EXECUTION COPY
 

 
DATE:SEPTEMBER 5, 2012

 
PAN AMERICAN GOLDFIELDS LTD.

SUNBURST MINING DE MEXICO S.A. DE C.V.

MINERA RIO TINTO, S.A. DE C.V.

and
 
MARJE MINERALS S.A.

SECOND AMENDED AND RESTATED DEVELOPMENT AGREEMENT

Project for mineral exploration and development in the Cieneguita Project
 
 

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ARTICLE 1.
DEFINITIONS AND INTERPRETATION 
3

 
ARTICLE 2.
SCOPE OF PROJECT AND PARTICIPATION 
10

 
ARTICLE 3.
TRANSFERS 
12

 
ARTICLE 4.
CORPORATE GOVERNANCE 
16

 
ARTICLE 5.
OPERATION OF THE PROJECT 
19

 
ARTICLE 6.
DEVELOPMENT FEASIBILITY STUDY AND PRODUCTION DECISION 
28

 
ARTICLE 7.
FINANCING 
29

 
ARTICLE 8.
FUNDING DEFAULT 
30

 
ARTICLE 9.
COVENANTS OF THE PARTIES 
31

 
ARTICLE 10.
WARRANTIES 
32

 
ARTICLE 11.
INDEMNIFICATION 
33

 
ARTICLE 12.
ACCOUNTING, AUDIT AND INFORMATION 
34

 
ARTICLE 13.
CONFIDENTIAL INFORMATION 
35

 
ARTICLE 14.
DISPUTE RESOLUTION 
35

 
ARTICLE 15.
NOTICE 
36

 
ARTICLE 16.
GENERAL 
38

 
 
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SECOND AMENDED AND RESTATED DEVELOPMENT AGREEMENT

THIS AGREEMENT (this “Agreement”) made as of the 5th day of September, 2012 is
entered into by and between:
 
1) PAN AMERICAN GOLDFIELDS LTD., a Delaware corporation (“Pan American”).
 
2) SUNBURST MINING DE MEXICO S.A. DE C.V., an entity organized under the laws of
the United Mexican States (“Sunburst”).
 
3) MINERA RIO TINTO, S.A. DE C.V., an entity organized under the laws of the
United Mexican States (“MRT”).
 
4) MARJE MINERALS S.A., an entity organized under the laws of the United Mexican
States (“Marje Minerals”).
 
Pan American, Sunburst, MRT and Marje Minerals are each sometimes hereinafter
referred to as a “Party” and collectively as the “Parties”.  
 
RECITALS

A.           Corporativo Minero S.A. granted certain mining concessions (the
“License”) to MRT with respect to 822 hectares of property located in the Baja
Tarahumara in Cieneguita Lluvia De Oro, an area of canyons in the Municipality
of Urique, in southwest Chihuahua, Mexico (the “Property”).
 
 
B.MRT assigned the License to Sunburst, a wholly owned subsidiary of Pan
American.
 
 
C.On February 6, 2009, Pan American, Sunburst and MRT entered into a Development
Agreement in respect of the Property in connection with minerals exploration and
development under the License (“Development Agreement”).
 
D.On December 23, 2009, (i) Pan American, Sunburst and MRT amended the
Development Agreement and added Marje Minerals as a party to the Development
Agreement, (ii) Pan American, Sunburst, MRT and Marje Minerals entered into a
Restructuring Agreement, and (iii) Pan American, Marje Minerals and the
investors named therein entered into an Acknowledgment and Agreement in respect
to the Property.
 
E.On September 26, 2011, Pan American, Sunburst, MRT and Marje Minerals entered
into an Amended and Restated Development Agreement in order to agree upon, among
other things, the new economic interests of the Parties in respect of the
Property (the “Restated Agreement”, and jointly with the above-referenced
agreements referred collectively as the “Original Agreements”).
 
 
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F. Subject to the terms and conditions of the Original Agreements, the economic
interests of the Parties in respect of the Property prior to the date hereof are
as follows:
 
Holder
Ownership %
Net Cash Flow Interest -First 15 Meters*
Net Cash Flow Interest - After
First 15 Meters*
MRT
20%
74%
20%
Marje Minerals
0%
6%
0%
Pan American
80%
20%
80%

* As the term “First 15 Meters” is defined in the Restated Agreement.

G. The Parties seek to enter into this Agreement to, among other things, amend
and restate the Original Agreements and restructure the economic interests and
obligations of the Parties in respect of the Property.

H.           Sunburst will form within the deadline set forth on Section 2.3 an
entity organized under the laws of the United Mexican States (the “Project
Company”) for the purpose of developing the Project jointly with MRT, who shall
operate the Pilot Project during the Initial Production Period, and will assign
the License to the Project Company, all pursuant to and in accordance with the
terms hereof.

In consideration of the mutual covenants and promises contained in this
Agreement, the receipt and sufficiency of which is hereby acknowledged, the
Parties agree as follows:
 
ARTICLE 1.   DEFINITIONS AND INTERPRETATION
 
1.1 Definitions. As used in this Agreement, the following terms have the
meanings indicated below:
 
“AAA” shall have the meaning given that term in Section 14.1.

“Acceptance Period” shall have the meaning set forth in Section 3.3.2.

“Acknowledgment and Agreement” means the Acknowledgement and Agreement, dated as
of September 26, 2011, by and among Pan American, Sunburst, MRT and Corporativo
Minero, S.A. de C.V.

“Additional Contribution” shall have the meaning given that term in Section 7.1.
 
“Advance Amount” shall have the meaning given that term in Section 2.5.3.

 
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“Affiliate” shall mean, with respect to any Person, any other Person that (a)
owns or controls the first Person, (b) is owned or controlled by the first
Person, or (c) is under common ownership or control with the first Person, where
“own” means ownership of more than 50% of the equity interests or rights to
distributions on account of equity of the Person and “control” means the power
to direct the management or policies of the Person through holding of voting
securities or participation interest, contract, voting trust or otherwise.

“Annual Program and Budget” shall mean the program of works and budget for each
calendar year of operation of the Project Company developed and adopted in
accordance with rules and provisions set forth herein.

“Arbitration Panel” shall have the meaning given that term in Section 14.2.

“Area of Interest” means the License Area, and the area within five (5)
kilometers outside of its boundaries.

“Bankruptcy” shall mean any of the following actions with respect to a relevant
Person: (a) the commencement by it of a voluntary case under any Bankruptcy,
insolvency, or other similar law (as now or hereafter in effect) of any
jurisdiction, (b) the seeking by it of the appointment of a trustee, receiver,
liquidator, custodian or other similar official over it or any substantial part
of its property, (c) the consenting by it to any relief or to the appointment of
or taking possession by any such official in any involuntary case or other
proceeding commenced against it, (d) the making by it of a general assignment
for the benefit of creditors, (e) the commencement against it of an involuntary
case under any Bankruptcy, insolvency, or other similar law (as now or
hereinafter in effect) of any jurisdiction, seeking liquidation, reorganization
or other relief with respect to it or its debts or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official over it or
any substantial part of its property, such involuntary case remaining
undismissed or unstayed for a period of thirty (30) Days, (f) an adjudication
that it is bankrupt or insolvent, or the entry of an order for relief under
applicable Bankruptcy law, or (g) the taking by it of any corporate action to
authorize, or in furtherance of, any of the foregoing.

“Board” shall have the meaning set forth in Section 3.3.4.

“Business Day” shall mean a day (other than Saturday or Sunday) on which banks
are open for business in Chihuahua, Mexico.

“Change of Control” shall mean a transfer of more than fifty percent (50%), or a
lesser percentage that in addition to the existing percentage held by such third
party transferee exceeds fifty percent (50%), of the equity or ownership
interest, or other means of control, of a Party, directly or indirectly, through
one or more intermediaries, to a third party transferee that is not an Affiliate
of such Party and “control” means the power to direct the management or policies
of the person through holding of voting securities or participation interest,
contract, voting trust or otherwise; provided that an equity or debt financing
by a Party shall not be deemed a Change of Control of such Party if the Party is
the surviving corporation after the closing of such financing and the Party
issues such equity and/or debt to raise proceeds to support its operations.

 
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“Claimant” shall have the meaning given that term in Section 14.2.

“Confidential Information” shall have the meaning given that term in Section
13.1.

“Corporate Documents” shall mean in respect of the Project Company its Charter
and internal regulations and resolutions duly adopted in accordance with
applicable law.

“Day” shall mean a calendar day.

“Debt Assumption and Release Agreement” means the Debt Assumption and Release
Agreement, dated September 26, 2011, by and among Pan American, Marje Minerals,
MRT, Mario Ayub and Robert Knight.

“Default Cure Payment” shall have the meaning given that term in Section 8.2.1.

“Default Remedy Notice” shall have the meaning given that term in Section 8.2.

“Default Notice” shall have the meaning given that term in Section 8.1.

“Defaulting Party” shall have the meaning given that term in Section 8.1.

“Defendant” shall have the meaning given that term in Section 14.2.

“Development Documentation” shall have the meaning given that term in Section
ARTICLE 6.  

“Development Feasibility Study” shall mean a study prepared by an international
engineering firm within the standard practices of the international mining
industry in accordance with Good Mining Practice, which contains a detailed
examination of the feasibility of bringing a deposit of Minerals in the License
Area into commercial production by the establishment of a mine, and which
includes a review of all relevant issues related thereto, a statement of the ore
reserves, a description of the nature and scale of the proposed operation, an
estimate of the construction and production costs and a timetable for
construction, and which is in form and substance appropriate for presentation to
a bank or other financial institution from which financing may potentially be
sought for the Project.

“Development Program and Budget” shall mean the program of works and budget for
conduct by the Project Company of development and commercial production of
Mineral Products in accordance with the Development Feasibility Study.

 
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“Diluted Interest” shall have the meaning given that term in Section 8.2.1.

“Dilution” shall have the meaning given that term in Section 8.2.1.

“Disposition” shall have the meaning given that term in Section 3.5.

“Drag Along Member” shall have the meaning given that term in Section 3.5.

“Effective Date” shall be the date hereof.

“Encumbrance” shall mean any mortgage, charge, pledge, hypothecation, security
interest, assignment, lien (statutory or otherwise), charge, title retention
agreement or arrangement, royalty, restrictive covenant or other encumbrance of
any nature.

“Evaluator” shall have the meaning given that term in Section 3.3.4.
 
“First Development Annual Program and Budget” means the Annual Program and
Budget in respect of the first calendar year following the year in which the
approval of the Development Documentation occurs.

“First Refusal Party’s Interests” shall have the meaning set forth in Section
3.3.1.

“Fiscal Quarter” means each quarterly period beginning on each of March 1, June
1, September 1 and December 1 of each Fiscal Year.

“Fiscal Year” means each yearly period beginning on the first day of March and
the last day of February.

 “Funding Default” shall have the meaning set forth in Section 7.2.

“General Director” shall have the meaning given that term in Section 5.3.1.
 
“Grace Period” shall have the meaning given that term in Section 8.1.

“Good Mining Practice” shall mean those practices, methods, techniques, and
standards, as changed from time to time, that are generally employed by first
tier companies engaged in mining and accepted for use in the international
mining industry, including with respect to the design, engineering,
construction, testing, installation, operation, and maintenance of materials,
equipment, earthworks, roads, buildings and other mining and related facilities
and infrastructure.

“Indemnified Party” shall have the meaning given in Section 11.1.

 
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“Indemnifying Party” shall have the meaning given in Section 11.1.

“Initial Contributions” shall have the meaning given in Section 7.1.

“Initial Production” means the development and commercial production of Mineral
Products during the Initial Production Period under the Pilot Project.

“Initial Production Period” means the period from the date of the Original
Agreements through and including December 31, 2013, unless terminated sooner by
MRT after providing Pan American 90 days advanced written notice or terminated
by Pan American in accordance with Section 5.3.5.
 
“LIBOR” shall mean, in relation to any amount under this Agreement, the rate
appearing on the appropriate page of the Reuters Screen (or such other page or
service as may replace it for the purpose of displaying London interbank offered
rates of leading reference banks) at approximately 11:00 a.m. London time on the
relevant date, as the one month LIBOR rate for United States Dollar deposits
approximately equal in amount to the item with respect to which interest is to
be calculated under this Agreement; provided that, in the event that such screen
rate is not available for the currency or period of such deposit at such time
for any reason, “LIBOR” shall be the one month LIBOR rate (rounded upwards four
(4) decimal places) at which United States Dollar deposits approximately equal
in amount to the item with respect to which interest is to be calculated under
this Agreement are offered in immediately available funds to Citigroup by the
proposed London offices of three (3) leading banks in the London interbank
market at approximately 11:00 am, London time on the relevant date (or as soon
thereafter as possible).  

“License” shall have the meaning given that term in Recitals.

“Management Committee” shall have the meaning given that term in Section 4.1.

“Managing Member” shall have the meaning given that term in Section 4.1.1.

“Marje Minerals” shall have the meaning given that term in the preamble.

“Member” shall have the meaning given that term in Section 4.1.1.

“Minerals” means metals, ores or concentrates, or metals derived from the ores
or concentrates, containing valuable materials (including gold) and which are
found in the License Area.

“Mineral Products” shall mean the Minerals produced by the Project Company in
the form which the Parties shall agree to be appropriate for marketing without
further processing.

 
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“MRT” shall have the meaning given that term in the preamble.

“Negative Difference” shall have the meaning given that term in Section 2.5.3.

“Net Cash Flow” for any period shall mean cash flows distributable to the
parties calculated as follows: (i) the gross receipts and revenue from all
operations of the Project (or Pilot Project, as the case may be) during the
applicable period, minus (ii) necessary or reasonable operating expenses
incurred during the applicable period in connection with operating the Project
(or Pilot Project, as the case may be) and maintaining the Property, including
for avoidance of doubt, a deduction of applicable taxes, royalties or other
charges (but not including any charges for depreciation and amortization)
against revenue; provided, however, for further clarity, the following items
shall not be included as “operating expenses” for purposes of the calculation of
Net Cash Flow in connection with the Pilot Project and shall be paid solely by
MRT:  (a) any and all administrative, management and overhead costs, (b) any and
all reclamation fees, costs and expenses incurred to bring the Property into
compliance with all applicable laws and (c) any and all costs for additional
equipment.

“Net Cash Flow Interest” shall mean a Party’s respective pro rata interest in
the Net Cash Flow, as set forth in Sections 2.5 and 2.6.

“Net Smelter Returns” shall have the meaning given that term in Section 6.3.1.

“Non-Defaulting Party” shall have the meaning given that term in Section 8.1.

“Non-Quitting Party” shall have the meaning given that term in Section 6.3.1.

 “Notice” shall have the meaning given that term in Section 15.1.

“Offer” shall have the meaning set forth in Section 3.3.1.

“Offeror Party” shall have the meaning set forth in Section 3.3.1.

“Organizational Structure” shall mean the Management Committee, General Director
and description of their subordination and coordination structure and scope of
their duties, rights and authorities, and which shall be established as set
forth herein.  

“Other Owners” shall have the meaning given that term in Section 3.5.

“Ownership Interest” shall mean, in respect of a Party, the portion, expressed
in percent, of all outstanding and issued capital of the Project Company owned
by such Party.  The initial Ownership Interest is set forth in Section 2.5.1,
and is subject to adjustment as provided herein.

“Pan American” shall have the meaning given that term in the preamble.

 
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“Party” shall have the meaning given that term in the preamble.

“Person” shall mean any natural person, corporation, company, partnership
(general or limited), limited liability company, business trust, or other entity
or association, including any governmental, administrative, judicial or other
official body or agency.

“Pilot Project” shall have the meaning given that term in Section 2.1.

“Programs and Budgets” shall mean the Development Program and Budget and each of
the Annual Program and Budgets.

“Project” shall have the meaning given that term in Section 2.1.

“Project Company” shall have the meaning given that term in the Preamble.

“Property” shall have the meaning given that term in the Recitals.

“Purchase Agreement” means the Stock Purchase Agreement, dated September 26,
2011, by and among Pan American and Marje Minerals.

“Purchase Notice” shall have the meaning set forth in Section 3.3.2.

“Quitting Party” shall have the meaning given that term in Section 6.3.1.

“Quitting Dilution” shall have the meaning given that term in Section 6.3.1.

“Quitting Diluted Interest” shall have the meaning given that term in Section
6.3.1.
 
“Related Persons” shall have the meaning given that term in Section 5.4.

“Release” shall have the meaning given that term in Section 13.3.

“Remaining Party” shall have the meaning set forth in Section 3.3.1.

“Representatives” in respect of each Party shall mean such Party’s employees,
affiliates, officers, directors, partners, members, managers, agents, advisors
or authorized representatives.

“Restructuring Agreements” means, collectively, this Agreement, the
Acknowledgement and Agreement, the Purchase Agreement and the Debt Assumption
and Release Agreement.

“Right of First Refusal Purchase Option” shall have the meaning set forth in
Section 3.3.2.

 
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“Rules” shall have the meaning given that term in Section 14.1.

“Sale Price” shall have the meaning set forth in Section 3.3.1.

“Seller’s Notice” shall have the meaning set forth in Section 3.3.1.

“Sunburst” shall have the meaning given that term in the preamble.

“Tag Along Member” shall have the meaning given that term in Section 3.6.
 
“Tax Authority” means any governmental or regulatory authority or other
authority anywhere in the world competent to impose or collect any taxes and
duties.

“Top Management Officers” shall have the meaning given that term in Section
5.3.1.

“Transfer” shall mean all transactions, with or without consideration, resulting
in immediate or future conveyance, by way of sale, assignment, hypothecation,
pledge, establishing any Encumbrance, rights offering, or otherwise, of full,
nominee, or beneficiary title to any shares or any interest therein whether
direct or indirect.

“Third Party Transferee” shall have the meaning set forth in Section 3.3.1.

“Third Person” shall mean any Person other than a Party or a Party’s Affiliate.

“Valuation Dispute Notice” shall have the meaning given that term in Section
3.3.4.

“Withdrawal Notice” shall have the meaning given that term in Section 6.2.

1.2 Interpretation.  Unless otherwise provided herein:
 
1.2.1 All references to “Articles”, “Sections” and “Recitals” are to Articles
and Sections and Recitals of this Agreement, and all references to “Schedules”
are to schedules attached to this Agreement, each of which is made a part of
this Agreement for all purposes.
 
1.2.2 References to any gender include all others if applicable in the context.
 
1.2.3 Terms defined in the singular shall have the corresponding meaning when
used in the plural and vice versa.
 
1.2.4 All uses of “include” or “including” mean without limitation.
 
 
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1.2.5 References to a law, rule, regulation, contract, agreement, or other
document mean that law, rule, regulation, contract, agreement, or document as
amended, modified, or supplemented, if applicable.
 
1.2.6 Any definition of one part of speech of a word, such as definition of the
noun form of that word, shall have a comparable meaning when used as a different
part of speech, such as the verb form of that word.
 
1.2.7 References to any “person” include any corporation, firm, company,
partnership, trust, individual, association, government, state or agency of a
state, and other entity whether or not a separate legal entity and shall include
their successors.
 
1.2.8 References to any document “in the agreed form” shall mean that such form
has been agreed between the parties, incorporating the principles relevant to
that document set out in this Agreement, and initialed for identification
purposes by the Parties.
 
1.2.9 Unless otherwise stated, references to time shall be deemed to be
references to U.S. Pacific Standard time and events stated or deemed to occur
upon, or actions required to be performed by, any given date shall be deemed to
occur at, or must be performed before, 5:00 p.m. on the specified date.
 
ARTICLE 2.   SCOPE OF PROJECT AND PARTICIPATION
 
2.1 Project Scope. The Parties agree to cooperate in the manner and on the terms
and conditions set forth herein and, through  the Project Company, to undertake
prospecting, exploration and development of ore fields and financing and
construction in the License Area, and the extraction, processing and/or sale of
Mineral Products and performance of all associated activities and operations
(other than the Pilot Project), including, without limitation, all actions and
decisions with respect to the Development Feasibility Study (the
“Project”).  The “Pilot Project” shall mean the limited extraction and mineral
processing in a pilot plant milling operation, and the marketing and sale of
Mineral Products from such pilot plant, as currently conducted by MRT in the
License Area and to be carried out during the Initial Production Period.
 
2.2 Management of Project.  The Parties agree and confirm that, unless otherwise
set forth in this Agreement or otherwise agreed by the Parties in writing, the
Parties will conduct management, financing and associated operations in respect
of the Project Company and the Project as set forth herein, and distribute or
otherwise apply the Net Cash Flow generated by the Project in the manner and on
the conditions set forth herein or otherwise agreed by the Parties pursuant
hereto.  As more fully described in Section 4.1 hereof, notwithstanding the
rights and obligations set forth in this Agreement for each of the Parties with
respect to the development and operation of the Project, MRT shall be solely
responsible for the operation (and the liabilities) of the Pilot Project during
the Initial Production Period in accordance with Section 5.3.  Upon the
expiration or termination of the Initial Production Period, the Project Company
shall be solely responsible for the Project, except to the extent required for
MRT to pay for and complete any required removal and reclamation operations, as
required by applicable laws and/or governmental authorities and Section
5.3.4.  In the event that the removal and reclamation work carried out by MRT
does not comply with applicable Mexican law at the end of the Initial Production
Period, and subject to Section 5.3.4, at Pan American’s option, the Project
Company may carry out any such uncompleted reclamation work and bill in good
faith the cost thereof to MRT which shall be promptly paid by MRT. If MRT fails
to make prompt payments to the Project Company, such failure shall be deemed a
Funding Default and subject to the terms and conditions of a Funding Default
under Articles 7 and 8.
 
 
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2.3 Purpose of the Project Company. The Parties agree and confirm that the
purpose of the establishment and operation of the Project Company is to hold and
maintain the Licenses and all the rights and privileges thereto appertaining, to
implement the Project in accordance with the terms of this Agreement, the
budgets, work programs, resolutions, and other instructive documentation issued,
approved, authorized or otherwise adopted by the Parties consistently with the
terms hereof, and deliver all proceeds deriving from the Project to the Project
Company for further distribution or such other application as may be agreed by
the Parties. The Parties further agree that the Project Company shall be formed
and incorporated under Mexican law within six (6) months after the date of
execution of this Agreement.  Each of the Parties, acting promptly and in good
faith, will execute or cause to be executed all documents, agreements,
instruments and conveyances, or any amendments or supplements thereto, and to do
or to cause to be done any and all other acts necessary, appropriate or in
furtherance of forming and incorporating the Project Company in accordance with
the terms of Section 5.1.
 
2.4 Participation in the Project. The Parties hereby agree and confirm that,
unless otherwise expressly stated herein or agreed by the Parties in writing,
each Party shall participate in the Project either directly or through holding
of such Party’s Ownership Interest and through exercise and enjoyment of the
rights, authorities, and privileges provided by such Ownership Interest and
performance of obligations and bearing liabilities attributable to such
Ownership Interest pursuant hereto and the Corporate Documents of the Project
Company, provided, however, that this Section 2.4 shall not prohibit or prevent
an Affiliate of a Party from contracting with Project Company so long as such
contracting is in compliance with the requirements of this Agreement, the
Corporate Documents, and the decisions of the Management Committee.
 
2.5 Ownership Interests and Net Cash Flow Interests.
 
2.5.1 As of the Effective Date, the parties acknowledge and agree that the
Ownership Interests and the Net Cash Flow Interests held by the Parties are as
follows:
 
 
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Holder
Ownership Interest
Net Cash Flow Interest –
 
(March 1, 2012 until December 31, 2012)
 
Net Cash Flow Interest –
 
(January 1, 2013 until December 31, 2013)
 
Net Cash Flow Interest –
 
(After December 31, 2013)**
 

MRT
20%
65%
 
65%
20%
Marje Minerals
 
0%
6%
0%
0%
Pan American
80%
29%
35%
80%

* Following the Initial Production Period, Net Cash Flow shall be distributed in
the same proportion as a party’s Ownership Interests.

 
2.5.2 Subject to Section 2.5.3, within forty-five (45) days after the end of
each Fiscal Quarter, the Project Company (with respect to the Project) and MRT
(with respect to the Pilot Project) shall pay the applicable Net Cash Flow
Interests of each Party under Section 2.5.1 to such Party for such Fiscal
Quarter.
 
2.5.3 A monthly advance payment on Pan American’s quarterly payment of Net Cash
Flow Interest shall be paid to Pan American within ten (10) Business Days of the
first day of each month for the previous month’s Net Cash Flow. Such advance
payment shall amount to the greater of:  (i) a good faith estimate of fifty
percent (50%) of Pan American’s Net Cash Flow Interest for such month, and
(ii)  One Hundred and Fifty Thousand Dollars ($150,000.00 USD) (in each case, an
“Advance Amount”).  The payment of such Advance Amount shall be made in
immediately available funds by wire transfer to an account designated by Pan
American in writing.  Within forty-five days following the end of each Fiscal
Quarter, a reconciliation payment shall be made to Pan American equal to the
positive difference (if any) between Pan American’s actual total Net Cash Flow
Interest for such Fiscal Quarter less the total monthly Advance Amounts paid to
Pan American during such Fiscal Quarter; provided, however, in the event that
the difference between Pan American’s actual total Net Cash Flow Interest for
such Fiscal Quarter less the total monthly Advance Amounts paid to Pan American
during such Fiscal Quarter is negative (a “Negative Difference”), the monthly
Advance Amounts due over the immediately following Fiscal Quarter shall be
reduced on a pro rata basis in an aggregate amount equal to such Negative
Difference.  
 
2.6 Change of the Initial Ownership Interest or Net Cash Flow Interest. Unless
specified in the Restructuring Agreements or otherwise agreed by the applicable
Parties in writing, Ownership Interests or Net Cash Flow Interests of a Party
may change only as a result of Section 2.2, Section 5.3.4 and Articles 6, 7, 8
and 9, or a Transfer, which shall be subject to the terms and conditions set for
in Article 3.
 
 
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ARTICLE 3.  TRANSFERS
 
3.1 Limitation on Transfers. Except to the extent specifically permitted or
required by this Agreement (and subject always to Section 3.4), no Party will
Transfer such Party’s Ownership Interest or any part thereof without a prior
written consent of the other Party (such consent to be entirely within the
discretion of such Party).
 
3.2 Change of Control. Any Change of Control in respect of a Party may be
undertaken without the prior consent of the other Party, if:
 
3.2.1 the Person acquiring control in respect of the Party is creditworthy and
has sufficient funds available to meet funding obligations hereunder;
 
3.2.2 the said Person has sufficient technical capabilities, knowledge, skills,
personnel and meets other criteria as may be reasonably necessary to participate
in the management of the Project Company in accordance herewith; and
 
3.2.3 such Change of Control is effected in full compliance with Section 3.4
hereof.
 
Notwithstanding the foregoing, a Change of Control shall be deemed a Transfer of
such Party’s Ownership Interest for purposes of this Agreement and subject to
Section 3.3 below.
 
3.3 Right of First Refusal.
 
3.3.1 Third Party Offer.  Transfers of a Party’s Ownership Interest will not be
permitted unless such Party has complied with this Section 3.3.  If any Party
intends to Transfer its Ownership Interest (the “Offeror Party”) and such
Offeror Party receives a bona fide offer (an “Offer”) from a third party (a
“Third Party Transferee”), the Offeror Party must give prompt written notice
(“Seller’s Notice”) to the remaining Party (the “Remaining Party”) at least
sixty (60) Business Days prior to the closing of such Transfer, stating that the
Offeror Party intends to make a Transfer, identifying the name and address of
the Third Party Transferee, specifying the number of Ownership Interests
proposed to be purchased or acquired directly or indirectly pursuant to the
Offer (the “First Refusal Party’s Interests”) and specifying the purchase price
per Ownership Interests which the Third Party Transferee has offered to pay for
the First Refusal Party’s Interests (the “Sale Price”), which Seller’s Notice
will constitute an irrevocable election and offer to sell.  The Seller’s Notice
must attach a copy of the offer and all key terms of the same (including,
without limitation, conditions precedent, form of consideration, any adjustments
to the purchase price and non-standard terms, if any).  In the event of a
Transfer in which the Sale Price is not entirely cash (or the portion of the
Sale Price attributable to the Ownership Interests is not readily
ascertainable), the Sale Price shall be determined in accordance with Section
3.3.4.  The Remaining Party agrees to maintain such offer in confidence and not
disclose the same without the prior written consent of the Offeror Party and the
Third Party Transferee.
 
 
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3.3.2 Option to Purchase.
 
(a) The Remaining Party shall have the irrevocable and exclusive option to
purchase all of the First Refusal Party’s Interests at the Sale Price (the
“Right of First Refusal Purchase Option”).  To exercise the Right of First
Refusal Purchase Option, within thirty (30) Business Days following delivery of
the Seller’s Notice (the “Acceptance Period”), the Remaining Party must deliver
a written notice (the “Purchase Notice”) to the Offeror Party stating whether it
elects to exercise the Right of First Refusal Option under this Section 3.3.2,
the number of First Refusal Party’s Interests (up to all) that it is willing to
purchase and the date on which such purchase shall be consummated; provided,
however, that such date shall not be later than sixty (60) Business Days after
the delivery of the Purchase Notice.  If the Remaining Party does not deliver a
Purchase Notice as provided above (or if the closing of the purchase does not
occur within sixty (60) Business Days of the date of the Purchase Notice), the
Remaining Party will be deemed to have elected not to exercise its Right of
First Refusal Purchase Option in connection with such transaction which was
subject to such Seller’s Notice.
 
(b) If the Remaining Party shall not have exercised or elects not to or is
deemed to have elected not to exercise its Right of First Refusal Purchase
Option pursuant to this Section 3.3.2, the Offeror Party will be free, for a
period of ninety (90) Days after expiration of the Acceptance Period, to sell
all, or a portion of, the unpurchased Ownership Interests to the Third Party
Transferee, at a price per Ownership Interests equal to or greater than the Sale
Price and upon terms no more favorable to the Third Party Transferee than those
specified in the Seller’s Notice.  Any Transfer of First Refusal Party’s
Interests by the Offeror Party after the end of such ninety (90) Day period or
any change in the terms of the sale as set forth in the Seller’s Notice that are
more favorable to the Third Party Transferee will require a new Seller’s Notice
to be delivered to the Remaining Party and will give rise anew to the rights
provided in this Section 3.3.
 
3.3.3 Coordination.  If the Remaining Party elects to purchase any or all of the
First Refusal Party’s Interests mentioned in the Seller’s Notice, and (i) the
consideration specified in the Offer is cash consideration, such Remaining Party
must purchase the First Refusal Party’s Interests for cash consideration or (ii)
the consideration specified in the Offer is other than cash, such Remaining
Party may, at its election, pay in cash consideration or in the form of other
consideration in the Offer.  If part or all of the consideration to be paid for
the First Refusal Party’s Interests as stated in the Offer is other than cash,
the price stated in such Offer will be deemed to be the sum of the cash
consideration, if any, specified in such Offer, plus the fair market value of
the non-cash consideration.  The fair market value of the non-cash consideration
will be determined in accordance with Section 3.3.4.
 
 
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3.3.4 Non-Cash Consideration.  If the consideration to be paid for the Ownership
Interest is not cash, the fair market value of the consideration shall be
determined in good faith by the Board of Directors of Pan American (the
“Board”).  In the event the Remaining Party exercises its option to purchase all
of the First Refusal Party’s Interests at the Sale Price in accordance with
Section 3.3.2, the Remaining Party shall pay the cash equivalent thereof as so
determined; provided, however, that, in the event that the Offeror Party
disagrees with the Board’s determination of the fair market value of such
consideration, the Offeror Party shall give the Remaining Party written notice
of such disagreement within ten (10) Business Days after the delivery of the
Purchase Notice (the “Valuation Dispute Notice”).  The Remaining Party and the
Offeror Party shall negotiate in good faith to resolve such disagreement and
failing a resolution of such disagreement within ten (10) Business Days after
receipt of the Valuation Dispute Notice, the Remaining Party and the Offeror
Party shall mutually agree upon and select an independent nationally recognized
investment bank, accounting firm or other financial institution to determine
such fair market value (the “Evaluator”) not later than fifteen (15) Days
following the conclusion of such previous ten (10) Business Day period. In the
event that the Remaining Party and the Offeror Party shall fail to mutually
agree on an Evaluator within such period, the Remaining Party and the Offeror
Party shall each select an Evaluator and the two (2)  Evaluators shall mutually
agree upon and designate within ten (10) days following the designation of the
two (2)  Evaluators as provided above a final Evaluator who shall determine such
fair market value. In the event that either the Remaining Party or the Offeror
Party shall fail to so select an Evaluator within such period, the Evaluator so
selected by the other shall be deemed to be the final Evaluator for purposes of
this Section 3.3.4.. The final Evaluator’s determination of the fair market
value of the consideration shall be set forth in a written detailed report
mutually addressed to the Remaining Party and the Offeror Party and such
determination shall be final, conclusive and binding upon the Remaining Party
and the Offeror Party. All costs related to the appointment of and valuation by
the Evaluators shall be borne by the Offeror Party.
 
3.4 Conditions to a Transfer.  If the other Party shall consent in writing to a
proposed Transfer, or if a Transfer is effected pursuant to Section 3.2 or 3.3
hereof, it shall be a further condition to any Transfer of Ownership Interest or
any part thereof by a Party to any Person that such Person shall agree in
writing, by way of duly executing a deed of adherence to this Agreement, (and
prior to the completion of any Transfer, the Party making the Transfer will
deliver to the other Party such deed of adherence, duly executed by the
transferee, in a form reasonably satisfactory to such other Party):
 
3.4.1 to be bound in all respects by the provisions of this Agreement, and
 
3.4.2 to assume all liabilities and obligations of the Party making the Transfer
(and Affiliates thereof) under or with respect to any agreement between or among
any of the Parties (or Affiliates thereof) in relation to the Project;
 
and any Transfer in respect of which such conditions have not been satisfied
shall be void ab initio and of no force or effect whatsoever. Notwithstanding
any Transfer and the agreement of the Person to whom the Ownership Interest has
been Transferred as provided herein, the Party making such Transfer shall remain
liable for all of its obligations arising hereunder prior to such Transfer.
 
 
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3.5 Drag Along Rights.  Notwithstanding the Right of First Refusal granted to
MRT in Section 3.3, if Pan American (the “Drag-Along Member”) elects to make a
sale or Transfer of all of its Ownership Interests in a transaction that does
not also constitute a Change of Control of Pan American (the “Disposition”) and
the purchaser or transferee desires to acquire MRT’s Ownership Interest, then
MRT (the “Other Owner”) shall be required to sell or Transfer all of the
Ownership Interests owned by the Other Owner, on and under the same terms and
conditions as in the Disposition with respect to other Ownership Interests,
including terms and conditions related to representations, warranties and
indemnification.  The Other Owner shall be given ten (10) Business Days prior
written notice of such proposed transaction, which notice shall provide the
terms and conditions and anticipated closing date for the transaction.  If the
Drag-Along Member so elects, then, on such closing date, the Other Owner shall
deliver transfer documents for the Ownership Interests they are transferring,
duly endorsed for transfer, to the purchaser or transferee in exchange for the
receipt of the purchase price, free and clear of all liens, security interests,
encumbrances, and adverse claims.  The Other Owner also shall be obligated to
execute such additional instruments, agreements and other documents as shall be
reasonably required to effect the transaction.
 
3.6           Tag Along Rights.  If Pan American shall have received a bona fide
written offer for a Disposition and does not exercise its Drag Along Rights
under Section 3.5, Pan American shall furnish written notice to MRT (the
“Tag-Along Member”) of its intention to sell.  Pan American shall first comply
with the provisions of Section 3.3.  If the Right of First Refusal Purchase
Option is not exercised, then the Tag-Along Member may elect to participate in
the contemplated sale by delivering written notice to Pan American not more than
ten (10) Business Days after receipt of the written notice of sale.  Both Pan
American and the Tag-Along Member shall be entitled to sell in the contemplated
sale, at the same price and on the same terms, their respective Ownership
Interests.  Pan American agrees to use its best efforts to obtain the agreement
of the prospective transferee(s) to the participation of the Tag-Along Member
and agrees not to transfer any Ownership Interests to the prospective
transferee(s) if such transferee(s) decline(s) to allow the participation of the
Tag-Along Member in accordance with the terms of this Section 3.6; provided that
if the transferee acquires each Party’s Ownership Interests on a pro rata basis
based on their respective Ownership Interests, Pan American has satisfied this
Section 3.6 even if the transferee decides to purchase less than 100% of the
aggregate Ownership Interests (e.g., if the transferee only desires to purchase
80% of the aggregate Ownership Interests, this Section 3.6 is satisfied if the
transferee acquires an aggregate o 80% from the Parties by each Party selling a
pro rata portion of such 80% based on their respective Ownership Interest).
 
 
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ARTICLE 4.   CORPORATE GOVERNANCE
 
4.1 Management Committee. The provisions of this Article 4 shall apply to the
Project Company (and, for further clarity, if the Project Company is not then
established, Pan American) with respect to all matters relating to the Project
both before and after MRT’s operation during the Initial Production Period has
concluded.  MRT shall conduct operations as provided in this Agreement solely
with respect to the Pilot Project during the Initial Production Period, but all
other matters shall be under authority and control of the Management Committee,
both as to corporate governance and in the conduct of the Development
Feasibility Study, both before and after the Initial Production Period. Except
for the matters requiring approval by voting of the Parties in their capacity as
the shareholders of the Project Company pursuant to applicable law or otherwise
agreed upon by the Parties herein, the management of the Project Company shall
be conducted by a management committee to be formed by the Parties in accordance
with this Article 4 (“Management Committee”). If applicable law does not permit
the full use of the Management Committee as contemplated herein, then to the
greatest extent permitted by applicable law, the body required by applicable law
shall be formed and operated as the Management Committee under this Article 4.
For the avoidance of doubt, if multiple bodies are required by law, the Parties
shall ensure that all such bodies are constituted and act as required by the
Management Committee.
 
4.1.1 Members.  The Management Committee shall consist of two (2) members (each
a “Member”). Pan American shall have the right to appoint (1) one Member to the
Management Committee and MRT shall have the right to appoint one (1) Member to
the Management Committee. At any vote of the Members, the Member appointed by
the Party with the majority Ownership Interest at the time of such vote shall be
designated as the “Managing Member.”  The Members shall have an aggregate of 100
votes on each matter to be voted on, with each Member having that number of
votes equal to the then current Ownership Interest of the Party which appointed
such Member at the time of such vote.  The Managing Member shall not have any
special or additional voting rights beyond those he enjoys as a Member.  Any
Member unable to attend a meeting of the Management Committee may give a written
and signed proxy to act on such Member’s behalf at such meeting to an individual
authorized by such same Party to act as a proxy by written and signed
instrument. In order for any proxy or instrument provided for under this Section
4.1.1 to be valid and accepted for the purposes of this Agreement, it must
clearly name the individual acting as the proxy and the range of dates for which
such proxy is valid and must be duly executed by the Member or the Party, as
applicable.  By written notice to the other Party and the Members, a Party may
in its sole discretion remove and replace with or without cause its appointed
Member with another individual. Each Member will serve on the Management
Committee until his successor is appointed or until his earlier death,
resignation, or removal.
 
4.1.2 Advisers and Observers. Each Party may, at its own cost, have advisers or
observers present at each meeting of the Management Committee in addition to the
Members, subject to the written agreement by such Party’s advisers and observers
to maintain in confidence, and not disclose, any matters discussed at such
meeting, if requested by the other Party.
 
 
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4.1.3 Meetings.
 
(a) The Management Committee shall meet as frequently as may be necessary or
appropriate; provided that an annual budget meeting of the Management Committee
shall be held each year no later than on November 1st and a copy of the proposed
Annual Program and Budget for the forthcoming year shall be delivered by the
Managing Member to the remaining Members no later than 30 (thirty) Days prior to
the date of such annual budget meeting.  The first meeting of the Management
Committee shall be conducted on the Effective Date at El Paso, Texas (unless
another date and place are agreed to by the Parties).
 
(b) Any meeting of the Management Committee may be convened by the Managing
Member by giving the remaining Members at least 30 (thirty) Days’ notice of such
meeting which notice shall be accompanied by an agenda of issues to be discussed
at the meeting (such agenda shall include any proposed resolutions the passing
of which will be sought at such meeting); provided that any meeting of the
Management Committee shall be deemed valid notwithstanding failure to comply
with such notice requirement if all Members (or their alternates, if
appropriate) participate in such Meeting and none of the Members has objected to
the procedure of convocation thereof. No later than twenty (20) Days prior to a
meeting for which notice has been provided consistent with this Section
4.1.3(b), any Member may provide by Notice to all other Members any other items
he or she wishes to include in the Agenda (including any proposed resolutions).
 
(c) In order to be effective, any action or resolution of the Management
Committee approved at a meeting must be reduced to writing and signed by all
Members whose votes were necessary for such action or resolution to pass at the
applicable meeting.
 
4.1.4 Written Resolutions. In lieu of a meeting, any decision may be passed by
the Management Committee by execution by all Members of a written document
stating the resolution of the Management Committee on a matter referred to the
competence of the Management Committee.
 
4.1.5 Venue and Quorum.
 
(a) Meetings of the Management Committee (other than the first such meeting)
shall be held at a venue agreed between the Parties and, failing agreement, in
El Paso, Texas. In lieu of attending the meetings in person, the Management
Committee may conduct, or a Member may attend, meetings by telephone or video
conference or other electronic means, so long as all Members can hear all other
Members and action, if any, taken at such meeting is reduced to writing and
signed by all Members taking part in such meeting whose votes were necessary for
such action to pass.
 
(b) The quorum for any meeting of the Management Committee shall be attendance
in person or by proxy of the Managing Member.
 
 
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4.1.6 Majority Voting. Any Management Committee decisions shall be taken by vote
of a simple majority of the voting power represented by appointed Members of the
Management Committee, with the Members having an aggregate of 100 votes on each
matter to be voted on.  For further clarity and the avoidance of doubt,  until a
Party’s Ownership Interest is diluted or reduced in accordance with the terms of
this Agreement, the Member of the Management Committee appointed by Pan American
shall have 80% of the aggregate votes (80% Ownership Interest) and the Member of
the Management Committee appointed by MRT shall have 20% of the aggregate votes
(20% Ownership Interest).
 
4.1.7 Costs of Attendance.  Costs and expenses relating to the attendance of the
Members appointed by each Party and such Parties’ advisers and observers at
meetings of the Management Committee shall be borne by the Project Company.
 
ARTICLE 5.   OPERATION OF THE PROJECT
 
5.1 General Principle. The Pilot Project shall be exclusively operated by MRT
during the Initial Production Period, and thereafter by the Project Company
(and, for further clarity, if the Project Company is not then established, Pan
American). Notwithstanding the foregoing, the Project Company and/or Pan
American shall coordinate the Development Feasibility Study for the Project
during the Initial Production Period and thereafter.  Management of the Project
Company shall be conducted by the Management Committee pursuant to the general
principles set forth herein. Any management and corporate governance procedures
and rules established by the Corporate Documents of the Project Company shall be
in conformity with this Agreement to the maximum extent possible under the
applicable law, and should any provision hereof be inconsistent with, or
unenforceable under, any mandatory provisions of the laws governing operation of
the Project Company, the Parties shall act in good faith to cause the Project
Company, its management bodies, officers, employees, contractors and agents to
act in compliance and consistently with the principles, terms and conditions
established hereby and shall make the minimum changes necessary to the Corporate
Documents so that such Corporate Documents are in compliance with applicable
law.  For the avoidance of doubt any matter in respect whereof a resolution is
validly issued and adopted by the Management Committee in accordance with the
terms and conditions set forth herein shall be deemed to have been agreed and
consented to by each of the Parties for the purposes hereof as of the date when
such resolution becomes effective.
 
5.2 General Management of the Project Company. Except for matters reserved to
the shareholders by either Mexican applicable law or the Project Company’s
corporate bylaws, the Management Committee shall have authority in respect of
the general management of the Project Company, and subject to the approval
requirements set forth in Article 4 hereof, the Management Committee authority
shall include, without limitation, the following matters:
 
 
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5.2.1 amendment of the charter of the Project Company;
 
5.2.2 increase or reduction of the charter capital of the Project Company;
 
5.2.3 approval of annual reports and annual balance sheets of the Project
Company;
 
5.2.4 any reorganization, dissolution and liquidation of the Project Company,
appointment of the liquidation commission and approval of the liquidation
balance sheet of the Project Company;
 
5.2.5 approval of any change in the corporate structure of the Project Company
(including, without limitation, any merger, consolidations, spin-off,
amalgamations, setting up of branch offices, or opening of representative
offices);
 
5.2.6 making contributions to the assets of the Project Company;
 
5.2.7 appointment of an independent auditor for the Project Company and ordering
of audits;
 
5.2.8 issue by the Project Company of bonds, notes, promissory notes or any
other securities;
 
5.2.9 approval of internal regulations of the Project Company governing its
management and operation procedures;
 
5.2.10 prior approval of the following operations and/or transactions of the
Project Company:
 
(a) transactions of value in excess of $10,000 (ten thousand U.S. dollars)
between the Project Company and any of the Parties or Affiliate of a Party
(other than any agreement or transaction expressly contemplated by this
Agreement);
 
(b) any transactions involving acquisition or disposal of shares or ownership
interests in other legal entities, including, without limitation, foundation and
liquidation of the Project Company’s subsidiaries and any decisions on
reorganization, dissolution, liquidation, or Bankruptcy of any of Project
Company’s subsidiaries or legal entities in which Project Company holds an
investment;
 
(c) any sale, lease (as lessor) or other disposition by the Project Company, in
a single transaction or series of related transactions, of any asset of the
Project Company (other than Mineral Products) having a market value at such time
in excess of $100,000 (one hundred thousand U.S. Dollars) or equivalent amount
in any other currency or for any leases having a term of greater than 6 months;
 
 
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(d) any borrowing or lending by the Project Company of the amount equal to or
exceeding $100,000 (one hundred thousand U.S. Dollars) or equivalent amount in
any other currency;
 
(e) any other transaction involving expenditure or series of expenditures by the
Project Company, exceeding $500,000 (five hundred thousand U.S. Dollars), other
than specified in Section 5.3.2(p);
 
(f) creation by the Project Company of any Encumbrance on Project Company’s
property other than:
 
(i) any non-consensual lien, charge or encumbrance, created in the ordinary
course of business, which does not secure indebtedness for borrowed money and
will not materially impair the use of such property; or
 
(ii) in connection with the financing of capital expenditures authorized by the
Management Committee;
 
(g) obtaining, bidding for, surrender, amendment, or any other action in respect
of the License or any other license for the use of subsoil and any rights and
benefits thereto appertaining;
 
(h) entering into any contracts for the hedging or forward selling of Mineral
Products;
 
(i) any political contributions, social payments, or entering into any regional
tax related agreements, always subject to provisions of Section 5.4.
 
(j) subject to Section 5.3.1, appointment and dismissal of the Top Management
Officers and approval of the Organizational Structure of the Project Company and
any amendments thereto;
 
(k) approval of all Programs and Budgets and any amendments thereto; and
 
(l) approval of a distribution of any Net Cash Flow to the parties herein.
 
5.3 Day-to-Day Management of the Pilot Project and the Project.  Unless
otherwise specified herein, day-to-day management of the operations of the Pilot
Project shall be carried out by MRT during the Initial Production
Period.  During the Initial Production Period and thereafter, all development
and feasibility efforts and operation activities relating in any way to the
Project (except for the operation of the Pilot Project), including, without
limitation, coordination and conduct of the Development Feasibility Study, shall
be carried out by Pan American and/or the Project Company.  At the end of the
Initial Production Period (subject to Section 5.3.4), all operations relating to
the Pilot Project shall be carried out by the Project Company, through the
General Director, strictly in accordance with Programs and Budgets, resolutions
of the Management Committee and other Corporate Documents of the Project
Company, as applicable.
 
 
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5.3.1 Nomination Right. The Management Committee shall have the exclusive right
to nominate and appoint a General Director (the “General Director”) and such
other officers it deems necessary (the “Top Management Officers”) for which
nomination and appointment is assigned pursuant to the Organizational Structure;
such nomination and appointment right shall also include the right to remove and
replace any Person holding such position by a notice to the other Party.  As the
responsible Party for the Pilot Project and the Initial Production, MRT shall
have the exclusive right to nominate and appoint the Pilot Project Initial
Production Director and certain other Pilot Project Initial Production
Management Officers for which nomination and appointment is assigned pursuant to
the Organization Structure; such nomination and appointment right shall also
include the right to remove and replace any Person holding such position by a
notice to the other Party.
 
5.3.2 Authority of the General Director After the Initial Production Period.
Once operation of the Pilot Project has been turned to the Project Company after
Initial Production Period, the General Director shall have the exclusive right
to act on behalf of the Project Company with a power of attorney granted
pursuant to applicable laws and shall have the power and authority to make any
decisions and undertake any actions related to the operations and activities of
the Project Company relating to the Pilot Project as well as the Project, other
than referred to the competence of the Management Committee, provided that the
General Director shall always act reasonably and in the best interests of the
Project Company, strictly in compliance with Programs and Budgets and other
Corporate Documents of the Project Company, this Agreement and applicable law.
Without limitation of the generality of the foregoing the scope of duties of the
General Director with respect to the Project Company (excluding activities
relating solely to Initial Production) shall include:
 
(a) to establish and control the bank account of the Project Company and manage
the funds of the Project Company including the distribution of Net Cash Flows to
the Parties;
 
(b) to keep the License in effect by the doing and filing of all necessary work
and by the doing of all other acts and things and making of all other payments
that may be necessary in that regard and, in doing so, to conduct all work on or
with respect to the License in a manner consistent with Good Mining Practice and
in compliance with all applicable laws, and the standards set forth in Section
5.4.1;
 
 
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(c) to keep the assets of the Project Company free and clear of all Encumbrances
arising from its operations hereunder (except for Encumbrances authorized in
accordance herewith);
 
(d) to provide to the Management Committee quarterly reports indicating the
status and all technical results of work being conducted in the course of the
Project and containing a summary of exploration, development and operations,
along with an estimate of the expenditures completed during such quarter and
indication of any deviations or potential deviations from the relevant Annual
Program and Budget, provided that such reports will not be required during those
periods in which there is no work being conducted;
 
(e) to deliver to the Management Committee annual reports disclosing any
significant technical data learned or obtained in connection with work on the
Project, as well as a breakdown of expenditures completed in carrying out such
work, on or before the last day of February of the year following the calendar
year to which such report relates;
 
(f) to provide to the Management Committee prompt notice of, and periodic
information as and when required to keep the Parties reasonably apprised of the
status of, any material occurrence that affects the License;
 
(g) to organize and maintain true and correct books, accounts and records, in
accordance with GAAP and generally accepted international accounting standards
and principles, consistently applied, as adopted by the International Accounting
Standards Board from time to time, including but not limited to the accurate and
fair representation of all transactions, assets, and disposition of assets,
payment of commissions, consulting fees, service fees, facilitating payments,
and gratuities of the Project Company;
 
(h) to manage, direct and conduct exploration, development and operations
activities by providing or contracting for basic engineering, detailed
engineering, project management and procurement and construction and
commissioning consistent with the directives of the Management Committee;
 
(i) appoint, employ or contract with and supervise all necessary or advisable
employees and personnel for exploration, development and operations by the
Project Company (other than Top Management Officers), including accountants and
finance personnel, and set the compensation and salaries for each;
 
(j) prepare and present to the Management Committee proposed Programs and
Budgets for the forthcoming year;
 
 
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(k) make all expenditures on behalf of the Project Company necessary to carry
out adopted Programs and Budgets from funds available to the Company and enter
into contracts and agreements on behalf of the Company in order to advance the
same;
 
(l) provide the Management Committee proposals for any hedging or forward sales
(and such other sales that otherwise do meet the criteria set forth below in
this subsection (l) for sales executable by the General Director independently)
of Mineral Products of the Company and execute such sales approved by the
Management Committee in accordance with the terms thereof; and independently
execute sales of Mineral Products of the Company which are: (i) not qualifying
as a hedging or forward sale; and (ii) on the arms length basis; and (iii) at
the best price reasonably obtainable for the Project Company in accordance with
applicable law; and (iv) not otherwise falling into any category of transactions
requiring approval by the Management Committee;
 
(m) promptly advise the Management Committee of any significant property damage
or if the Project Company lacks sufficient funds to carry out its
responsibilities under this Agreement;
 
(n) duly prepare and lodge any statutory or governmental reports relating to the
assets and operations of the Company;
 
(o) obtain and maintain in force all insurance required by law and any
additional insurance that the General Director deems prudent or that the
Management Committee may require; and
 
(p) make any reasonable expenditures not to exceed US$50,000 (Fifty thousand US
Dollars) or equivalent amount in any other currency necessary on an emergency
basis in order to protect either the environment from any contamination that, if
it were to occur, would violate applicable law, or the health and safety of any
natural persons.
 
5.3.3 Responsibility of MRT During Initial Production. MRT shall always during
the Initial Production Period act reasonably, in good faith and in the best
interests of the Pilot Project, the Project and the Project Company, strictly in
compliance with this Agreement and applicable law. Without limitation of the
generality of the foregoing, the scope of duties of MRT with respect to the
Pilot Project during the Initial Production Period shall include each of the
following duties:
 
(a) to conduct all work on or with respect to the License and the Pilot Project
in a manner consistent with Good Mining Practice and in compliance with all
applicable laws, and the same standards set forth in Section 5.4.1 for the
Project, and to refrain from any activity which could reasonably lead to
revocation of the License;
 
 
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(b) to keep the assets of the Pilot Project and the Project free and clear of
all Encumbrances arising from its operations hereunder (except for Encumbrances
authorized by the Management Committee in accordance herewith);
 
(c) to provide quarterly reports to the Parties indicating the status and all
technical results of work being conducted in the course of the Pilot
Project  and containing a summary of exploration, development and operations on
the Project, and to provide, at the sole cost and expenses of MRT, from a
mutually agreed upon independent expert environmental consulting firm a
quarterly audit within thirty (30) days of the end of each Fiscal Quarter
regarding MRT’s compliance with environmental laws and steps required to effect
reclamation (if any) to bring the Pilot Project operations into compliance with
all applicable environmental laws, along with an estimate of the expenditures
completed during such Fiscal Quarter and indication of any deviations or
potential deviations from the relevant Annual Program and Budget, provided that
such reports will not be required during those periods in which there is no work
on the Pilot Project being conducted;
 
(d) to deliver annual reports to the Parties disclosing any significant
technical data learned or obtained in connection with work on the Pilot Project,
as well as a breakdown of expenditures completed in carrying out such work, on
or before the thirty-first (31st) Day of January of the year following the
calendar year to which such report relates;
 
(e) to provide prompt notice to the Parties of, and periodic information as and
when required to keep the Parties reasonably apprised of the status of, any
material occurrence that affects the License or the Project;
 
(f) to maintain true and correct books, accounts and records in accordance with
GAAP and generally accepted international accounting standards and principles,
consistently applied, as adopted by the International Accounting Standards Board
from time to time, including but not limited to the accurate and fair
representation of all transactions, assets, and disposition of assets, payment
of commissions, consulting fees, service fees, facilitating payments, and
gratuities in respect of the Pilot Project or the Project;
 
(g) to manage, direct and conduct exploration, development and operations
activities by providing or contracting for basic engineering, detailed
engineering, project management and procurement and construction and
commissioning consistent with the directives of the Management Committee;
 
(h) appoint, employ or contract with and supervise all necessary or advisable
employees and personnel for exploration, development and operations for MRT,
including accountants and finance personnel, and set the compensation and
salaries for each;
 
 
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(i) prepare and present proposed budget for the Pilot Project for the
forthcoming year;
 
(j) make all expenditures necessary to carry the Pilot Project including those
recommended by the quarterly environmental audit required by Section 5.3.3(c)
and enter into contracts and agreements in order to advance the Pilot Project;
 
(k) provide proposals for any hedging or forward sales (and such other sales
that otherwise do meet the criteria set forth below in this subsection (l) for
sales of Mineral Products from the Pilot Project and execute such sales in
accordance with the terms thereof; and independently execute sales of Mineral
Products from the Pilot Project which are: (i) not qualifying as a hedging or
forward sale; and (ii) on the arms length basis; and (iii) at the best price
reasonably obtainable for the Pilot Project in accordance with applicable law;
and (iv) not otherwise falling into any category of transactions requiring
approval by the Management Committee;
 
(l) promptly advise of any significant property damage or if MRT lacks
sufficient funds to carry out its responsibilities under this Agreement;
 
(m) duly prepare and lodge any statutory or governmental reports relating to the
assets and operations of the Project to maintain the License and the Pilot
Project operations;
 
(n) obtain and maintain in force all insurance required by law and any
additional insurance that MRT deems prudent or that the Management Committee may
require;
 
(o) provide financial information related to the calculation of the Net Cash
Flows in accordance with Article 2.5 on a monthly base, within 30 days of the
end of each month during a Fiscal Quarter and such other financial and business
information reasonably requested by Pan American to enable Pan American to
timely comply with its public reporting obligations; and
 
(p) cooperate in good faith to allow Pan American to exercise its information
and audit rights for the Pilot Project set forth in Article 12.
 
 
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5.3.4 MRT’s Obligations Following Initial Production.  Following the Initial
Production Period, unless otherwise directed by Pan American, MRT shall
immediately discontinue all development and mining activity by December 31,
2013. MRT shall remove at its sole cost all Pilot Project equipment from the
Property and complete reclamation of all operations undertaken by MRT with
respect to the Initial Production, in accordance with all applicable laws,
regulations and Good Mining Practices, within the ninety (90) Days after
December 31, 2013 or, with respect to reclamation activities, for a longer
period if reasonably required and approved by the Management Committee. In
addition, MRT shall cause its Representatives, including the Pilot Project
Initial Production Director and the Pilot Project Initial Production Management
Officers, to vacate the Property by December 31, 2013, except for personnel
involved in the removal or reclamation activities set forth above, or as
otherwise directed by Pan American. Before the expiration or termination of the
Initial Production Period, MRT shall request the Mexican environmental authority
to perform a voluntary inspection in order to determine adherence to applicable
environmental laws and regulations as of the date MRT turns over operation of
the Project and the Pilot Project. In the event that any reclamation action
indicated by the environmental authority during such inspection is not timely or
fully performed by MRT as of the date Pan American takes over operation of the
Project and the Pilot Project, Pan American shall have the right to conduct such
pending work at the sole cost and expense of MRT which MRT shall promptly pay
upon invoice therefor.  The cost and expense of any environmental reclamation
action performed by Pan American that is not contained in the authority
inspection report shall be exclusively borne by Pan American.  Any failure by
MRT to pay any such amounts shall, at Pan American’s option, shall be deemed a
Funding Default and shall dilute MRT’s Ownership Interest on the same basis as
provided in Section 8.2.1.
 
5.3.5 Termination of Pilot Project.  If MRT material breaches one of its
obligations under Section 5.3.3, then Pan American may give written notice to
MRT that if the default is not cured within sixty (60) days, the Pilot Project
will be terminated.  If MRT does not cure the default during the sixty (60)-day
period, then the Pilot Project shall automatically terminate at the end of that
period and MRT shall perform its obligations under Section 5.3.4 on such
termination date.
 
5.4 Standards of Operation. The Project Company and each of the Parties hereto
shall conduct all activities in a proper and workmanlike manner, in accordance
with Good Mining Practice, and in accordance with requirements of the License,
applicable laws and other rules, standards and obligations binding upon the
Project Company.  The Parties agree that the following principles shall govern
their respective activities and the activities of the Management Committee and
officers and employees of the Project Company (collectively the “Related
Persons”) where such activities are undertaken by or for the benefit on behalf
of or in relation to the Project Company:
 
5.4.1 compliance with anti-corruption statutes and similar applicable laws,
including refraining from, and preventing, the giving anything of value either
directly or indirectly such as through agents, contractors, or third parties to
any officer or employee of any government, public international organization, or
government-owned corporation, or to any official of a political party or
candidate for political office, in order to obtain or retain business, or to
secure an improper business advantage, for either Party, or any of the Related
Persons, except as specifically permitted by the written laws of the United
States and Mexico;
 
5.4.2 obtain from every agent or contractor engaged by a Related Person in
connection with the Project a written representation and warranty that such
agent or contractor has and will continue to comply with the standard set forth
in Section 5.4.1;
 
 
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5.4.3 the provision of equal employment opportunities for all employees based
solely on the qualifications of each individual and to avoid any form of
employment discrimination, harassment or retaliation based on race, color,
religion, age, sex, national origin, veteran status or disability;
 
5.4.4 the establishment and maintenance of a work environment consistent with
the highest international mining industry health and safety standards;
 
5.4.5 the prevention of situations in which the interest of a Party or any other
Related Person is in conflict with the interests of the Project
Company,  refraining from offering bribes, kickbacks and other illegal payments,
refusal gifts, loans or entertainment from one doing or seeking to do business
with the Project Company, refraining from trading in securities of any other
Party or any Affiliate of another Party while in possession of material inside
information respecting operations which has not been disseminated to the general
public;
 
5.4.6 conduct of business legally and ethically and maintenance of accurate and
meaningful financial records that at a minimum accurately and fairly represent
all of the Related Persons’ transactions, assets, and disposition of assets,
payment of commissions, consulting fees, service fees, facilitating payments,
and gratuities related in any way to the Project;
 
5.4.7 compliance with environmental, health and safety laws in the conduct of
the business and to exemplify the best contemporary industry practices with
respect to environmental matters; and
 
5.4.8 refraining from political contributions prohibited by applicable law.
 
ARTICLE 6.   DEVELOPMENT FEASIBILITY STUDY
 
AND PRODUCTION DECISION AND OPERATION AND PRODUCTION OF THE PROJECT
 
6.1 Decision.  The Management Committee may at any time, upon receipt of a
proposal from the General Director authorize preparation of the Development
Feasibility Study and make provisions in respect thereof in the relevant Annual
Program and Budget.  The Management Committee may authorize additional work
plans and budgets for exploration and delineation of additional resources in the
License Area it determines is necessary to prepare the final Development
Feasibility Study. Promptly after completion of the final Development
Feasibility Study approved by the Management Committee, the General Director
shall, based on and consistently with, such Development Feasibility Study,
prepare a Development Program and Budget and the First Development Annual
Program and Budget. The so prepared Development Feasibility Study, Development
Program and Budget and the First Development Annual Program and Budget, which
may include work plans and budgets for exploration and delineation of additional
resources in the License Area, together shall constitute the “Development
Documentation”.
 
 
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6.2 Election to Participate. Within five (5) Days following the completion of
the Development Documentation, copies thereof shall be delivered by the Project
Company to each of Pan American and MRT.  Within ninety (90) Days after the
Development Documentation is so delivered to the Parties, each of the Parties
may deliver to the other Party and the Project Company a written notice stating
that it elects not to participate (“Withdrawal Notice”) in the financing of the
Project operations pursuant to the Development Documentation.  Unless otherwise
agreed by the Parties, the Withdrawal Notice, once issued, shall not be capable
of being withdrawn.
 
6.3 Consequences of Withdrawal Notice Delivery.
 
6.3.1 In the event that either of (but not both of) the Parties has delivered a
Withdrawal Notice (“Quitting Party”) to the other Party (“Non-Quitting Party”),
such Quitting Party shall have its Ownership Interest reduced by one percentage
point (1%) for every $300,000 which the Quitting Party failed to pay (elected to
withdraw form funding) to the Project Company toward its pro rata share of the
Development Program and Budget, the First Development Annual Program and Budget,
and/or any other approved program and budget  (the “Quitting Dilution”).  For
avoidance of doubt, and solely for illustration purposes, if a Quitting Party
failed to make (elected to withdraw from funding) a contribution of $450,000,
upon such payment by the Non-Quitting Party in accordance with the terms herein,
the Quitting Party shall have its Ownership Interest decreased by one and a half
percentage points (1.5%)  (e.g., from 20% down to 18.5%) (the “Quitting Diluted
Interest”), and the Non-Quitting Party shall have its Ownership Interest
correspondingly increased by one and a half percentage points (1.5%) (e.g., from
80% to 81.5%); provided, however, that in the event that the Quitting Party’s
Ownership Interest falls to below a 10% Ownership Interest level, the Quitting
Party’s Ownership Interest shall, notwithstanding anything to the contrary
contained herein, be automatically converted solely into the right to receive
three percent (3%) of Net Smelter Returns as and when paid in accordance with
the terms of this Agreement and shall no longer have any Ownership Interest.
Upon the conversion of a Party’s Ownership to a 3% Net Smelter Return, such
Party shall no longer be entitled to appoint a Member of the Management
Committee. For purposes of clarity, "Net Smelter Returns" shall mean the gross
proceeds received from the sale of mineral products from the operation of the
Project or the Pilot Project, less: refining, smelter and treatment charges,
including assaying and sampling, costs, umpire charges, and penalties, if any;
transportation charges, including related storage and insurance costs, in
respect of transportation of concentrates or ore metal from the Project to a
smelter or refinery; and sales, use and gross receipts, taxes, if any; payable
on or measured by mineral production. For farther clarification: (1) gross
proceeds shall be determined based on the final selling price given by the
Project Company, Pan American or any of their affiliates to independent third
party buyers; (2) each Party shall repay its respective share of the net
proceeds of mines tax and any federal or state income taxes assessed against
each Party's income or revenues resulting from production of minerals from the
Project; and (2) the Project Company may not deduct any mining or on-site
processing costs in calculating the Net Smelter Returns.
 
 
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Within five (5) Business Days after the Non-Quitting Party has paid the
contribution originally payable by the Quitting Party pursuant to this Section,
the Quitting Diluted Interest shall automatically be deemed transferred to the
Non-Quitting Party, without any further action required by the Quitting Party or
the Non-Quitting Party.  If required by applicable law, the Quitting Party
agrees that it will promptly execute and deliver all necessary agreements,
documents and certificates to effectuate the automatic transfer of the Ownership
Interest of the Quitting Party to the Non-Quitting Party.
 
6.3.2 In the event that both of the Parties have delivered Withdrawal Notices,
then the Parties shall duly cooperate in good faith to achieve the sale of their
entire issued capital of the Project Company to a Third Person or liquidation or
dissolution of the Project Company as soon as reasonably practicable following
the delivery of such Withdrawal Notices.
 
6.4 Approval.  If none of the Parties shall have delivered a Withdrawal Notice
within the ninety (90) Day period referred to in Section 6.2 the Development
Documentation shall be deemed approved by both Parties (subject to any changes
and modifications that may be mutually agreed by the Parties). In such case a
resolution of the Management Committee shall be issued and executed (whether
through convocation of a meeting of the Management Committee or as otherwise is
provided herein) approving the so agreed Development Documentation no later than
thirty (30) Days following the expiration of the ninety (90) Day period referred
to in Section 6.2.
 
ARTICLE 7.  FINANCING
 
7.1 Additional Contributions. In addition to any payments, expenditures and
contributions made by the Parties in connection with the establishment of the
Project Company and initial acquisition of their respective Ownership Interests
(initially, 80% for Pan American and 20% for MRT, which are subject to
adjustment as provided in Sections 2.2 and 5.3.4 and Articles 6, 7, 8 and 9)
(“Initial Contributions”), each Party shall provide its respective share
corresponding to its Ownership Interest to the Project Company as additional
contributions are required to pay for the continued operation and activities of
the Project Committee, including: (1) any amounts required to complete the
exploration and delineation of additional resources in the License Area
necessary to prepare the final Development Feasibility Study, (2) any amounts to
be paid as called for in approved Development Documentation from which such
Party has not withdrawn in accordance with Article 6, and (3) any amount to pay
for other approved Programs and Budgets for general furtherance of the Project
that may not be a part of Development Documentation (“Additional
Contributions”). No Additional Contributions shall be required to fund the Pilot
Project without the prior written consent of Pan American.  Unless otherwise
agreed by the Parties, all Additional Contributions shall be provided to the
Project Company in such other manner as shall be determined by the Management
Committee, in each case on equal terms and in proportion to the Parties’
respective Ownership Interest.  Any payments required to be made by MRT pursuant
to this Section 7.1 shall be made by MRT, in order, as (i) a  set-off against
the Net Cash Flow otherwise allocable to MRT from the Project then outstanding
and due to MRT and (ii) by payment by MRT directly.
 
 
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7.2 Default on Funding Obligation.  A Party that fails to make its Additional
Contribution within thirty (30) days following a determination by the Management
Committee that an Additional Contribution is necessary shall be in default
(“Funding Default”), of which the General Director shall promptly notify both
Parties in writing, and the amount of the defaulted Additional Contribution
shall become immediately due and payable to Project Company as a debt and shall
bear interest at an annual rate equal to 5% above the then prevailing 3-month
LIBOR from the date that such contribution became due for payment until such
date as it is eventually paid, whether by the Defaulting Party or by the
Non-defaulting Party, as the case may be, or until the Funding Default is
otherwise remedied.  Without prejudice to its other rights and remedies, the
Non-Defaulting Party shall have those rights, remedies and elections specified
in Section 8.2.
 
7.3 Return of Capital; Interest.  No Party shall be entitled to the return of
such Party’s contributions or advances except to the extent of any distributions
or payments properly authorized by the Management Committee.  Each Party hereby
waives any right it may have to accelerate such distributions.  Unless otherwise
agreed by the Parties, no Party shall receive any interest on its contributions;
provided that this shall not be construed to limit the accrual of interest on
any loan by a Party to the Project Company that has been approved by the
Management Committee.
 
7.4 Limitation.  Except as otherwise specifically provided in this Agreement or
as agreed to by the Parties, neither Party shall have any obligation to make
contributions, advances or loans to the Project Company, or to advance money for
its account.  Neither Party shall have any personal liability for the repayment
of any contributions or advances of the other Party.  Nothing in this Agreement
is intended or will be deemed to benefit any creditor of the Project Company and
no creditor of the Project Company shall be entitled to require either Party to
solicit or demand contributions or advances from the other Party.
 
7.5 Loans.  Should loans be used for providing financing under Section 7.1, the
loan agreements by which such loans shall be given shall be consistent with the
requirements of this Agreement and shall not provide either Party any rights in
relation to each other or the Project Company that such Party does not already
have pursuant to this Agreement.
 
 
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ARTICLE 8.   FUNDING DEFAULT
 
8.1 Notice of Default; Opportunity to Cure.  In the event of a Funding Default
by a Party (“Defaulting Party”) the other Party (“Non-Defaulting Party”) may
serve upon the Defaulting Party a written notice specifying the nature of the
default (“Default Notice”). If the Defaulting Party does not, within thirty (30)
days after it has received the Default Notice (“Grace Period”) fully cure the
Funding Default (which, for the avoidance of doubt shall include, without
limitation, payment of the entire amount of the Additional Contribution in
respect whereof the Funding Default occurred and any interest accruing thereon),
the Non-Defaulting Party shall have the rights and remedies prescribed by
Section 8.2.
 
8.2 Remedies for Failure to Cure Funding Default.  In the event a Funding
Default is not cured within the Grace Period, the Non-Defaulting Party may, at
its sole and exclusive option and without prejudice to any other rights and
remedies available to it, elect by written Notice to the Defaulting Party
(“Default Remedy Notice”):
 
8.2.1 to make such payment as required to cure the Funding Default of the
Defaulting Party (“Default Cure Payment”) and the Ownership Interest of the
Defaulting Party will automatically be reduced by one percentage point (1%) for
every $300,000 which the Defaulting Party failed to pay to the Project Company
as an Additional Contribution (the “Dilution”).  For avoidance of doubt, if a
Defaulting Party failed to make an Additional Contribution of $420,000 when due,
plus incurred accrued interest of $30,000 on the Funding Default, upon such
payment by the Non-Defaulting Party in accordance with the terms herein, the
Defaulting Party shall have its Ownership Interest decreased by one and a half
percentage points (1.5%)  (e.g., from 20% down to 18.5%) (the “Diluted
Interest”), and the Non-Defaulting Party shall have its Ownership Interest
correspondingly increased by one and a half percentage points (1.5%) (e.g., from
80% to 81.5%).  The Defaulting Party can have its Ownership Interest decreased
to a minimum of ten percent (10%), after which said interest shall be converted
into the Net Smelter Returns provided for in Section 6.3.1 hereof.
 
8.2.2 Within ten (10) Business Days after the date of the Default Remedy Notice
but in any event no earlier than within three (3) Business Days after the
Default Cure Payment is paid by the Non-Defaulting Party, the Defaulting Party’s
Diluted Interest shall automatically be deemed transferred to the Non-Defaulting
Party, without any further action required by the Defaulting Party or the
Non-Defaulting Party.  If required by applicable law, the Defaulting Party
agrees that it will promptly execute and deliver all necessary agreements,
documents and certificates to effectuate the automatic transfer of the Ownership
Interest of the Defaulting Party to the Non-Defaulting Party.
 
ARTICLE 9.   COVENANTS OF THE PARTIES
 
9.1 Exercise of Rights and Powers. Where any obligation in this Agreement is
expressed to be undertaken or assumed by any Party, that obligation is to be
construed as requiring the Party concerned to apply commercially reasonable
efforts to exercise all voting rights and other powers of corporate or
contractual control over the affairs of any Affiliate or Representative of such
Party which it is able to exercise (whether directly or indirectly) in order to
secure performance of the obligation.
 
 
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9.2 Support and Assistance. If and as requested by MRT during the Initial
Production Period or the General Director, as the case may be, each Party will
use its commercially reasonable endeavors to assist MRT or the Project Company,
in each case consistently with the principles, terms and conditions set forth
herein, subject to applicable law and subject to being compensated in full by
the Project Company for any costs and expenses incurred:
 
9.2.1 to acquire all governmental permits, licenses, approvals, consents and
other authorizations as may be necessary or appropriate in the course of
implementation of the Pilot Project or the Project, as applicable, or any aspect
thereof;
 
9.2.2 in complying with all maintenance and renewal procedures and requirements
related to the License; and
 
9.2.3 in the import of any equipment and services reasonably necessary for the
conduct of business of MRT during the Initial Production Period or the Project
Company and the export of Mineral Products developed by MRT or the Project
Company, in each case at the sole cost and expense of MRT or the Project
Company.
 
For the avoidance of doubt, nothing in this Section or otherwise in this
Agreement shall be construed as requiring any Party to achieve the objective in
question or as a guarantee or any other assurance of any Party that such
objective will in fact be achieved as a result of or in connection with such
Party's assistance to the Project Company

9.3 Information and Communications. MRT shall, in each case subject to
applicable confidentiality restrictions or rules or requirements of any
governmental or regulatory authority, subject to applicable law and subject to
being compensated in full by the Pan American for any costs and expenses
incurred:
 
9.3.1 provide or make available to Pan American all data pertaining to the
License Area or otherwise relating to the Pilot Project or the Project in any
material respect, whether already existing or that will become available to MRT
subsequently;
 
9.3.2 promptly deliver to Pan American any notices, demands or other material
communications from any Third Persons relating to the License, License Area, the
Project Company, the Pilot Project or the Project, that MRT receives;
 
9.3.3 obtain the written approval of Pan American prior to the sending of any
written notice, demand or other written communications relating to the License,
License Area, the Project Company, or the Project to any Third Person, including
without limitation, any governmental or regulatory authority.
 
 
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9.4 Mining Operations. The Parties shall comply, and shall procure that each of
its Affiliates and Representatives that is involved in the Project or any aspect
thereof, complies with, all laws, rules, regulations and Good Mining Practices
that are applicable to it in connection with its activities directly and
specifically relating to the Project, including but not limited to compliance
with all applicable anti-corruption statutes.  Each Party shall defend,
indemnify and hold the other Party, its directors, officers, employees, agents
and attorneys, and Affiliates harmless from and against the entire amount of any
and all costs, expenses, damages or liabilities, including reasonable attorneys’
fees and other costs of litigation (either threatened or pending) arising out of
or based on a failure by such Party to comply with this Section 9.4.  In the
event Pan American incurs any damages as a result of a breach by MRT of its
obligations under Section 5.3.4 and this Section 9.4, in lieu of making payments
to Pan American in the amount of such damages, Pan American may elect to have
MRT’s Ownership Interest diluted as a Funding Default in accordance with Section
8.2 or by requiring MRT to pay such damages in cash, or, at Pan American’s
election, by any combination of the foregoing.
 
9.5 Limitation on Acquisitions. MRT hereby covenants and agrees that it will
not, nor will it permit any of its Affiliates, directly or indirectly, to bid or
apply for, accept, acquire, lease, purchase or claim, any ownership or other
rights in respect of any land, water or subsoil including any rights to
prospect, explore for and develop any deposits of any minerals or conduct any
other similar works or operations, or any other rights in respect of any other
natural resources recognized under applicable Mexican law with respect to any
areas or objects, located wholly or in part within the Area of Interest, without
a prior written consent of Pan American.
 
ARTICLE 10.  WARRANTIES
 
10.1 Warranties. Each Party warrants to the other Parties hereto that, as of the
date of this Agreement and as of the Effective Date:
 
10.1.1 it is a body corporate duly incorporated or continued and duly organized
and validly subsisting under the laws of its organizational jurisdiction;
 
10.1.2 it has full power and authority to carry on its business and to enter
into this Agreement;
 
10.1.3 neither the execution and delivery of this Agreement nor performance of
any such Party’s obligations hereunder, result or may reasonably result in the
breach of, or accelerate the performance required by, any agreement to which it
is a Party;
 
10.1.4 the execution and delivery of this Agreement do not violate or result in
the breach of the laws of any jurisdiction applicable to a Party or pertaining
thereto or of its organizational documents;
 
 
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10.1.5 all corporate authorizations have been obtained for the execution of this
Agreement and for the performance of its obligations hereunder; and
 
10.1.6 this Agreement constitutes a legal, valid and binding obligation of the
Party enforceable against it in accordance with its terms.
 
ARTICLE 11.   INDEMNIFICATION
 
11.1 Indemnification by the Parties.  Each Party shall defend, indemnify and
hold the other Parties, their respective directors, officers, employees, agents
and attorneys, and Affiliates (collectively “Indemnified Party”) harmless from
and against the entire amount of any Loss. A “Loss” shall mean all costs,
expenses, damages or liabilities, including reasonable attorneys’ fees and other
costs of litigation (either threatened or pending) arising out of or based on a
breach by a Party (“Indemnifying Party”) of any representation, warranty,
covenant or obligation contained in this Agreement, including without
limitation:
 
11.1.1 any action taken for or obligation or responsibility assumed on behalf of
the other Parties, their respective officers, employees, agents and attorneys,
or Affiliates by a Party, any of its directors, officers, employees, agents and
attorneys, or Affiliates, in violation of Section 16.10.
 
11.1.2 failure of a Party or its Affiliates to comply with the limitations on
acquisitions set forth in Section 9.5.
 
11.1.3 failure of a Party or its Affiliates to comply with the right of first
refusal or drag along provisions of Section 3.
 
11.1.4 with respect to MRT’s indemnification obligations, any breach by MRT of
its obligations or responsibilities under Section 5.3.3, Section 5.3.4 or
Section 9.4.
 
11.2 Procedure.  If any claim or demand is asserted against an Indemnified Party
in respect of which such Indemnified Party may be entitled to indemnification
under Section 11.1, written notice of such claim or demand shall promptly be
given to the Indemnifying Party. The Indemnified Party’s failure to provide such
notice promptly, however, shall not relieve the Indemnifying Party of any of its
obligations under this Section 11.2 unless the Indemnifying Party is materially
prejudiced by such failure. At the request of any Indemnified Party, the
Indemnifying Party shall defend the Indemnified Party against any Loss for which
the Indemnifying Party is required to indemnify and hold harmless the
Indemnified Parties pursuant to the indemnity provisions set forth in this
Section 11.2.  Subject to the Indemnified Party’s approval, which shall not be
unreasonably withheld, delayed or conditioned, the Indemnifying Party shall
retain legal counsel for the purpose of defending any Indemnified Party in such
suit or action. The Indemnified Party shall have the right to retain legal
counsel, at its expense, to participate in the defense of any such suit or
action. No such suit or action shall be settled, discontinued, nor shall
judgment be permitted to be entered without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld, delayed or
conditioned. Any damages to the assets or business of the Indemnified Party
caused by a failure by the Indemnifying Party to defend, compromise, or settle a
claim or demand in a reasonable and expeditious manner requested by the
Indemnified Party, after the Indemnifying Party has given notice that it will
assume control of the defense, compromise, or settlement of the matter, shall be
included in the damages for which the Indemnifying Party shall be obligated to
indemnify the Indemnified Party. Any settlement or compromise of a matter by the
Indemnifying Party shall include a full release of claims against the
Indemnified Party which has arisen out of the indemnified claim or demand.
 
 
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ARTICLE 12.   ACCOUNTING, AUDIT AND INFORMATION
 
12.1 Accounting. Each of MRT, Pan American and Project Company shall:
 
12.1.1 maintain, and/or cause to be maintained, financial books and records
relating to the Project which accurately and fairly represent its transactions,
assets and disposition of assets and comply with requirements of applicable laws
and regulations;
 
12.1.2 prepare financial statements in accordance with the U.S. GAAP and
otherwise with any applicable laws and regulations;
 
12.1.3 have their accounts annually audited by an independent audit firm (or
firms) authorized to certify U.S. GAAP financial statements and other financial
statements prepared in compliance with applicable laws and regulations; and
 
12.1.4 subject to mandatory requirements of the applicable law have a fiscal
year ending December 31.
 
12.2 Parties’ Audit and Information Rights.
 
12.2.1 Each Party may at its own expense (i) examine the books, records and
accounts kept by each other Party with respect to the Pilot Project and the
Project and (ii) examine the books, records and accounts kept by the Project
Company.  Each Party shall be entitled to receive all information, including
quarterly management accounts and operating statistics and other trading and
financial information, in such form as such Party may reasonably require to keep
it properly informed about the business and affairs of the Pilot Project, the
Project and Project Company and generally to protect its (and its Affiliates’)
Ownership Interests and Net Cash Flow Interests.
 
12.2.2 Upon reasonable prior written notice, Pan American may, at its expense,
audit MRT’s operations solely as related to the Pilot Project during normal
business hours for survey and measure production, the extent of and depth of the
operations and compliance with MRT’s obligations under this Agreement, and
otherwise inspect facilities and records, in each case as related to the Pilot
Project during the Initial Production Period.  Any corrective action mutually
agreed upon by the Parties in response to Pan American’s audit or inspection
shall be implemented by MRT, at MRT’s expense.
 
 
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ARTICLE 13.   CONFIDENTIAL INFORMATION
 
13.1 Confidential Information.  Except as specifically otherwise provided for in
this Agreement and subject to Sections 13.2 and 13.3, the Parties will keep
confidential all data and information respecting this Agreement, the Parties
hereto, the Project Company, the License and the Project (“Confidential
Information”) and will refrain from using it other than for the activities
contemplated hereunder or publicly disclosing it unless:
 
13.1.1 required by law or by the rules and regulations of any regulatory
authority or stock exchange having jurisdiction, or with the consent of the
other Parties, such consent not to be unreasonably delayed, conditioned or
withheld; provided however, that the Managing Member shall have full discretion
to issue press releases without the consent of the remaining Party; or
 
13.1.2 the disclosure is made to the Arbitration Panel pursuant to Article 14 in
which case the Arbitration Panel shall be notified of confidentiality
restrictions applicable to such disclosure and requested to have such
restrictions.
 
13.2 Information in Public Domain.  The provisions of this Article 13 do not
apply to information that is or becomes part of the public domain other than
through a breach of the terms hereof.
 
13.3 News Release. Except as otherwise required by applicable law (in which case
notice must be provided to Pan American), MRT shall not issue any press release
or making or filing any other statement (collectively, a “Release”) to a Third
Person (including a government or exchange authority) regarding the Confidential
Information or the activities of the Project Company, or any Party with respect
thereto, without the prior written consent of Pan American on the text of the
proposed Release, which consent shall not be unreasonably delayed, conditioned
or withheld.
 
ARTICLE 14.   DISPUTE RESOLUTION
 
14.1 Notice.  Any dispute, controversy or claim arising out of or relating to
this Agreement or the subject matter of this Agreement, or the breach,
termination, or invalidity hereof (all such items a “Dispute”), shall be settled
by arbitration in accordance with the rules (the “Rules”) of the American
Arbitration Association (the “AAA”), which Rules are deemed to be incorporated
by reference into this Article.  Any Party may refer any such Dispute to
arbitration by Notice to the other Party.  The arbitration shall be the sole and
exclusive forum for resolution of the Dispute and the award shall be final and
binding to the extent permitted by California law.
 
14.2 Arbitrators. There shall be three (3) arbitrators, each of whom shall be
disinterested in the Dispute and shall have no connection with any Party to this
Agreement or any of their Affiliates.  The Party to this Agreement initiating
arbitration (“Claimant”) and the Party to this Agreement named as defendant
(“Defendant”) shall each name an arbitrator no later than fifteen (15) Business
Days after receipt of the relevant Notice provided under Section 14.1.  If any
Party entitled to name an arbitrator should abstain from doing so or fail to do
so within the time allotted, the AAA shall appoint such arbitrator.  The two
arbitrators so chosen shall select a third arbitrator, who together with the
other two arbitrators shall be the “Arbitration Panel”.
 
 
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14.3 Appointment or Administering Authority.  Should the services of an
administering authority be necessary, the administering authority shall be the
AAA.
 
14.4 Time and Place; Language.  Taking into consideration the time requirements
set forth in this Section 14.4, the Arbitration Panel will fix a time and place
in San Diego, California for the purpose of hearing the evidence and
representations of the Parties, and the Arbitration Panel will preside over the
arbitration and determine all questions of procedure not provided for under the
Rules or this Article 14.  After hearing any evidence and representations that
the Parties may submit, the Arbitration Panel will make an award and reduce the
same to writing and deliver one copy thereof to each of the Parties.  The
decision of the Arbitration Panel will be made within forty-five (45) days after
the third Arbitrator is appointed pursuant to Section 14.2, subject to any
reasonable delay due to unforeseen circumstances.  The costs and expenses of the
Arbitration Panel and the AAA will be paid as specified in the award.  The
arbitration will be conducted in English.
 
14.5 Jurisdiction of Courts.  Any arbitral award by the Arbitration Panel may be
enforced by recourse to the California courts or by recourse to the courts in
the jurisdiction of the Project Company.  Nothing contained in this Section 14.5
is intended to affect the rights of a Party to enforce a judgment or arbitral
award by recourse to appropriate courts.  The Parties agree that all
transactions contemplated by this Agreement constitute commercial activities and
hereby expressly waive any right to claim sovereign or similar immunity under
any applicable laws.
 
ARTICLE 15.  NOTICE
 
15.1 Method.  Each notice, objection, consent, approval, demand or other
communication (the “Notice”) required or permitted to be given under this
Agreement will be in writing and may be personally delivered, delivered by
internationally recognized overnight courier service or sent by confirmed
facsimile to the address or fax number as set forth in Section 15.2.  A Notice,
if personally delivered or sent by internationally recognized overnight courier
service, will be deemed to have been delivered and received on the date of
actual delivery and, if given by facsimile, will be deemed to have been
delivered and received on the date sent, if sent during normal business hours of
the recipient on a Business Day and otherwise on the next Business Day.
 
15.2 Addresses for Notices.  Notices to Pan American and Sunburst will be given
to the following address and fax number:
 
Pan American Goldfields Ltd.
595 Howe Street, Unit 906
Vancouver, BC V6C 2T5
Facsimile: [_____________________]
Attention: Neil Maedel, Chairman

 
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Copy to:

DLA Piper LLP (US)
4365 Executive Drive, Suite 1100
San Diego, California 92121
Facsimile: 858-638-5128
Attention: Jeffrey C. Thacker, Esq.
 
Notices to Marje Minerals will be given to the following address and fax number:
 
Marje Minerals
 
[_____________________]
 
[_____________________]
 
Facsimile: [_____________________]
 
Attention:                      [_________________]

Copy to:

Robert Knight
_____________________________
_____________________________
Facsimile: [___________________]

Notices to MRT will be given to the following address and fax number:

Minera Rio Tinto, S.A.
      E. Ramirez Calderon, #1404
Colonia San Felipe, Chihuahua
Chihuahua, Mexico, CP 31203
Facsimile: +52 (614) 414-7251
Attention:  Mario Ayub

Copy to:

Arzola + Armendariz, Mexican Legal Consultants
Paseo Bolivar 303
Colonia Centro, Chihuahua
Chihuahua, Mexico, CP 31000
Facsimile: +52 (614) 410-5107
Attention: Luis Armendariz

15.3 Amending Addresses.  Either Party may at any time and from time to time
notify the other Party in accordance with this Article 15 of a change of address
or fax number, to which all Notices will be given to it thereafter until further
notice in accordance with this Article 15.
 
 
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15.4 Legal Notice.  The Parties agree that any Notice provided consistent with
this Article 15 shall satisfy any notice requirements under applicable law as
between the Parties.
 
ARTICLE 16.  GENERAL
 
16.1 Other Activities and Interests.  Subject to Section 9.5, each Party will
have the free and unrestricted right to enter into, conduct and benefit from
business ventures of any kind whatsoever, whether or not competitive with the
activities undertaken pursuant hereto, without disclosing such activities to the
other Party or inviting or allowing the other to participate.
 
16.2 Entire Agreement. This Agreement (including Schedules hereto) constitutes
the entire agreement between the Parties and amends and restates the Restated
Agreement and supersedes and replaces any preliminary or other agreement or
arrangement, whether oral or written, express or implied, statutory or otherwise
existing between the Parties in respect of the subject matter of this Agreement
including the Original Agreements.  In the event of any inconsistency between
the terms of any agreements between or among the Parties or and this Agreement,
the terms of this Agreement shall control.  This Agreement may not be amended or
modified except by an instrument signed by each of the Parties.
 
16.3 No Waiver.  No consent or waiver expressed or implied by either Party in
respect of any breach or default by the other in the performance by such other
of its obligations hereunder will be deemed or construed to be a consent to, or
a waiver of, any other breach or default. No single or partial exercise of a
right or remedy provided by this Agreement or by law prevents further exercise
or remedy or exercise of another right or remedy.
 
16.4 Further Assurances. Each of the Parties will promptly execute or cause to
be executed, at the cost and expense of the requesting Party, all documents,
deeds, conveyances and other instruments of further assurance that may be
reasonably requested by the other Party to carry out fully the intent of this
Agreement or to record wherever appropriate, from time to time, the respective
interests of the Parties.
 
16.5 Assignment.  This Agreement will inure to the benefit of and be binding
upon the Parties and their respective successors and permitted assigns.  No
Party may assign its rights or transfer its obligations under this Agreement
without the prior written consent of the other Party other than as permitted or
required under this Agreement.
 
16.6 Costs. Except where this Agreement provides otherwise, each Party shall
bear its own costs relating to the negotiation, preparation, execution, and
performance by it of this Agreement and any other document referred to herein.
 
 
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16.7 Governing Law. This Agreement will be construed and interpreted according
to and governed by California law.
 
16.8 Special Remedies. Each of the Parties agrees that its failure to comply
with the certain covenants and restrictions set out in this Agreement, would
constitute an injury and cause damage to the other Party impossible to measure
monetarily.  In the event of any such failure, the other Party will, in addition
and without prejudice to any other rights and remedies that it may have at law
or in equity, be entitled to injunctive relief restraining, enjoining or
specifically enforcing such provisions of this Agreement, as the case may be,
and any Party hereby waives any defense it may have in law to such injunctive or
equitable relief.   Nothing in this Agreement shall be construed as limiting any
liability for fraud.  For avoidance of doubt, nothing in Section shall preclude
the applicability of Article 14.
 
16.9 Time of the Essence.  Unless provided herein otherwise, time is of the
essence in the performance of each obligation under this Agreement.
 
16.10 No Partnership or Agency. Nothing in this Agreement shall be deemed to
create or constitute a partnership between the Parties nor establish nor appoint
one Party to be an agent for the other Party.
 
16.11 Counterparts. This Agreement may be executed in any number of counterparts
and all such counterparts, taken together, will be deemed to constitute one and
the same instrument.  This Agreement may be signed and accepted by facsimile.
 
16.12 Effectiveness and Termination.
 
16.12.1 This Agreement shall become effective on the date hereof.
 
16.12.2 This Agreement may be terminated as follows: (a) automatically, upon any
Party purchasing all of the Ownership Interests (provided that Articles 13 and
14 shall survive such termination); and (b) at any time, upon written agreement
of the Parties.
 
16.12.3 Upon termination in accordance with its terms, this Agreement shall
terminate and cease to be of any effect, provided that such termination shall
not release any Party from the discharge of any liability in respect of any
breach of this Agreement prior to its termination.  The provisions of Articles
2, 5, 7, 8, 9, 10, 11, 12, 13, 14 and 15 shall survive the termination of this
Agreement. 
 

 
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IN WITNESS WHEREOF this Agreement has been executed as of the date first above
given.

PAN AMERICAN GOLDFIELDS LTD.
 
By:  /s/ Neil Maedel
 
 
 
Name: Neil Maedel
 
 
Title:  Chairman
 

SUNBURST MINING DE MEXICO S.A. DE C.V.
 
 
By: /s/ Manuel Flores
 
 
Name: Manuel Flores
 
Title: Director

 
MINERA RIO TINTO S.A. DE C.V.
 
By: /s/ Mario Ajub
 
 
 
Name: Mario Ajub
 
 
Title: Sole Administrator
 

MARJE MINERALS S.A.
 
By: /s/ Robert Knight
 
 
Name:  Robert Knight
 
Title:  President

 
 
 
 

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