and if that agreement is lacking, the designation will be made by the Civil Judge in Santiago who is so scheduled, but in this last case the arbitrator, who will act as the only resort, should be an attorney and will act as an arbitrator in the procedure and as an administrative law judge in the finding, with the designation falling only on a person who has been a lawyer to the Supreme Court or the Appeals Court for two consecutive periods. The site of the tribunal will be the city of Santiago. The decision rendered will not be subject to appeal, (a right ) which both parties expressly waive. The arbitrator is empowered, in the event that it be necessary to obtain compliance with the respective contract and if he considers it proper, to sign representing the Offering Party the public document in which is completed the purchase/sale of the mining exploitation concessions indicated in the first clause. NINETEENTH: While the present option contract is in effect, and as long as the offered purchase/sale has not been agreed to, "Royal Silver" may demand the resolution ipso-facto of the same 16 if the title deeds of the mining concessions indicated individually in the first clause are not prepared according to law and in the conditions stated in the second clause, or if the defects which they (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile may have are not resolvable, in the opinion of the attorneys for the parties. In the case of resolvable defects, the Offering Party is obliged to give its complete cooperation for the search, giving, and delivery of the documents required to resolve the defects, and is obliged to carry out, at its own expense, all the procedures and measures which may be necessary. But, if said resolvable defects are of such importance that they might affect the rights of "Royal Silver" or its cessionaries or place in danger the development of the exploration or of the project, while those defects are not resolved or cured, "Royal Silver" may suspend the price payments, and extend for an equal time period the time limits that "Royal Silver" has for exercising its rights. Once the offered purchase/sale is agreed to, the obligation to resolve and cure will continue according to the law. TWENTIETH: If compliance with any obligation emanating from this contract, or with the time limit for the exercising of a right by any of the parties, is impeded by chance circumstance or dire necessity, the time limit for compliance with the obligation or for the exercise of the right, as it may be, is extended for a time equal to the lapse during which the chance circumstance or dire necessity exists. TWENTY-FIRST: All communication between the parties which has no specially designated format in this contract will be done by Fax, followed by notarized, certified letter, to the places of business indicated in this contract. For the purposes of this contract, the parties locate their places of business in the city of Santiago, expressly extending the competence of their jurisdictional bodies. TWENTY-FIRST: (sic) The holder of an authorized copy of the present instrument is empowered to require the registration, sub-registration and annotations which must take place in the corresponding registries of the competent Conservators of Mines. The appearance of Mr. Jaime Arias Farias in representation of Sociedad de Exploraciones y Explotaciones Mineras Oregon Limitada is contained in a Writ by public document dated the twentieth of February 1990, made before Notary Mr. Jose Luis Gumucio Barros, deputy for Mr. Humberto Santelices Narducci. The appearance of Mr. Cesar Andres Lopez Alarcon in representation of "Compania Minera Royal Silver Limitada" and of "Royal Silver Mines Incorporated", is contained in a Writ by public document dated the ninth of July 1997, made in the 17 Notary office in Santiago of Mr. Humberto Santelices Narducci and the power probated in the same Notary office under the number 15 dated 9 July 1997, respectively, appearances which are not inserted because they are known to the parties and to the authorizing Notary. In proof and with prior reading, are signed. - In witness of (Illegible initials). - (illegible signature) (illegible signature) Jaime Alfredo Arias Farias Cesar Andres Lopez Alarcon THIS IS A FAITHFUL COPY OF THE ORIGINAL PUBLIC DOCUMENT SANTIAGO 01 APR 1997 (Illegible signature) (Illegible Seal ) (Partially illegible stamped title ) XXII Notary Santiago EX-10 3 1 MODIFICATION OF UNILATERAL PURCHASE OPTION CONTRACT OF MINING CONCESSIONS COMPANIA MINERA ROYAL SILVER LIMITADA FROM SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA APPEARING: In Santiago, a (blank space) have presented themselves JAIME ARIAS FARIAS, Chilean, married, geologist, residing in Antofagasta, Avenida Bernardo O'Higgins 1932, Office 41, and on a trip to here, National ID number five million, one hundred and eighty-one thousand, seventy-six dash seven, representing, as will be accredited, SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA, both with residence for this purpose in Antofagasta, Avenida Bernardo O'Higgins 1932, Office 41, and on a trip here, in future called "Oregon: or the "Offering Party" and CESAR ANDRES LOPEZ ALARCON, Chilean, married, attorney, National ID number nine million, five hundred eighty thousand one hundred twenty-six dash four, representing as will be accredited, "ROYAL SILVER MINES INC." and this, in turn, representing MINERA ROYAL SILVER LIMITADA, a draft transfer company of its denomination, National Tax ID number seventy-seven million, three thousand, four hundred ten dash eight, both residing for these purposes at Calle Bombero Adolfo Ossa number 1010, Office 501, hereafter also called "Royal Silver" or the "Beneficiary", of legal age, who prove their identity with the documents already cited, do state: FIRST: Those appearing here, for the present instrument, have come to modify the seventh clause of the unilateral purchase option contract for mining concessions made before this Notary, under Repertory number three hundred sixty-four, dated thirty-one July nineteen hundred and ninety-seven, replacing it with the following: "SEVENTH: The price of the proposed purchase/sale is the quantity equivalent in pesos of the national currency to the average set in accordance with Number Six of Title 1 of Chapter 1 of the Compendium of International Exchange Norms by the Central Bank of Chile, for the day prior to making the payment and which is published in the Diario Oficial on the same day of payment, commonly called the "observed dollar", on the dates for payment, and in the manner and conditions set forth in the following: a) With the sum of twenty-five thousand dollars of the United States of America payable in cash on the thirty-first day of July of nineteen hundred and ninety-seven, by check number 31467 of ABN Amro Bank, Chile, for that amount and which the Offering Party declares receiving to its complete and total satisfaction; b) With the sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America, payable no later than the thirty-first of October, nineteen hundred and ninety-seven; c) The sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America payable no later than the thirty-first of January, nineteen hundred and ninety-eight; d) The sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America payable no later than the thirtieth 2 of April, nineteen hundred and ninety-eight; e) The sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America payable no later than the thirty-first of July, nineteen hundred and ninety-eight; f) The sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America payable no later than the thirty-first of October, nineteen hundred and ninety-eight; g) The sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America payable no later than the thirty-first of January, nineteen hundred and ninety-nine; h) The sum equivalent in pesos of the national currency of twenty-five thousand dollars of the United States of America payable no later than the thirtieth of April, nineteen hundred and ninety-nine; Additionally, as a surcharge, and once the conditions set forth in the following are met, "Royal Silver" or its cessionary is obliged by this action to pay "Oregon" the following sums of money: ONE: The sum equivalent in pesos of the national currency of five hundred thousand dollars of the United States of America payable no later than the thirty-first of July, of the year two thousand and two; TWO: The sum equivalent in pesos of the national currency of one million dollars of the United States of America payable no later than the thirtieth of July, of the year two thousand and three; THREE: The sum equivalent in pesos of the national currency of one million dollars of the United States of America payable no later than the thirty-first of July, of the year two thousand and four; FOUR: The sum equivalent in pesos of the national currency of one million five hundred thousand dollars of the United States of America payable no later than the thirtieth of July, of the year two thousand and five. This surcharge will be payable only in the event that, together, the following conditions are met: a) That all the rights over the mining concessions belonging to "Oregon" have been transferred to "Royal Silver" or to its cessionary; and, b) That "Royal Silver" or its cessionary, at the moment the surcharge payments become payable, are in material and legal possession of all of the rights of "Oregon" over the respective concessions, free from all embargoes, obligations, or prohibitions. With all this, in the event that "Royal Silver" were to exercise its option and show its willingness to accept the offer within the pending time limit of twenty-one months stipulated in this clause for the payment of the price of two hundred thousand dollars of the United States of America already referred to, it will be a condition for the exercise of the option and its acceptance to go into effect, that "Royal Silver" make ahead of time all payments for the purchase/sale price which may be pending. The making of each of the payments for the price will be done be means of delivery to the Notary who authorizes this document, or his successor or replacement, of a promissory note made out to the Offering Party, in pesos of the national currency for the amount of the stipulated payment, calculated in the way described in this clause. The Notary will deliver the 3 corresponding promissory note upon the signing by the Offering Party of the corresponding document of receipt." SECOND: The holder of an authorized copy of the present instrument is empowered to require the registration, sub-registrations and annotations which should take place in the corresponding registries of the competent Conservators of Mines. The appearance of Mr. Jaime Arias Farias, to represent Sociedad de Exploraciones y Explotaciones Mineras Oregon Limitada is shown by a public document of Executor dated the twentieth of February nineteen hundred and ninety, made before the Notary Mr. Jose Luis Gumucio Barros, deputy for Mr. Humberto Santelices Narducci. The appearance of Mr. Cesar Andres Lopez Alarcon to represent "Compania Minera Royal Silver Limitada" and "Royal Silver Mines Incorporated", is shown in the public document dated 9 July 1997, made at the Notary Office of Santiago of Mr. Humberto Santelices Narducci and in the power protocol given by the same Notary under the number 15 dated 9 July 1997, respectively, appearances which are not included by reason of being known to the parties and to the authorizing Notary.- In proof and with prior reading, those who here appeared have signed the present instrument. - In witness of. - Jaime Arias Farias National ID No 5.181.076-7 pp. SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA Cesar Andres Lopez Alarcon National ID No 9.581.126-4 pp. COMPANIA MINERA ROYAL SILVER LIMITADA EX-10 4 1 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile REPERTORY No249 *** ***** UNILATERAL OPTION TO PURCHASE MINING CONCESSIONS ***** (handwritten) 23/7 "COMPANIA MINERA ROYAL SILVER LIMITADA" FROM "COMPANIA MINERA SAN ENRIQUE S.C.M. Y OTRA" *** ***** 25788/30 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&/allo In Santiago, Chile, on the twenty-third of July of 1997, before me, ALBERTO HERMAN MONTAUBAN, attorney, Notary Public replacing the head of office of the Twenty second Notary of this jurisdictional territory Mr. Humberto Santelices Narducci, posted to this city, number zero forty-seven Avenida El Bosque Norte, Las Condes, have appeared: Mr. PEDRO ENRIQUE ESCALA BALTRA, Chilean, married and with complete separation of properties, attorney, National ID number four million, one hundred one thousand, four hundred seventy-one dash seven, and Mr. FERNANDO ANDRES ESCALA BALTRA, Chilean, married, licensed in law, National ID number six million, three hundred forty thousand, four hundred eighteen dash seven, both representing, as will be shown at the end, "COMPANIA MINERA SAN ENRIQUE S.C.M.", Tax ID number eighty-seven million, seven hundred fourteen thousand, one hundred dash four, and "COMPANIA MINERA COBRE IQUIQUE S.C.M.", National Tax ID number eighty-three million, seven hundred seven thousand, three hundred dash two, both domiciled for this purpose at Calle Marchant Pereira number 201, Office 802, Providencia, Santiago, hereafter also called the "Owners" or the "Offering party", on the one hand; and, on the other, Mr. CESAR ANDRES LOPEZ ALARCON, Chilean, married, attorney, National ID number nine million, five hundred eighty-one thousand, one hundred twenty-six dash four, representing, as will be accredited, "ROYAL SILVER MINES INCORPORATED", and the latter in turn representing "COMPANIA MINERA ROYAL SILVER LIMITADA", National Tax ID number seventy-seven million, three thousand, four hundred ten dash eight, Chilean draft transfer company, hereafter also called "Royal Silver" or the "Beneficiary", both residing, for 2 these purposes, at Calle Bombero Adolfo Ossa 1010, Suite 501, Santiago; those who appear here are of legal age, and have accredited their identity with me with the documents referred to, do declare: FIRST: Mining Properties and statements.- A) "Compania Minera San Enrique S.C.M." is the owner of the mining properties producers of copper, gold and silver, located in the mining seat of Mocha, Huara-Pisagua Commune, Iquique Province, First Region of Tarapaca, named: ONE) "SAN ENRIQUE PRIMERA, SEGUNDA Y TERCERA", whose survey records and approving resolution are registered on page 481 and one following under the number 71 in the Registry of Properties of the Conservator of Mines of Iquique from the year 1937. - (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile Said survey records and approving resolution are presently re- registered on page 66 number 9 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981; TWO) "MARIA INES UNO AL CUARENTA", whose survey records and approving resolution are registered on page 419 and one following under the number 24 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1961. Said survey records and approving resolution are presently re-registered on page 57 and following, number 8 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981; THREE) "TADEO UNO AL DIEZ", whose survey records and approving resolution are registered on page 1 under the number 1 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1945. Said survey records and approving resolution are presently re-registered on page 83, number 12 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981. - "Compania Minera San Enrique S.C.M." acquired the title deed to the mining properties individually noted in numerals one, two and three preceding by payment effected on the corresponding public document of incorporation of company dated three October 1980, granted before the Notary of Santiago Mr. Samuel Fuchs Brotfeld, which was registered on page 78 number 48 of the Registry of Properties of the Conservator of Mines of Iquique, in the year 1980, and are presently re-registered on page 103, number 16 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981. FOUR) "GLORIA UNO AL SIETE, whose survey records and approving resolution are registered on page 41 under the number 16 in the Registry of Properties of the Conservator of Mines of Pozo Almonte in the year 1982. - "Compania Minera San Enrique S.C.M." acquired the title deed to these properties at auction, as is shown in the public document dated 25 July 1996, granted before the Notary Public of the Associated 3 Communes of Camina, Huara, Pica and Pozo Almonte, Mr. Enso Arnoldo Gonzalez Gonzalez, registered on page 762, number 174 of the Registry of Properties of the Conservator of Mines of Pozo Almonte from the year 1996. - FIVE) "DONA MARIA TERCERA UNO AL CUARENTA", whose survey records and approving resolution are registered under the name of "Compania Minera San Enrique S.C.M. on page 64, number 29 in the Registry of Properties of the Conservator of Mines of Pozo Almonte in the year 1997. - It has been shown that "Compania Minera San Enrique S.C.M." acquired the rights arising from the demonstration of said mining properties via purchase/sale according to the public document dated 11 July 1995, (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile given before the Notary of Santiago Mr. Felix Jara Cadot and registered on page 3467, number 2051 of the Registry of Discoveries of the Conservator of Mines of Pozo Almonte, for the year 1995. - B) "Compania Minera Cobre Iquique S.C.M." is owner of the mining properties producers of copper, gold and silver, located in the mining seat of Mocha, Huara-Pisagua Commune, Iquique Province, First Region of Tarapaca, named: ONE) : MARCELINA OR MARCELINA PRIMERA", whose survey records and approving resolution are registered on page 112 under the number 25 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1936. Said survey records and approving resolution are presently re-registered on page 71, number 10 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981. - TWO) "MARCELINA CUARTA Y QUINTA", whose survey records and approving resolution are registered on page 166 under the number 34 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1938. This survey record and approving resolution are presently re-registered on page 75 and following, number 11 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981. - THREE) "PASCUALA PRIMERA Y SEGUNDA", whose survey records and approving resolution are registered on page 96 under the number 17 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1948. - Said survey records and approving resolution are presently re-registered on page 91, number 13 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981. - FOUR) "ANGELA", whose survey records and approving resolution are registered on page 336 and following, under the number 197 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1992. Said survey records and approving resolution are presently re- registered on page 125 and following, number 19 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the 4 year 1981. - FIVE) "ADELA", whose survey records and approving resolution are registered on page 335 and following, under the number 196 in the Registry of Properties of the Conservator of Mines of Iquique corresponding to the year 1912. Said survey records and approving resolution are presently re-registered on page 123 and following, under number 18 of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1981. - All of these properties were acquired by "Compania Minera Cobre Iquique Ltda.", today "Compania Minera Cobre Iquique S.C.M.", via purchase from "Compania Minera San Enrique S.C.M.", according to public document dated 6 January 1986, given before the Notary of Santiago Mr. Felix Jara Cadot, registered on page 11 and following, number 2, of the Registry of Properties of the Conservator of Mines of Pozo Almonte, from the year 1986. - All of the preceding individually indicated mining properties (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile will be hereafter called, together or separately, according to the requirements of the text, "Mining Concessions". - C) Statements. - - The "Offering Parties" state and guarantee: One. - That the "Mining Concessions" described in the previous letters A) and B) are of their exclusive ownership, and are free from mortgages, obligations, embargoes and prohibitions, promises and options of any type, from renters and occupiers of any type. - Two. - That the mining patents which correspond to the "Mining Concessions" indicated in the preceding letters A) and B) have been properly canceled to this date and Three. - That the "Offering Parties" have no knowledge of any legal action or pending judgment which may affect or may be related in any manner with the "Mining Concessions". Also included in the present contract the inherent water rights, or which, according to the dispositions of Article 110 of the Mining Code, may correspond to the "Mining Concessions". If, during the validity of this contract the "Beneficiary" may deem it necessary to present, require or request showings, requests, mining concessions for explorations and exploitation, water use concessions, civil and mining easements or administrative concessions intended for the best development of exploration and exploitation of the "Mining Concessions" subject to this contract and within the area of interest which the parties establish in a private document prepared on this same date, then these may be requested only in the name of the "Offering Parties" or the "Beneficiary", but the costs of processing and constitution will always be a charge of the latter. In the event the definitive purchase/sale is carried out, all the showings, requests, mining concessions, water use rights, easements, administrative and other concessions which are in the name of the "Offering Parties" and 5 within the indicated "area of interest" are understood to be included in the purchase/sale, without any change in the agreed upon price and should be transferred to the "Beneficiary" or its cessionaries together with the "Mining Concessions" which are the subject of this contract. If, on the contrary, the present option is ended or lapses for any of the causes listed in this instrument, the new showings, requests and mining concessions which may have been made in the name of the "Beneficiary" and which are partially or totally within the area of interest which the parties have defined according to the foregoing statement, as well as the applications or concessions for water use, easements and administrative concessions which may have required or made for the development and exploration of the deposits described by the "Mining Concessions" the subject of this option, even when these last might lie outside of said area of interest, should be transferred by the "Beneficiary" to the "Offering Parties" within the time limit of 60 days from the date on which a termination or lapsing of this contract may have occurred, without any cost to the "Offering Parties". The foregoing will govern particularly with respect to the exploration concessions, showings, and exploitation concessions which the "Beneficiary" may have acquired and derived from the requests carried out by the (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile Sociedad de Exploraciones y Explotaciones Mineras Oregon Limitada on land covered by the mining properties of the "Offering Parties" and for a distance of up to two kilometers from the perimeter of said mining properties. SECOND: Unilateral Purchase Option. - By means of the present instrument, the "Offering Parties" offer irrevocably and oblige themselves unilaterally to sell, cede and transfer to the "Beneficiary", under terms to be described, the "Mining Concessions" indicated individually in letters A) and B) of the preceding clause, as well as the eventual rights to which they will gain title as indicated in letter C) preceding, and which Royal Silver, within the time limits here agreed to, agrees to purchase and acquire. For the purposes mentioned the "Offering Parties", by way of this instrument, declare of course their consent for the eventual purchase/sale of said "Mining Concessions" and rights. The "Beneficiary", on its part, limits itself in this action to declare admissible the cited offer, reserving for itself the power of exercising the option freely within the time limits and the conditions which this contract presents.- Given the unilateral character of the present contract, and in agreement with the dispositions of Article 169 of the Mining Code, it is within the power of "Royal Silver" to agree or not to agree to the 6 proposed purchase/sale. THIRD: Time limits to exercise the purchase option.- In the event the decision of the "Beneficiary" is to accept the purchase offer and to agree to the proposed purchase/sale contract, said decision should be shown via public document at any time within the time limit which begins with the subscription of the present contract and ends in sixty months counted from the same date, but always that the payments of the purchase/sale price stipulated in the fourth clause are up to date. If there are still unmade payments, then on the same action of acceptance the "Beneficiary" will have to pay in their entirety all the payments of the price which are pending, without the prejudice of reducing the purchase/sale price agreed to in the fourth clause in the event of exercising the option within the limit of 48 months from the date of this instrument. The public document of acceptance of the offer, by which the definitive purchase/sale is completed, should be given before the Notary Public that authorizes the present document, or by his replacement or successor in the position or before the Notary Public designated by common agreement between the parties. The "Beneficiary" should communicate ahead of time to the "Offering Parties" its decision to exercise the option and accept the offer, be means of certified letter delivered through a Notary Public to the address of the "Offering Parties" indicated in this instrument, for the purpose of concurrence by the latter for the receipt of the corresponding payment of the price. "Royal Silver" may declare its decision not to agree to the proposed purchase/sale at any time within the time limits agreed to for the exercise of the option, by means of a statement given by public document, whose delivery should be made to the "Offering Parties" in the same form expressed earlier, and by which should proceed the lifting and the cancellation of all the registrations, sub-registrations and annotations which may have occurred in the corresponding Registry of the Conservator of Mines, motivated by this contract or in (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile relation to it. The expenses of cancellation and lifting referred to will be the exclusive responsibility of Royal Silver. In the event that "Royal Silver" states its decision to desist in the purchase/sale, the payments of the purchase/sale price whose due date comes after communicating said decision to desist will not be owed. FOURTH: Price of the proposed purchase/sale.- The sole and total price of the proposed purchase/sale of all the "Mining Concessions" specified in the first clause, letters A) and B) and the other goods and rights referred to in letter C), is the quantity of five million dollars of the United States of North America, payable in the equivalent currency of the Republic of 7 Chile, at the value of the average banking dollar established in conformity with Number 6 of Title One of Chapter One of the Compendium of International Exchange Norms for the Central Bank of Chile, for the day prior to the date of payment and published in the Diario Official on the same date of payment, commonly called the "observed dollar", in the amounts and on the dates specified next: a) In the current action, the amount of fifty thousand dollars of the United States of North America, in cash, by check number 31460 of ABN Amro Bank, Chile in that amount, to the order Mr. Pedro Enrique Escala Baltra, and that the "Offering Parties" declare receipt to their complete satisfaction; b) Within the first twenty days of the month of January of 1998, the amount of one hundred thousand dollars of the United States of North America; c) Within the first twenty days of the month of July of 1998, the amount of one hundred sixty thousand dollars of the United States of North America; d) Within the first twenty days of the month of January of 1999, the amount of three hundred thousand dollars of the United States of North America; e) Within the first twenty days of the month of July of 1999, the amount of three hundred thousand dollars of the United States of North America; f) Within the first twenty days of the month of January of 2000, the amount of five hundred thousand dollars of the United States of North America; g) Within the first twenty days of the month of July of 2000, the amount of eight hundred thousand dollars of the United States of North America; h) Within the first twenty days of the month of July of 2001, the amount of one million, three hundred ninety-five thousand dollars of the United States of North America; i) Within the first twenty days of the month of July of 2002, the amount of one million, three hundred ninety-five thousand dollars of the United States of North America. If "Royal Silver" declares its willingness to agree to the offered purchase/sale contract no later than within the first twenty days of July of 2001, the purchase price will be reduced to the sum of four million, five hundred ten thousand dollars of the United States of North America, having to pay completely at that time all remainder of the price which may be pending on that date until the sum previously indicated is completed. The making of the payments indicated by the aforementioned letters b) through i) will be within the power of the "Beneficiary" and in no case obligatory, except if "Royal Silver" may desire to continue with this contract, in which case it must make each of said (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile payments, completely, on the indicated dates, to maintain in effect the option rights corresponding for the time until the next immediate payment due date. Lack of timely payment by any of the 8 due dates of the price previously indicated will cause by full right the lapsing of the present option contract, under the terms which follow. The price here agreed to will be one and total, whether or not the "Beneficiary" opts for one, some or all of the "Mining Concessions" and other rights referred to in the present contract. For legal purposes, it is understood that one-third of the total price agreed to corresponds to the "Mining Concessions" owned by "Compania Minera Cobre Iquique S.C.M." and the remaining two-thirds to the "Mining Concessions" owned by "Compania Minera San Enrique S.C.M.". - FIFTH: Place and form of payment. - The making of each of the payments just mentioned will be carried out by the Notary who, as Titular, Interim or Deputy, holds the position for the Twenty-second Notary of Santiago, currently located on Avenida El Bosque Norte 147, Comuna de Las Condes, upon the signature of the corresponding public document of receipt by the person designated by the "Offering Parties" to receive the payment. The making of each payment will done by means of a nominative bank promissory note, to the name of the person designated by the "Offering Parties". Without prejudice of the preceding, complete and timely compliance with the optional charge or obligation of "Royal Silver" with the "Offering Parties" to make the payments of the price mentioned in the previous clause will be understood, with the delivery to the aforementioned Notary within the stipulated due dates, a bank promissory note made as mentioned before and for the amount corresponding to the payment being dealt with. The Notary will only deliver the promissory note to the person designated by the "Offering Parties" upon signature of the corresponding public document of receipt. The notary fees incurred by reason of these payments will be the responsibility of the "Beneficiary". SIXTH: In the event of acceptance of the offer by the "Beneficiary" or its cessionaries, all the payments indicated by the fourth clause become part of the price and will be imputed to it. If, on the contrary, the "Beneficiary" declares at any moment within the time limit for validity of the option its decision not to exercise the option right given by the present document or this becomes lapsed for any of the causes contemplated in this instrument, "Royal Silver" will not carry a responsibility of any kind and all of the moneys received by the "Offering Parties" will remain in its control and benefit, without any obligation for reimbursement, and for the purpose of compensatory indemnization, unique, total and complete, of all emerging damages, lucrum cessans or damages of any type, material or eventual, now or in the future, which the "Offering Parties" might have experienced by reason of the present option contract, be it because of agreement, execution, or termination, as well as for any other reason related to it and without obligation for any further payment. The preceding is without prejudice to the responsibility of "Royal Silver" to comply with the obligations established in the eleventh clause. - SEVENTH: Surcharge. - In addition to the purchase/sale price indicated in the fourth clause and which reaches 9 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile the amount of five million dollars of the United States of North America or of four million, five hundred ten thousand dollars of the United States of North America, whichever is the case, "Royal Silver" will make annual payments to the "Offering Parties" by reason of a surcharge or greater price, the sum of money equivalent to two percent of the net smelting return, hereafter called "net smelting return" or "NSR", which may be obtained by the "Beneficiary" or its cessionaries as a result of the exploitation of any of the "Mining Concessions" which are acquired by virtue of the present contract. It will be understood for these purposes by "net smelting return" or "NSR", the gross quantity that "Royal Silver" may have received for the sale of concentrates and/or precipitates already exploited of equal or superior value, coming from the properties that "Royal Silver" may have acquired from the "Offering Parties" by virtue of this contract, with deductions, successively, of: a) all the corresponding and proper charges, expenses, fines or adjustments for the smelting, refining, management and sale, which have been incurred by the smelter, refinery or other final buyer of the concentrates or precipitates or other products so exploited; b) expenses for insurance and transportation from the exploiting properties or plants, whether or not this latter is located inside or outside of the properties, to the smelting, refining or other place of processing or to the place where concentrates or precipitates are received by third parties; c) all expenses for sampling or assaying carried out or incurred relative to sampling or assaying carried out after the concentrates, precipitates or other products thus exploited may have been removed for the purpose of determining their composition; and d) taxes of any type and ad-valorem fees directly related to the production being exported. There will be a stipulated surcharge or "NSR" only if, together, "Royal Silver" or its cessionaries: a) develop a mining exploitation project which includes one or more of the "mining Concessions" referred to in the first clause of this contract; b) from said concessions minerals are extracted which are exploited until they are left in a state of concentrate and/or precipitate, whatever its purity may be; c) the concentrates and/or precipitates are sent to a smelter or a refinery or are sold to a third party and returns are received which, once the deductions previously indicated are carried out, may produce the "net smelting return". For the payment of the surcharge stipulated here, in the month of January of each year "Royal Silver" will deliver to the "Offering Parties" or their cessionaries a liquidation of the "net smelting return" received during the previous calendar year, with sufficient documentation to 10 determine its origins, which will be placed at the disposal of the "Offering Parties" together with the corresponding value of the surcharge established in the liquidation. If the "Offering Parties" make no comment concerning the liquidation within ninety days following its receipt, it will be understood that they have definitively approved the liquidation and its payment. In the event the "Offering Parties" have comments regarding said liquidation and payment, they can require "Royal Silver" or its cessionaries authorization for access to the related documentation, who will be obliged to make them available, but (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile can only be reviewed by external auditors designated by the "Offering Parties" and at their cost, and whose honoraria will be reimbursed by "Royal Silver" if the comments are well-founded and true. If the "Offering Parties" formulate comments, the "Beneficiary" will have 60 days to declare if they accept or reject them. If they were to be accepted by the "Beneficiary", it should pay the difference within 30 days. If they were to be rejected or the "Beneficiary" says nothing within the indicated 60 days, the "Offering Parties" or their cessionaries have recourse to the arbitrator designated in the present contract. The payment of the surcharge agreed upon will be made at the offices of the "Offering Parties" indicated in the present contract, upon delivery of the corresponding receipt. Owing to the fact that the agreed upon surcharge has a conditional and/or contingent character, and , for the same reason, no resolutionary action is derived from it, and even in the event that said surcharge is not owed, the "Offering Parties", with all the more reason, come to renounce of course said resolutionary actions. As a consequence, when the surcharge agreed to according to what is stipulated here is not owed, the "Offering Parties" will only be able to take action to demand their payment if this is not done according to the agreement, for which purpose they may also go before the arbitrator designated in this instrument. EIGHTH: Other rights and obligations of Royal Silver. One): "Royal Silver" may carry out in the mining concessions which are the subject of the present contract, from now and during all the time which it remains in effect, all types of work of reconnaissance, prospecting, search and in general, investigations which allow it to make qualitative and quantitative assessments of the same, able for those purposes to introduce into the lands comprised by the mining concessions, all types of equipment and machinery, of their own or of third parties, to carry out the work of investigation, reconnaissance, prospecting and exploration and to install camps for the personnel who will work in them. In the 11 aforementioned activities, "Royal Silver" will follow all the mining safety procedures and norms in force in Chile, having exclusive responsibility for any accident, damage or destruction caused by its fault to properties and persons. If the contract does not become effective, the promised buyer must remove, within 90 days of the lapsing, at its own cost, all this equipment and machinery, except those installations whose removal could produce deterioration, slides, demolition of existing works in the mining concessions. In this contrary case, this equipment will remain for the benefit of the "Offering Parties", at no cost to them. - In the event of abandonment or lapsing, the minerals which are dug up and the rubble accumulated by the end of the option which exist on the mining concessions, will always continue to be property of the "Offering Parties". Two) While the current option contract is in effect, the "Offering Parties" may not initiate the exploitation of the mining properties included in this contract, while the purchase option has not been exercised and by which the offered purchase/sale in this contract will be completed. (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile Three): While this purchase option is in force, it will be the obligation of the "Beneficiary" to provide the necessary funds for the payment of patents to shield the "Mining Concessions" indicated individually in the first clause of this document, as well as the rest of the concessions for exploration and exploitation which are made in conformity with the statements in the first clause, letter C). With that purpose, within the first fifteen days of March of each year, the "Beneficiary" must deliver to the "Offering Parties" the value which corresponds to the annual patent for each of the respective concessions so that these can proceed with their payment by the legal due date, with authorized copies of the proof of said payment which must be remitted to the "Beneficiary". NINTH: Form of sale and indemnification.- The mining concessions will be sold as is, in the conditions in which they are found on the day of agreement to the present contract, with all their uses, rights, customs and easements if they exist, free from obligations, prohibitions, litigations, embargoes, resolutionary actions, contracts for the delivery of minerals or of rents, or any other kind of action which could impede the free use, enjoyment, disposition and delivery of all the "Mining Concessions" and other goods referred to in the first clause. The "Offering Parties" will be responsible for the guarantee in accordance with the law. TENTH: Guarantee and prohibition from obligation and alienation. - - By this action, the "Offering Parties" voluntarily make a prohibition on themselves to neither obligate nor alienate, without prior written consent from "Royal Silver", the "Mining Concessions" 12 which are the subject of this contract and which are individually indicated in the first clause, whose registration may be demanded from the corresponding Conservator of Mines by the holder of an authorized copy of this document. This prohibition will continue while the option right which has been given to the "Beneficiary" is in effect and is without prejudice of the legal effects which, in accordance with Article 169 of the Mining Code, emanate from the registration of the current option contract in the corresponding Registry of Mortgages and Obligations of the Conservator of Mines. ELEVENTH: Lapsing and termination of the option contract.- The present option contract will lapse and remain without effect, without need of judicial statement, in either of the following cases: a) If the "Beneficiary" simply stops making completely and in a timely way any of the payments indicated in letters b) through i) of the fourth clause; b) If the "Beneficiary" does not make its decision to agree to the definitive purchase/sale contract by the sixtieth from the date of this instrument; and c) If the "Beneficiary", at any time while the present contract is in effect, indicates its intent to not agree to the definitive purchase/sale contract by means of a statement given and notified in public document in the form established in the third clause. In the event that "Royal Silver" decides to not exercise its option in accordance with letter c) preceding or it is understood that it will not be exercised in accordance with letters a) or b) preceding, "Royal Silver" is obligated to: One) Deliver to the "Offering Parties", without any cost to them, all the geological information resulting from sampling, bores, drilling and sounding, witness, maps, and in general, (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile all the antecedents obtained by reason of the works of exploration and reconnaissance carried out by "Royal Silver" in the "Mining Concessions" which are the subject of this contract; Two) Make a declaration by written public document, at least if it had been done in accordance with letter c) preceding, in which it is indicated that the option has lapsed, and the lifting and cancellation is proceeding of all the registrations, sub- registrations and annotations which may have occurred in the Registries of the corresponding Conservator of Mines, by reason of this contract or relative to it. If said statement is not made within ten days of producing the corresponding cause of the lapse, the parties empower and give a mandate to make said document to the arbitrators who will be designated further on, by which the respective arbitrator must make a simple written requirement from the "Offering Parties" and with prior proof of the occurrence of one of the causes of a lapse, and being empowered the holder to 14 successors by any name, except that it be expressly set or can be understood from the context that it is otherwise; Three) Once the purchase/sale contract is agreed to, the "Owners" may sell, cede, transfer or in any way alienate or obligate the right to receive the surcharge or "NSR" agreed to in the seventh clause of this contract. Never the less, "Royal Silver" will have the right to purchase, with preference from any other acquirer, the right to receive the indicated surcharge. As a consequence, every time the "Owners" receive an offer of purchase from third parties, they must, before accepting the offer, communicate it to "Royal Silver". In said communication there should be indicated at a minimum the following: a) Price of the cession in Chilean currency and in dollars of the United States of North America. If the offer contains a proposal of payment distinct from cash, an estimate should be included in the communication of the good faith of said proposal; b) Form and timing of the payment; c) Date on which the sale contract of the "NSR" will be final. "Royal Silver" will have thirty days from receipt of the communication to accept or reject the offer. If within the said time limit, the "Beneficiary" notifies the "Owners" that it accepts the offer, the latter are obliged to sell to "Royal Silver" the right to receive the agreed upon surcharge, under the terms or conditions indicated in the communication. In the event that "Royal Silver" does not declare anything within the said limit, it is understood that it is opting not to acquire the cited rights and the "Offering Parties" are empowered to alienate said rights to the third party from whom the respective purchase offer was received. - If such alienation is not completed for any cause and/or the "Offering Parties" receive another offer, the indicated procedure will be repeated. THIRTEENTH: Applicable law. It is entered into the record that the present unilateral contract is governed by Chilean law and especially by the dispositions of the Mining Code of 1983, particularly by its Article 169. The same is agreed to with regard to its eventual modifications and complements and to the proposed purchase/sale contract. FOURTEENTH: Expenses for Notaries and registrations. The Notary expenses and fees which are generated on the occasion of the present contract, of the proposed purchase/sale contract and the fees for the registration in the respective Conservator of Mines, as well as their lifting and cancellation, if they were to occur, will be the exclusive responsibility of "Royal Silver". The latter will absolutely not be responsible for the taxes or other personal charges to the "Offering Parties" derived from the option contract and/or the purchase/sale alluded to. FIFTEENTH: Arbitration. All difficulties related to the interpretation, application, compliance, validity, force, resolution, reach, efficacy or for any other cause related to the present option contract o to the proposed purchase/sale, 15 (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile that is agreed to between the "Offering Parties", on the one hand, and "Royal Silver" or its cessionaries, on the other, will be resolved by an arbitrating arbitrator, who will resolve the matter of that case only and against whose resolution there will be no appeal.- The parties designate, from this moment forward, to hold said position, Mr. Samuel Lira Ovalle, and if he is unavailable and thus successively, they designate Mr. Eulogio Perez-Cotapos Garcia, Juan Luis Ossa Bulnes and Mario Diez Urzua. In the event that none of the preceding can accept the charge for any reason or is unable to accept it, the Arbitrator will be designated by common agreement between the parties, and if that agreement is lacking, the designation will be made by the Civil Judge in the city and commune of Santiago who is so scheduled. In this last case the designation should fall on an attorney with residence in Santiago, who is or has been titular professor of mining law, mining economics, civil or commercial, of the University of Chile or the Catholic University of Chile and/or a lawyer to the Supreme Court or the Appeals Court for at least three years, who will have to make resolution in his role as administrative law judge, but as an arbitrator regarding the procedure. The arbitration judgment will be done in the city of Santiago.- SIXTEENTH: Representatives of the parties. By the present instrument, for all legal purposes of this contract and of the proposed one, inclusive of arbitrations, the "Offering Parties" confer power and designate and have designated, as is recorded in the power given in the Extraordinary Stockholders Board Meetings which are consigned in this same instrument, to Mr. Pedro Enrique Escala Baltra and to Mr. Fernando Andres Escala Baltra, who will be empowered to act together or separately, with the powers which were conferred in said Board Meetings, and whose place of business is understood to be Calle Marchant Pereira number 201, Office 802, Providencia, Santiago, unless they both give another address, in writing, to "Royal Silver". In turn, "Royal Silver" designates as its executor, for all the purposes of the present contract and for the proposed contract, Mr. Cesar Andres Lopez Alarcon and Mr. Thomas Alva Henricksen, who may act together, separately or indistinguishably, being especially empowered, but without limitation to it, to appear at the documentation for the rectification, clarification, and the modification of the present contract, for cession of rights and obligations, to be notified of all communications between the parties or of the resolutions of the arbitrator in the case of the previous clause and for any other action related to this contract or the offered purchase/sale, in such a way that it will not be necessary to designate and make appear any other executor. In order to act in judgments, the executors are empowered from this 16 point forward with all powers referred to in both sub-paragraphs of Article 7 of the Code of Civil Procedure. The designation of executors made in this clause will be understood to be valid for the purposes of the present contract and the offered one, until such time as "Offering Parties" and/or "Royal Silver" may designate other executors by public document and communicate it reciprocally. SEVENTEENTH: Communications between the parties. The communications between the parties will be carried out in writing, via certified letter, telex, telefax or telegram, directed to the addresses that the parties indicated at the appearance or to that other which will be (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile communicated to each other in said way and properly in advance, except if in the text of the present contract there is expressly established a different way of communication, announcement or notification.- If it is by fax to the "Offering Parties", the fax number is (five six - two) two two five six zero five three of Santiago; to the "Beneficiary", fax number (five six- two) six nine five - five two three three, of Santiago and (one - five zero nine) four six six - three three two one, of Spokane, state of Washington, United States of America.- EIGHTEENTH: Setting of address. For all the purposes of the present contract and of the offered one, all those who appear here set and will set their address in the city and Commune of Santiago and they submit and will submit to the competence of the arbitration tribunal. NINETEENTH: Titles and documents: It is entered into the record that all legal documentation related to the titles of the "Mining Concessions" which are the subject of the present contract, as well as the payment tickets for the mining patents which shield them, have been delivered to the "Beneficiary". In any case, the "Offering Parties" will be responsible for the eviction in conformity with the law.- TWENTIETH: Unforeseen chance and dire necessity. The events of unforeseen chance or dire necessity will be governed by the pertinent norms of the Chilean Civil Code.- TWENTY-FIRST: Powers to the holder. The holder of an authorized copy of the present document is empowered to require the registrations and annotations which may be necessary in the respective registries.- Also empowered are the attorneys Pedro Enrique Escala Baltra and Cesar Andres Lopez Alarcon that together they may correct errors of fact or omission which the parties may have made in this contract, being able for that purpose to present one or more memoranda to the respective Conservator and/or deliver or sign the public documents or instruments necessary or convenient for said precise objective.- TWENTY-SECOND: Extraordinary Board Meeting of Stockholders: Present at this action Mr. Pedro Enrique 17 Escala Baltra, Mr. Fernando Andres Escala Baltra, both previously indicated individually, Mrs. Marcela Paz Josefina Escala Baltra, Chilean, homemaker, married with complete separation of properties from Mr. Manuel Laudelino Vicuna Cares, living at Calle Santa Blanca number 1634, Lo Barnechea, Santiago, National ID number four million, four hundred sixty-five thousand, seven hundred seventy- eight dash three, the three foregoing persons in their own right and also as the sole heirs of Mr. Enrique Escala Barros and Mrs. Ida Odilla Baltra Mondaca, y Mr. Hugo Javier Canas Herrera, Chilean, in the mining industry, married with complete separation of property, living at Avenida Los Leones number 2922 apartment 603, Providencia, Santiago, national ID number three million, four hundred twenty-eight thousand, four hundred forty-three dash one, all of the preceding in their character as the only and actual members of the contractual mining companies "Compania Minera San Enrique S.C.M." and "Compania Minera Cobre Iquique S.C.M.", those who appear here, being of legal age, who have shown their identity with the aforementioned documents, do declare: that they constitute an Extraordinary Board Meeting of Stockholders for the companies named in conformity with the dispositions of Article 185 of the Mining (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile Code and their respective statutes and, in the presence of the Notary Public who authorizes this instrument and under the presidency of member Mr. Pedro Enrique Escala Baltra, have adopted, by unanimity of the attending members, who represent the total of all stock in which the capital of said contractual mining companies is divided, the following agreements: First: To offer irrevocably and to unilaterally oblige each of the named contractual mining companies, to sell, cede and transfer to "Compania Minera Royal Silver Limitada" the mining concessions individually indicated in letters A) and B) of the first clause of this same instrument and eventually, the rest of the goods and rights referred to in the letter C) of the same clause, and that "Compania Minera Royal Silver", optionally, agrees to purchase and acquire it. For the purposes mentioned, from this point forward, the Board gives its consent to the eventual purchase/sale of said mining concessions, goods and rights. Second: As a consequence of the preceding agreement, to complete the unilateral purchase option contract set by this document, in conformity with the terms, stipulations, statements and obligations which are a part of each of the clauses and which the Board ratifies, reiterates, makes theirs and has them as is as the express agreement of the present Board. Third: For all the more reason in regard to what was stated in the previous agreement, the price of the proposed purchase/sale, its eventual 18 reduction subject to the condition which is stated, the surcharge agreed to, the goods included in the unilateral purchase option contract and the later purchase/sale, and the remaining stipulations, terms, conditions, time limits and procedures of the aforementioned option contract and the proposed purchase/sale, are those which are established and are contained in the present public document, which faithfully reflects the terms and conditions of the letter of intent dated 23 June 1997 signed by Mr. Cesar Andres Lopez Alarcon representing "Royal Silver Mines Inc." and the members Mr. Pedro Enrique Escala Baltra and Mr. Fernando Andres Escala Baltra, terms, conditions, stipulations and essential elements, of mere and accidental character which this Board recognizes, makes theirs and gives as reproduced, expressly ratifying the action taken by the indicated members. Fourth: Empower, in the widest terms which are given under law, the members Mr. Pedro Enrique Escala Baltra and Mr. Fernando Andres Escala Baltra to act together or separately or indistinguishably, to represent the contractual mining companies whose stockholders met in Extraordinary Board Meeting, to complete the unilateral option contract which is composed of each and every one of the preceding clauses in this same public document. The executors have been and are expressly and specially empowered to agree to all and any stipulations, be they of essence, of nature or merely accidental, to agree to binding clauses, designate arbitrators, to impose on themselves with regard to the mining concessions which are the subject of said contract a voluntary prohibition to obligate and alienate, and to agree (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile to actions and contracts, obligations which have been and are considered convenient and necessary and are composed by the present public document. Fifth: Give power, designate as executors and representatives of the contractual mining companies, indistinguishably, Mr. Pedro Enrique Escala Baltra and Mr. Fernando Andres Escala Baltra, who may act individually or in conjunction, understood to have the address of Calle Marchant Pereira number 201, Office 802, Providencia, Santiago de Chile, an address which the Board also sets as the address of the companies named for the purposes of this instrument, with said executors empowered to, but not limited to, receive in their own name all the payments of the agreed upon purchase/sale price, to give documents of receipt, cancellation and final discharge, to rectify, clarify and modify as may be required the referred to option contract and the proposed purchase/sale contract, to appear for the documents referred to and for the ceding of rights and obligations, to be notified of all communications between the parties or the resolutions of the 19 arbitrator and of any other action related to the option contract already referred to, in such a way that it not be necessary to hold new Stockholder Meetings and designate and make appear another executor, the executors being given, in the judicial area, all the powers referred to in both sub-paragraphs of Article 7 of the Civil Procedure Code. The designation of such executors is understood to be valid for all the purposes of the aforementioned unilateral option contract and the offered purchase/sale contract, as long as both contractual mining companies, whose Boards meet and agree in this action, do not designate other commonly empowered persons by means of public document and communicate this to "Compania Minera Royal Silver Limitada" or to its cessionaries. Sixth: Hereby place into the record that these Extraordinary Board Meetings are held in this city and without announcement since there were present all stockholders representing the total of all stocks in which the respective company capital of the companies being dealt with is divided. Seventh: Empower the holder of an authorized copy of this document to require the filing and annotations which are the subject of Article 190, final sub-paragraph of the Mining Code. The appearance of Mr. PEDRO ENRIQUE ESCALA BALTRA AND OF MR. FERNANDO ANDRES ESCALA BALTRA, to represent "COMPANIA MINERA SAN ENRIQUE S.C.M." and "COMPANIA MINERA COBRE IQUIQUE S.C.M.", represents the Boards of Stockholders of said companies and which is declared in this present public document. The appearance of Mr. CESAR ANDRES LOPEZ ALARCON to represent "COMPANIA MINERA ROYAL SILVER LIMITADA" and ROYAL SILVER MINES INCORPORATED", is shown in the public document dated 9 July 1997, made at the Notary Office of Santiago of Mr. Humberto Santelices Narducci and in the power protocol given by the same Notary under the number 15 dated 9 July 1997, respectively, appearances which are not included by reason of being known to the parties and to the authorizing Notary.- (Illegible Stamp) Authorized Copy (Seal & Initial) Humberto Santelices Narducci Notary Public XXII Notary of Santiago Chile In proof and with prior reading, are signed. - In witness of (Illegible initials). - (illegible signature) (illegible signature) PEDRO ESCALA BALTRA FERNANDO ESCALA BALTRA 4.101.471-7 6.340.418-7 (illegible signature) CESAR LOPEZ ALARCON 9.581.126-4 20 (illegible signature) (illegible signature) MARCELA ESCALA BALTRA HUGO CANAS HERRERA 4.465.7778-3 3428443-1 (Illegible signature) THIS IS A FAITHFUL COPY OF THE ORIGINAL PUBLIC DOCUMENT SANTIAGO 23 JUL 1997 (Illegible signature ) ALBERTO HERMAN MONTAUBAN Deputy Notary XXII Notary Office Santiago (Partially Illegible Seal of the Notary Public of the XXII Notary of Santiago, Humberto Santelices Narducci) (Illegible stamped title) (Illegible Seal with initials) EX-24 5 1 WILLIAMS & WEBSTER, P.S. Certified Public Accountants 601 West Riverside Suite 1970 Spokane, Washington 99201-0611 (509) 838-8111 FAX (509) 624-5001 CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Royal Silver Mines, Inc. Spokane, Washington We consent to the use of our audit report dated December 13, 1996, on the financial statements of Royal Silver Mines, Inc. as of September 30, 1996, and the use of our review report dated July 23, 1997, on the financial statements of Royal Silver Mines, Inc. As of June 30, 1997, and the inclusion of our name under the headings "Selected Financial Data" and "Experts" in the Form SB-2 Registration Statement filed in September 1997. /s/ Williams & Webster P.S. Williams & Webster, P.S. Spokane, Washington September 26, 1997 EX-24 6 1 CONRAD C. LYSIAK Attorney and Counselor at Law 601 West First Avenue Suite 503 Spokane, Washington 99201 (509) 624-1475 FAX: (509) 747-1770 CONSENT I HEREBY CONSENT to the inclusion of my name in connection with the Form SB-2 Registration Statement filed with the Securities and Exchange Commission as attorney for the registrant, Royal Silver Mines, Inc. and to the reference to my firm under the subcaption "Legal Matters." DATED this 29th day of September, 1997. Yours truly, /s/ Conrad C. Lysiak EX-28 7 1 WARRANT AGREEMENT ROYAL SILVER MINES, INC., a Utah corporation (the "Company"), and OTC STOCK TRANSFER, INC. ("OTC"), 231 East 2100 South, Salt Lake City, Utah 84115, a Utah corporation (the "Warrant Agent"), agree as follows: 1. Purpose. The Company proposes to publicly offer and issue 6,000,000 units (the "Units"), each Unit consisting one (1) shares of Common Stock, $0.01 par value, and one (1) Redeemable Common Stock Purchase Warrant. The Common Stock and Redeemable Common Stock Purchase Warrants are being offered as a Unit. The are immediately detachable and separately tradeable. 2. Warrants. Each Warrant will entitle the registered holder of a Warrant (the "Warrant Holder") to purchase from the Company one share of Common Stock at an exercise price of $1.40 per warrant. A Warrant Holder may exercise all of any number of Warrants resulting in the purchase of a whole number of Shares. 3. Exercise Period. The Warrants may be exercised until September 1, 2000 (the "Expiration Date") except as provided by Section 12 of this Agreement. After the Expiration Date, any unexercised warrants will be void and all rights of Warrant Holders shall cease. Further, the Redeemable Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 per share for ninety (90) consecutive trading days. 4. Detachability. A Warrant Certificates are immediately detachable from a Share certificate contained in a Unit. 5. Certificates. The Warrant Certificates shall be in registered form only and shall be substantially in the form set forth in "Exhibit A" attached to this Agreement. Warrant Certificates shall be signed by, or shall bear the facsimile signature of, the President of the Company and the Secretary of the Company and if such Warrant Certificate shall contain the signature of an officer of the Company who shall have ceased to be such officer before such Warrant Certificate is countersigned, issued and delivered, such Warrant Certificate shall be countersigned, issued and delivered with the same effect as if such person had not ceased to be such officer. Any Warrant Certificate may be signed by, or made to bear the facsimile signature of, any person who at the actual date of the preparation of such Warrant Certificate shall be a proper officer of the Company to sign such Warrant Certificate even though such person was not such an officer upon the date of the Agreement. 2 6. Countersigning. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. The Warrant Agent hereby is authorized to countersign and deliver to, or in accordance with the instructions of, any Warrant Holder any Warrant Certificate which is properly issued. 7. Registration of Transfer and Exchanges. Subject to the provisions of Section 4, the Warrant Agent shall from time to time register the transfer of any outstanding Warrant Certificate upon records maintained by the Warrant Agent for such purpose upon surrender of such Warrant Certificate to the Warrant Agent for transfer, accompanied by appropriate instruments of transfer in form satisfactory to the Company and the Warrant Agent and duly executed by the Warrant Holder or a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued in the name of and to the transferee and the surrendered Warrant Certificate shall be cancelled. 8. Exercise of Warrants. Exercise of a Warrant is subject to the Company maintaining an effective registration statement with the Securities and Exchange Commission and complying with the applicable state securities laws of the residence of the Warrant Holder. Subject to the foregoing the following will applicable: a. Any one Warrant or any multiple of one Warrant evidenced by any Warrant Certificate may be exercised on or after the Exercise Date, an on or before the Expiration Date. A Warrant shall be exercised by the Warrant Holder by surrendering to the Warrant Agent the Warrant Certificate evidencing such Warrant with the exercise form on the reverse of such Warrant Certificate duly completed and executed and delivering to the Warrant Agent, by good check or bank draft payable to the order of the Company, the Exercise Price for each Share to be purchased. b. Upon receipt of a Warrant Certificate with the exercise from thereon fully executed together with payment in full of the Exercise Price for the Shares for which Warrants are then being exercised, the Warrant Agent shall requisition from any transfer agent for the Shares, and upon receipt shall make delivery of, certificates evidencing the total number of whole Shares for which Warrants are then being exercised in such names and denominations as are required for delivery to, or in accordance with the instructions of, the Warrant Holder. Such certificates for the Shares shall be deemed to be issued, and the person which such Shares are issued of record shall be deemed to have become a holder of record of such Shares, as of the date of the surrender of such Warrant Certificate any payment of the Exercise Price, which ever shall last occur, 3 provided that if the books of the Company with respect to the Shares shall be deemed to be issued, and the person to whom such Shares are issued of record shall be deemed to have become a record holder of such Shares, as of the date on which such books shall next be open (whether before, on or after the Expiration Date) but at the Exercise Price, whichever shall have last occurred, to the Warrant Agent. c. If less than all the Warrants evidenced by a Warrant Certificate are exercised upon a single occasion, a new Warrant Certificate for the balance of the Warrants not so exercised shall be issued and delivered to, or in accordance with, transfer instructions properly given by the Warrant Holder until the Expiration Date. d. All Warrant Certificates surrendered upon exercise of the Warrants shall be cancelled. e. Upon the exercise, or conversion of any Warrant, the Warrant Agent shall promptly deposit the payment into an escrow account established by mutual agreement of the Company and the Warrant Agent at a federally insured commercial bank. All funds deposited in the escrow account will be disbursed on a weekly basis to the issuer once they have been determined to be collected, the Warrant Agent shall cause the shares certificate(s) representing the exercised warrants to be issued. f. Expenses incurred by OTC Stock Transfer, Inc. while acting in the capacity as Warrant Agent will be paid by the Company. These expenses, including delivery of exercised share certificate to the shareholder, will be deducted from the exercise fee submitted prior to distribution of funds to the Company. A detailed accounting statement relating to the number of shares exercised, names of registered warrant holder and the net amount of exercised, funds remitted will be given to the Issuer with the payment of each exercise amount. g. At the time of exercise of the Warrants(s), the transfer fee is to be paid by the Company. In the event the Warrant Holders must pay the fee and fails to remit same, the fee will be deducted from the proceeds prior to distribution to the Company. 9. Taxes. The Company will pay all taxes attributable to the initial issuance of Shares upon exercise of Warrants. The Company shall not, however, be required to pay any tax which may be payable in respect to any transfer involved in any issue of Warrant Certificates or in the issue of any certificates of Shares in the name other than that of the Warrant Holder upon the exercise of any Warrants. 4 10. Mutilated or Missing Warrant Certificates. If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant Agent may, on such terms as to indemnify or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant Certificate, include the surrender thereof), and upon receipt of evidence satisfactory to the Company and the Warrant Agent of such mutilation, loss, theft or destruction, issue a substitute Warrant Certificate of like denomination or tenor as the Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for substitute Warrant Certificate shall comply with such other reasonable regulations and pay any reasonable charges as the Company or the Warrant Agent may prescribe. 11. Reservation of Shares. For the purpose of enabling the Company to satisfy all obligations to issue Shares upon exercise of Warrants, the Company will at all times reserve and keep available free from preemptive rights, out of the aggregate of its authorized but unissued shares, the full number of Shares which may be issued upon the exercise of Warrants will upon issue be fully paid and nonassessable by the Company and free from all taxes, liens, charges and security interests with respect to the issue thereof. 12. Governmental Restrictions. If any Shares issuable upon the exercise of Warrants require registration or approval of any governmental authority, the Company will endeavor to secure such registration or approval; provided that in no event shall such Shares be issued, and the Company shall have the authority to suspend the exercise of all Warrants, until such registration or approval shall have been obtained; but all Warrants, the exercise of which is requested during any such suspension, shall be exercisable at the exercise Price. If any such period of suspension continues past the Expiration Date, all Warrants, the exercise of which have been requested on or prior to the Expiration Date, shall be exercisable upon the removal of such suspension until the close of business on the business day immediately following the expiration of such suspension. 13. Adjustments. If prior to the exercise of any Warrants, the Company shall have effected one or more stock split-ups, stock dividends or other increases or reductions of the number of shares of its $0.01 par value Common Stock outstanding without receiving compensation therefore in money, services or property the number of shares of Common Stock subject to the Warrant granted shall, (i) if a net increase shall have been effected in the number of outstanding shares of the Company's Common Stock, be proportionately increased, and the cash consideration payable per share shall be proportionately reduced, and, (ii) if a net reduction shall have been effected in the number of outstanding shares of the Company's Common Stock, be proportionately reduced and the cash consideration payable per share be proportionately increased. 5 14. Notice to Warrant Holders. Upon any adjustment as described in Section 13, the Company within 20 days thereafter shall (i) cause to be filed with the Warrant Agent a certificate signed by a Company officer setting forth the details of such adjustment, the method of calculation and the facts upon which such calculation is based, which certificate shall be conclusive evidence of the correctness of the matters set forth therein, and (ii) cause written notice of such adjustments to be given to each Warrant Holder as of the record date applicable to such adjustment. Also, if the Company proposes to enter into any reorganization, reclassification, sale of substantially all of its assets, consolidation, merger, dissolution, liquidation or winding up, the Company shall give notice of such fact at least 20 days prior to such action to all Warrant Holders which notice shall set forth such facts as indicated the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the kind and amount of the share or other securities and property deliverable upon exercise of the Warrants. Without limiting the obligation of the Company hereunder to provide notice to each Warrant Holder, failure of the Company to give notice shall not invalidate corporate action taken by the Company. 15. No Fractional Warrants or Shares. The Company shall not be required to issue fractions of Warrants upon the reissuance of Warrants, any adjustments as described in Section 13 or otherwise; but the Company in lieu of issuing any such fractional interest, shall round up or down to the nearest full Warrant. If the total Warrants surrendered by exercise would result in the issuance of a fractional shares, the Company shall not be required to issue a fractional share but rather the aggregate number of shares issuable will be rounded up or down to the nearest full share. 16. Rights of Warrant Holders. No Warrant Holder, as such, shall have any rights of a shareholder of the Company, either at a law or equity, and the rights of the Warrant Holders, as such, are limited to those rights expressly provided in this Agreement or in the Warrant Certificates. The Company and the Warrant Agent may treat the registered Warrant Holder in respect of any Warrant Certificates as the absolute owner thereof for all purposes notwithstanding any notice to the contrary. 17. Warrant Agent. The Company hereby appoints the Warrant Agent to act as the agent of the Company and the Warrant Agent hereby accepts such appointment upon the following terms and conditions by all of which the Company and every Warrant Holder, by acceptance of his/her Warrants, shall be bound: 6 a. Statements contained in this Agreement and in the Warrant Certificates shall be taken as statements of the Company. The Warrant Agent assumes no responsibility for the correctness of any of the same except such as describes the Warrant Agent or for action taken or to be taken by the Warrant Agent. b. The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the Company's covenants contained in this Agreement or in the Warrant Certificates. c. The Warrant Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant Holder in respect of any action taken, suffered, or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel, provided the Warrant Agent shall have exercised reasonable care in the selection and continued employment of such counsel. d. The Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant Holder for any action taken in reliance upon any notice, resolution, wavier, consent, order, certificate or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. e. The Company agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charge and all other charges of any kind in nature incurred by the Warrant Agent in the execution of this Agreement and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for this Agreement except as a result of the Warrant Agents's negligence or bad faith. f. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Warrant Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred in connection with such action, suite or legal proceeding, but this provision shall not effect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be endorsed by the Warrant Agent without the possession 7 of any of the Warrant Certificates or the production thereof at any trail or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Warrant Holders as their respective rights or interest may appear. g. The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contact with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 18. Successor Warrant Agent. Any corporation into which the Warrant Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act of a party or the parties hereto. In any such event or if the name of the Warrant Agent is changed, the Warrant Agent or such successor may adopt the countersignature of the original Warrant Agent and may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent. 19. Change of Warrant Agent. The Warrant Agent may resign or be discharged by the Company from its duties under this Agreement by Warrant Agent or the Company, as the case may be, giving notice in writing to the other, and by giving a date when such resignation or discharge shall take effect, which notice shall be sent at least 30 days prior to the date so specified. If the Warrant Agent shall resign, be discharged or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any Warrant Holder or after discharging the Warrant Agent, then any Warrant Holder may apply to the District Court for Salt Lake County, Utah for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such Court, the duties of the Warrant Agent shall be carried out by the Company. Any successor Warrant Agent, 8 whether appointed by the Company or by such Court, shall be a bank or a trust company, in good standing, organized under the laws of the State of Utah or of the United States of America, having its principal office in Salt Lake City, Utah and having at the time of its appointment as Warrant Agent, a combined capital and surplus of at least four million dollars. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed and the former Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it thereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for effecting the delivery or transfer. Failure to give any notice provided for in the section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. 20. Notices. Any notice or demand authorized by this Agreement to be given or made by the Warrant Agent or by any Warrant Holder to or on the Company shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows: ROYAL SILVER MINES, INC. 10220 N. Nevada Suite 270 Spokane, Washington 99218 Any notice or demand authorized by this Agreement to be given or made by any Warrant Holder or by the Company to or on the Warrant Agent shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows: OTC STOCK TRANSFER, INC. 231 East 2100 South Salt Lake City, Utah 84115 Any distribution, notice or demand required or authorized by this Agreement to be given or made by the Company or the Warrant Agent to or on the Warrant Holder shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed to the Warrant Holders at their last known addresses as they shall appear on the registration books for the Warrant Certificates maintained by the Warrant Agent. 9 21. Supplements and Amendments. The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Warrant Holders in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder with the Company and the Warrant Agent may deem necessary or desirable. 22. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 23. Termination. This Agreement shall terminate at the close of business on the Expiration Date or such earlier date upon which all Warrants have been exercised; provided, however, that if exercise of the Warrants is suspended pursuant to Section 12 and such suspension continues past the Expiration Date, this Agreement shall terminate at the close of business on the business day immediately following expiration of such suspension. The provisions of Section shall survive such termination. 24. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Utah and for all purposes shall be construed in accordance with the laws of said state. 25. Benefits of this Agreement. Nothing in this Agreement shall be construed to give any person or corporation other than the Company, the Warrant Agent and the Warrant Holder any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Warrant Holders. 26. Counterparts. This Agreement may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. 10 Dated this _____ day of ________________, 1997. ROYAL SILVER MINES, INC. (a Utah corporation) SEAL ATTEST: BY: __________________________________ Title: ___________________________ _________________________________ Secretary OTC STOCK TRANSFER, INC. (a Utah corporation) SEAL ATTEST: BY: __________________________________ Title: ___________________________ _________________________________ Secretary 11 EXHIBIT A WARRANTS CERTIFICATE THIS IS TO CERTIFY that, for value received, or registered assigns (the "Warrant Holder"), is the registered owner of the above-indicated number of Warrants expiring at 5:00 p.m., Pacific Standard Time (PST), on September 1, 2000 (the "Expiration Date"). Each full Warrant entitles the Warrant Holder to purchase from ROYAL SILVER MINES, INC. (the "Company"), a Utah corporation, until September 1, 2000 one fully paid and nonassessable share of the Company's Common Stock ($0.01 par value per share) at the purchase price of $1.40 (the "Exercise Price") in lawful money of the United States of America for each full Warrant represented hereby upon surrender of this Warrant Certificate, with the exercise form hereon duly completed and executed, with payment of the Exercise Price at the office of OTC Stock Transfer (herein called the "Warrant Agent"), 231 East 2100 South, Salt Lake City, Utah 84115, but only subject to the conditions set forth herein and in a Warrant Agreement dated as of _______________, 1997 (the "Warrant Agreement") between the Company and the Warrant Agent. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 per share for ninety (90) consecutive trading days. The Exercise Price, the number of shares purchasable upon exercise of each Warrant, the number of Warrants outstanding and the Expiration Date are subject to adjustments upon the occurrence of certain events set forth in the Warrant Agreement. Reference is hereby made to the provisions on the reverse side of this Warrant Certificate and the provisions of the Warrant Agreement, all of which are hereby incorporated by reference in and made a part of this Warrant Certificate and which shall for all purposes have the same effect as though fully set forth at this place. Upon due presentment for registration for transfer of this Warrant Certificate at the office of the Warrant Agent a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants, subject to any adjustments made in accordance with the provisions of the Warrant Agreement shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, upon payment of the transfer fee and any tax or other governmental charge imposed in connection with such transfer. The Warrant Holder of the Warrants evidenced by this Warrant Certificate may exercise all or any whole number of such Warrants during the exercise period and in the manner stated hereon. Exercise of the Warrants is subject to the Company maintaining an effective registration statement with the Securities and Exchange Commission and complying with the state securities laws of the residence of the Warrant Holder. The Exercise Price shall be payable in lawful money 12 of the United States of America by certified or cashier's check payable to the order of the Company. Upon any exercise of any Warrants evidenced by this Warrant Certificate in an amount less than the number of Warrants so evidenced there shall be issued to the Warrant Holder a new Warrant Certificate evidencing the number of Warrants not so exercised. No adjustment shall be made for any dividends on any shares issued upon exercise of this Warrant. No Warrant may be exercised after 5:00 p.m., PST, on the Expiration Date and any Warrant not exercised by such time shall become void. This Warrant Certificate shall not be valid unless manually countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be signed by its President and by its Secretary, each by a facsimile of his signature, and has caused a facsimile of its corporate seal to be imprinted hereon. Dated: _____________________________________, 199___. ROYAL SILVER MINES, INC. BY: ____________________________ Howard Crosby, President BY: ____________________________ Thomas Henricksen, Secretary Countersigned: OTC STOCK TRANSFER, INC. BY: ________________________________ Title: _________________________ EX-28 8 1 6,000,000 UNITS ROYAL SILVER MINES, INC. (a Utah corporation) PARTICIPATING DEALER'S AGREEMENT You are invited to participate as a Participating Dealer ("Participating Dealer") in an offering of up to 6,000,000 Units of ROYAL SILVER MINES, INC., a Utah corporation, 10220 North Nevada, Suite 270, Spokane, Washington 99218 (the "Company"), to be offered to the public at $0.75 per share. Each Unit consists of one (1) shares of Common Stock, $0.01 par value, and one (1) Redeemable Common Stock Purchase Warrant. The Common Stock and Redeemable Common Stock Purchase Warrants are being offered as a Unit. They are immediately detachable and separately tradeable. Each Redeemable Warrant ("Redeemable Warrant") entitles the holder to purchase one share of Common Stock at a price of $1.40 until September 1, 2000. The Redeemable Warrants are callable by the Company upon thirty (30) days written notice provided that the bid price of the Company's Common Stock trades above $3.00 per share for ninety (90) consecutive trading days. The Units are more particularly described in the enclosed Prospectus, additional copies of which will be supplied in reasonable quantities upon request. The Company is offering the shares subject to the terms of: (i) this Agreement, and (ii) the Company's instructions which may be forwarded to the Participating Dealers from time to time. This invitation is made by the Company only if the Company's shares may be lawfully offered in your state. The terms and conditions of this invitation are as follows: 1. Acceptance of Orders. Orders received from the Participating Dealer will be accepted only at the price, in the amounts, and on the terms which are set forth in the Company's offering memorandum. 2. Selling Concession. As a Participating Dealer, you will be allowed on all shares sold by you a commission of ten percent (10%) of the total sales price ($0.75 per share) as shown in the Company's offering memorandum. 3. Status of Dealers. The Participating Dealer agrees to purchase the Company's shares for its customers only through the Company, and all such purchases shall be made only upon order already received by the Participating Dealer from its customers. In all sales of the Company's shares to the public, the Participating Dealer shall confirm as agent for another. The Participating Dealer agrees that no member of the National Association of Securities Dealers, Inc., will allow commissions to any non-member broker/dealer, including foreign broker/dealers registered pursuant to the Securities Act of 1934. 2 4. Delivery of Funds. The Participating Dealer will promptly transmit (not later than noon of the next business day) to the Company all funds received from the purchasers and will transmit to the Company a confirmation or a record of each sale which will set forth the name, address and social security number of each individual purchaser, the number of shares purchased, and, if there is more than one registered owner, the form of ownership in which the certificate or certificates are to be issued, e.g., joint tenancy or tenancy in common. Also, each Participating Dealer shall report, in writing, to the Company, the number of the Company's shares which have been sold in each state and the number of persons in each such state who purchased shares from the Participating Dealer. Each sale may be rejected by the Company, and if rejected, the Company will return to you all funds paid by the purchaser which have been received by the Company. In such event, the Participating Dealer will return to the Purchaser within five (5) business days after actual receipt from the Company the full purchase price paid by the Purchaser. 5. Payment. Payment for the shares shall accompany all confirmations and applications and shall be in clearing house funds. All checks and other orders for the payment of money shall be made payable to ROYAL SILVER MINES, INC. and shall be delivered to it not later than 12 o'clock noon of the next business day following receipt. The shares sold by the Participating Dealer shall be available for delivery at the office of the Company, unless other arrangements are made with the Company for delivery. 6. Dealer's Undertakings. No person is authorized to made any representations concerning the Company's shares except those contained in the Company's offering memorandum. The Participating Dealer will not sell the Company's shares pursuant to this Agreement unless the offering memorandum is furnished to the purchaser at least 48 hours prior to the mailing of the confirmation of sale, or is sent to such person under such circumstances that it would be received by him 48 hours prior to his receipt of a confirmation of the sale. The Participating Dealer agrees not to use any supplemental sales literature of any kind without prior written approval of the Company unless it is furnished by the Company for such purpose. In offering and selling the Company's shares, the Participating Dealer will rely solely on the representations contained in the Company's offering memorandum. The Participating Dealer understands that during the ninety (90) day period after the first date upon which the shares of the Company are bona fide offered to the public, all Dealers effecting transactions in the Company's shares may be required to deliver the Company's offering memorandum to any purchasers thereof prior to or concurrent with the receipt of the confirmation of sale [see Rule 256(g) under the Securities Act of 1933, as amended]. Additional copies of the offering memorandum will be supplied by the Company in reasonable quantities upon request. 3 7. Conditions of Offering. All sales will be subject to delivery by the Company or Certificates evidencing the shares. The Company has reserved the right, without notice, to cancel or modify the Offering and to reject any order, in whole or in part. 8. Failure of Order. In an order is rejected or if an payment is received which proves insufficient or worthless, any compensation paid to the Participating Dealer shall be returned either by the Participating Dealer's remittance in cash or by a charge against the account of the Participating Dealer, as the Company may elect. 9. Representations and Agreements of Participating Dealer. By accepting this Agreement, the Participating Dealer represents that it is registered as a broker/dealer under the Securities Exchange Act of 1934, as amended; is qualified to act as Dealer in the states or other jurisdictions in which it offers the Company's shares; is a member in good standing of the National Association of Securities Dealers, Inc.; and will maintain such registration, qualifications, and memberships throughout the term of this Agreement. The Participating Dealer agrees to comply with all applicable federal laws; the laws of the states or other jurisdictions concerned; and the Rules and Regulations of the National Association of Securities Dealers, Inc. Further, the Participating Dealer agrees that it will not offer or sell the Company's shares in any state or jurisdiction except as the Company shall advise the Participating Dealer in writing that the shares are exempt from registration in particular states. The Participating Dealer shall not be entitled to any compensation during any period in which it has been suspended or expelled from membership in the National Association of Securities Dealers, Inc. 10. Dealer's Employees. By accepting this Agreement, the Participating Dealer has assumed full responsibility for thorough and proper training of its representatives concerning the selling methods to be used in connection with the offer and sale of the Company's shares, giving special emphasis to the principles of full and fair disclosure to prospective investors and the prohibitions against "Free-riding and Withholding." 12. Indemnification. The Company agrees to indemnify, defend, and hold the Participating Dealer and each person, if any, who controls the Participating Dealer within the meaning of Section 15 of the Securities Act of 1933, as amended (the "Act"), free and harmless from and against any and all losses, claims, demands, liabilities, and expenses (including reasonable legal and other expense incurred by each such Participating Dealer and controlling person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to the Participating Dealer or any controlling person), which the Participating Dealer or controlling person may incur 4 under the Act or at common law or otherwise, but only to the extent that such losses, claims, demands, liabilities and expense shall arise out of or be based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement, or in the offering memorandum, or in any amendment or amendments to the registration statement or the offering memorandum, or in any application or other papers, hereinafter collectively called "Blue Sky Applications," executed by any Participating Dealer with the written approval of the Company for filing in any state or states in order to qualify the Securities covered by this Agreement, or shall arise out of or be based upon any omission or alleged omission to state therein any material facts required to be stated in the registration statement or the offering memorandum, in any Amendment or Amendments, in any Blue Sky Application, or necessary to make the Statements in any thereof not misleading, provided, however, that the Indemnity Agreement shall not apply to any such losses, claims, demands, liabilities or expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement or the offering memorandum, or in any Blue Sky Application, or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, which statement or omission was made in reliance upon information furnished to the Company by the Participating Dealer in writing expressly for use in the registration statement or offering memorandum, or in any Amendment or Amendments, or was made by the Participating Dealer in any Blue Sky Application not in reliance upon information furnished by the Company. The Participating Dealer agrees to give the Company an opportunity to participate in the defense or preparation of the defense of any action brought against the Participating Dealer or controlling persons of the Participating Dealer to enforce any such claim or liability, and the Company shall have the right to so participate. The Agreement of the Company under the indemnity is expressly conditioned upon notice of any such action having been sent by the Participating Dealer or controlling persons, as the case may be, to the Company, by letter or telegram, promptly after the commencement of such action against the Participating Dealer or controlling persons, such notice either being accompanied by copies of papers served or filed in connection with such action or by a statement of the nature of the action to the extend known to the Participating Dealer. Failure to notify the Company within a reasonable time of any such action shall relieve the Company of its respective liabilities under the foregoing indemnity, but failure to notify the Company as herein provided shall not relieve it from any liability which it may have to the Participating Dealer or controlling persons other than on account of the Indemnity Agreement. 5 12. Participating Dealer's Indemnification. The Participating Dealer hereby agrees to indemnify and to hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act of 1933, as amended, from and against any and all losses, claims, damages or liabilities to which the Company may become subject under the Securities Act of 1933, as amended, or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information contained in the registration statement, offering memorandum, or other document filed with the Securities and Exchange Commission to the extent such information is supplied by the Participating Dealer to the Company for inclusion therein, or is based upon alleged misrepresentations or omissions to state material facts in connection with statements made by the Participating Dealer or the Participating Dealer's salesmen orally or by other means; and the Participating Dealer will reimburse the Company for legal or other expenses reasonably incurred in connection with the investigation or the defending of any such action or claim. The Company shall, after receiving the first Summons or other legal process disclosing the nature of the action being served upon it, in any proceeding in respect of which indemnity may be sought by the Company hereunder, promptly notify the Participating Dealer in writing of the commencement thereof. In case any such litigation be brought against the Company, the Company shall notify the Participating Dealer of the commencement thereof and the Participating Dealer shall be entitled to participate in (and, to the extent the Participating Dealer shall which, to direct) the defense thereof at the Participating Dealer's own expense, but such defense shall be conducted by counsel of good standing satisfactory to the Company. If the Participating Dealer shall fail to provide such defense, the Company may defend such action at the Participating Dealer's cost and expense. The Participating Dealer's obligation under this paragraph shall survive the termination of this Agreement. 13. Expenses. No expenses will be charged to Participating Dealers. A single transfer tax, if any, on the sale of the shares by the Participating Dealer to its customers will be paid when such certificates are delivered to the Participating Dealer for delivery to its customers. However, the Participating Dealer will pay its proportionate share of any transfer tax or any other tax (other than the single transfer tax described above) if any such tax shall be from time to time assessed against the Company and other Participating Dealers. 6 14. Communications. All communications to the Company should be sent to the address shown in the opening paragraph of this Agreement. Any notice to the Participating Dealer shall be properly given if mailed or telephoned to the Participating Dealer at the address specified in its Form of Acceptance. This Agreement shall be construed according to the laws of the state of Utah. 15. Assignment and Termination. This Agreement may not be assigned by the Participating Dealer without the Company's consent. This Agreement (except as otherwise specified above) will terminate upon the termination of the Offering except that either party may terminate this Agreement at any time be giving written notice to the other. 16. Acceptance. If you desire to become a Participating Dealer, please advise us immediately by signing and returning to us the Form of Acceptance attached hereto. Dated this _____ day of _______________, 1997. ROYAL SILVER MINES, INC. BY: _____________________________ Howard M. Crosby, President 7 FORM OF ACCEPTANCE ROYAL SILVER MINES, INC. 10220 N. Nevada Suite 270 Spokane, Washington 99218 Gentlemen: We agree to become a Participating Dealer with respect to the offering of shares of Royal Silver Mines, Inc. at the public offering price of $0.75 per share as outlined in your Participating Dealer's Agreement. We acknowledge receipt of the Participating Dealer's Agreement and of the Prospectus dated ____________, 1997. We agree to subscribe on the terms set forth in the Participating Dealer Agreement for _____________ shares of Royal Silver Mines, Inc. and to make payment for such securities with three (3) days of the confirmation from you of our order but not later than noon of the next business day after the receipt of funds from a customer. We further confirm to you that we are members in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and we agree to abide by the Rules and Regulations of the NASD. We further agree that we will not reallow commissions to any broker/dealer, including foreign broker/dealers, registered pursuant to the Securities Exchange Act of 1934, who are not members in good standing of the NASD. Dated this _____ day of ___________________, 1997. ___________________________________ Participating Dealer BY: _______________________________ Title: ________________________ Authorized Officer or Partner Address of Record: __________________________________ __________________________________ __________________________________ IRS Employer Identification No. ----------------------------------- ================================================================= RESERVED FOR COMPANY ACTION Share Allocation: _______________________________ Dollar Allocation: ______________________________ BY: _______________________________ Authorized Officer -----END PRIVACY-ENHANCED MESSAGE-----