Document:

EXHIBIT 10

EXHIBIT 10.4

EMPLOYMENT LETTERS OF INTENT WITH EXECUTIVE OFFICERS

A.  Employment Letter with John Brown

ZION OIL & GAS, INC.

September 2, 2003

Mr. John M. Brown

6510 Abrams Rd., Suite 300

Dallas, TX  75231

Re:  Executive Employment Agreement

Dear Mr. Brown,

This letter serves to confirm our non-binding intent to enter into a formal employment agreement with you to retain your services as Chairman and Chief Executive Officer of Zion Oil & Gas, Inc. (the "Company") under the following terms and conditions.

1.  Position: Chairman and Chief Executive Officer. 

2.  Effective Date: July 1, 2003.

3.  Term: Through December 31, 2008. Extendable annually thereafter, subject to 90 day                                      notice by either party of intention not to extend, until employee's attaining 70 years of age; thereafter, extendable annually by mutual consent.

4.  Salary: (a) Between July 1- December 31, 2003, $4,500 per month, plus $500 monthly payment on account of home office expenses. (b) Commencing January 1, 2004, $120,000 annually.

5.  Company Initiated Termination or Non-Extension of Term prior to 70 years of age:

	Severe Disability,

	Definition: 120 days incapacity in any 365 day period,

	Notice: 30 days,

	Severance Pay: None

	For Cause

	Definition: Willful misconduct as determined by final court judgment

	Notice: None- effective upon judgment

	Severance Pay: None

	Other than for Cause

	Notice: 90 days

	Severance Pay: payment of remaining term of contract plus 6 months salary

	Additional Severance Pay if Termination or Non- Extension within one year  following Change in Control:  3 years salary.

6.  Employee Initiated Termination or Non-Extension prior to 70 years of age:

	Notice 90 days

	Severance Pay: None.

7.  Insurance:  Commencing January 1, 2004, Health, Long Term Disability and Life Insurance with premium not to exceed $2,000 per month.

8.  Vacation: 23 working days annually

9.  Expenses:  Commencing January 1, 2004, Cell Phone; professional fees related to duties; other per corporate expense reimbursement policy to be adopted.

10.  Long Term Management Incentive Plan:  On establishment, 10% of after payout (on well by well basis) of income to plan attributable to wells drilled on properties acquired during term of employment.

11.  Indemnification to extent permissible by law

12.  D & O insurance at level to be determined by Board.

13. Standard Confidentiality, Non-Compete (6 months) and Non-Solicitation (12 months) provisions.

14.  Charitable Trusts: To be appointed as Chairman of governing bodies of Israeli and U.S. Trusts upon establishment.

15.  Law and Jurisdiction: Texas. 

The above principal terms will be reflected in a formal Executive Employment Agreement to be entered into between the Company and you.  The agreement shall be prepared as soon as reasonably possible and be subject to the approval of the Company's Board of Directors.

Very truly yours,

ZION OIL & GAS, INC.

s/ E.A. Soltero

Eugene A. Soltero, President

ACCEPTED AND AGREED:

s/  John M. Brown

John M. Brown

B.  Employment Letter with Eugene Soltero

ZION OIL & GAS, INC.

September 2, 2003

Mr. Eugene A. Soltero

6510 Abrams Rd., Suite 300

Dallas, TX  75231

Re:  Executive Employment Agreement

Dear Mr. Soltero,

This letter serves to confirm our non-binding intent to enter into a formal employment agreement with you to retain your services as President and Chief Operating Officer of Zion Oil & Gas, Inc. (the "Company") under the following terms and conditions.

1.  Position: President and Chief Operating Officer.  Until such time as the Company hires a Chief Financial Officer duties shall include those of Chief Financial Officer.

2.  Effective Date: July 1, 2003.

3.  Term: Through December 31, 2008. Extendable annually thereafter, subject to 90 day                                      notice by either party of intention not to extend, until employee's attaining 70 years of age; thereafter, extendable annually by mutual consent.

4.  Salary: (a) Between July 1- December 31, 2003, $9,500 per month, plus $500 monthly payment on account of home office expenses. (b) Commencing January 1, 2004, $200,000 annually.

5.  Company Initiated Termination or Non-Extension of Term prior to 70 years of age:

	Severe Disability,

	Definition: 120 days incapacity in any 365 day period,

	Notice: 30 days,

	Severance Pay: None

	For Cause

	Definition: Willful misconduct as determined by final court judgment

	Notice: None- effective upon judgment

	Severance Pay: None

	Other than for Cause

	Notice: 90 days

	Severance Pay: payment of remaining term of contract plus 6 months salary

	Additional Severance Pay if Termination or Non- Extension within one yearfollowing Change in Control:  3 years salary.

6.  Employee Initiated Termination or Non-Extension prior to 70 years of age:

	Notice 90 days

	Severance Pay: None.

7.  Insurance:  Commencing January 1, 2004, Health, Long Term Disability and Life Insurance with premium totaling not to exceed $2,000 per month.

8.  Vacation: 23 working days annually

9.  Expenses:  Commencing January 1, 2004, Cell Phone; professional fees related to duties; other per corporate expense reimbursement policy to be adopted.

10.  Long Term Management Incentive Plan:  On establishment, 10% of after payout (on well by well basis) of income to plan attributable to wells drilled on properties acquired during term of employment.

11.  Indemnification to extent permissible by law

12.  D & O insurance at level to be determined by Board.

13.  Standard Confidentiality, Non-Compete (6 months) and Non-Solicitation (12 months) provisions.

14.  Law and Jurisdiction: Texas. 

The above principal terms will be reflected in a formal Executive Employment Agreement to be entered into between the Company and you.  The agreement shall be prepared as soon as reasonably possible and be subject to the approval of the Company's Board of Directors.

Very truly yours,

ZION OIL & GAS, INC.

s/  John M. Brown

John M. Brown, Chairman & CEO

 

ACCEPTED AND AGREED:

s/ E A Soltero

Eugene A. Soltero

 

C.  Employment Letter with Glen H. Perry

ZION OIL & GAS, INC.

September 2, 2003

Mr. Glen H. Perry

6510 Abrams Rd., Suite 300

Dallas, TX  75231

Re:  Executive Employment Agreement

Dear Mr. Perry,

This letter serves to confirm our non-binding intent to enter into a formal employment agreement with you to retain your services as Executive Vice President and General Manager of Israeli Operations of Zion Oil & Gas, Inc. (the "Company") under the following terms and conditions.

1.  Position: Executive Vice President and General Manager of Israeli Operations.

2.  Effective Date: July 1, 2003.

3.  Term: Through December 31, 2008. Extendable annually thereafter, subject to 90 day                                      notice by either party of intention not to extend, until employee's attaining 70 years of age; thereafter, extendable annually by mutual consent.

4.  Salary: (a) Between July 1- December 31, 2003, $9,500 per month, plus $500 monthly payment on account of home office expenses. (b) Commencing January 1, 2004, $200,000 annually.

5.  Company Initiated Termination or Non-Extension of Term prior to 70 years of age: 

	Severe Disability,

	Definition: 120 days incapacity in any 365 day period,

	Notice: 30 days, 

	Severance Pay: None

	For Cause

	Definition: Willful misconduct as determined by final court judgment

	Notice: None- effective upon judgment

	Severance Pay: None

	Other than for Cause

	Notice: 90 days

	Severance Pay: payment of remaining term of contract plus 6 months salary

	Additional Severance Pay if Termination or Non- Extension within one year  following Change in Control:  3 years salary.

6.  Employee Initiated Termination or Non-Extension prior to 70 years of age:

	Notice 90 days

	Severance Pay: None.

7.  Insurance:  Commencing January 1, 2004, Health, Long Term Disability and Life Insurance with premium not to exceed $2,000 per month.

8.  Vacation: 23 working days annually

9.  Expenses:  Commencing January 1, 2004, Cell Phone; professional fees related to duties; other per corporate expense reimbursement policy to be adopted.

10.  Long Term Management Incentive Plan:  On establishment, 10% of after payout (on well by well basis) of income to plan attributable to wells drilled on properties acquired during term of employment.

11.  Indemnification to extent permissible by law

12.  D & O insurance at level to be determined by Board.

13.  Standard Confidentiality, Non-Compete (6 months) and Non-Solicitation (12 months) provisions.

14.  Law and Jurisdiction: Texas.

15.  Relocation:  At the Company's request, you will relocate to Israel.  On relocation to Israel you will have the option of continuing to benefit from Company provided insurance benefits as noted in item 7 above or from an Israeli Managers Insurance Policy as provided by the Company to its Israel-based executive officers. 

The above principal terms will be reflected in a formal Executive Employment Agreement to be entered into between the Company and you.  The agreement shall be prepared as soon as reasonably possible and be subject to the approval of the Company's Board of Directors.

Very truly yours,

ZION OIL & GAS, INC.

s/  John M. Brown

John M. Brown, Chairman & CEO

Accepted and agreed:

s/ Glen H. Perry

Glen H. Perry

D.  Employment Letter with Philip Mandelker

ZION OIL & GAS, INC.

September 2, 2003

Mr. Philip Mandelker,

44 Tagore Street

Tel Aviv, Israel

Re: Retention Agreement

Dear Mr. Mandelker,

This letter serves to confirm our non-binding intent to enter into a formal retention agreement with you to retain your services as outside General Counsel and Corporate Secretary of Zion Oil & Gas, Inc. (the "Company").  Such services shall include oversight responsibility for administrative and financial matters of the Company's Israeli Branch.   In consideration for your services, you shall receive a monthly retainer as follows:

(a)During the period commencing July 1, 2003 and through December 31, 2003, the equivalent in New Israeli Shekels (NIS) of $9,500 per month, plus out of pocket disbursements plus VAT thereon; and 

(b) During the period commencing January 1, 2004 the NIS equivalent of $12,500 per month, plus out of pocket disbursements, plus VAT 

In addition, the Company shall pay the law firm with which you are associated a monthly office services fee of the NIS equivalent $2,000, plus VAT.  Commencing January 1, 2004, the Company shall also bear the cost of a cell phone (one line) and your professional fees and insurance related to the performance of your duties.

In the event that the Company terminates your services in the period prior to your becoming an employee of the Company as set forth below, you shall be entitled to severance pay and termination benefits as provided in item 5 below.

At any time following January 1, 2004, at your option, the Company shall employ you as its Executive Vice President and General Counsel pursuant to an Executive Employment Agreement the principal terms of which shall include:

1.  Position:  Executive Vice President and General Counsel, with oversight responsibility for administrative and financial matters of the Israeli Branch.  Until such time as the company appoints someone else as its corporate secretary, your duties shall include those of corporate secretary.

2.  Effective Date:  At your option

3.  Term: Through December 31, 2008. Extendable annually thereafter, subject to 90 day                                      notice by either party of intention not to extend, until employee's attaining 70 years of age; thereafter, extendable annually by mutual consent.

4.  Salary:  $200,000 annually

5.  Company Initiated Termination or Non-Extension of Term prior to 70 years of age: 

	Severe Disability,

	Definition: 120 days incapacity in any 365 day period,

	Notice: 30 days, 

	Severance Pay: None

	For Cause

	Definition: Willful misconduct as determined by final court judgment

	Notice: None- effective upon judgment

	Severance Pay: None, subject to determination to the contrary by court judgment; except that employee's contribution to Managers Insurance Policy (Bituach Mnahalian)  to be released to employee

	Other than for Cause

	Notice: 90 days

	Severance Pay: Payout of remaining term of contact plus 6 months salary plus release of all monies accrued in Managers Insurance Policy.

	Additional Severance Pay if Termination or Non- Extension within one year  following Change in Control:  3 years salary.

6.  Employee Initiated Termination or Non-Extension prior to 70 years of age:

	Notice 90 days

	Severance Pay: release of all monies accrued in Managers Insurance Policy

7.  Manager's Insurance (Bituach Mnahalim):  The Company shall purchase for you a Managers Insurance Policy pursuant to which the Company shall contribute monthly: (i) an amount equal to 8-1/3% of your salary to Pitzuei Piturim; (ii) an amount equal to 5% of your salary to Tagmulim; and (iii) an amount equal to 2.5% of your salary towards disability insurance.  You shall contribute an amount equal to 5% of your salary to Tagmulin.

8.  Vacation:  23 working days (based on a 5 day work week), plus 10 days recuperation allowance (Dmei Havra'ah), annually.

9.  Expenses:  Cell phone, professional fees and insurance required for performance of duties; car allowance of $150 per month; other per corporate expense reimbursement policy to be adopted.

10.  Long Term Management Incentive Plan:  On establishment, 10% of after payout (on a well by well basis) of income to plan from wells drilled on properties acquired during term of employment.

11.  Indemnification:  to extent permissible by law.

12.  D&O Insurance at level to be determined by Board.

13.  Standard Confidentiality, Non-Compete (6 months) and non-solicitation (12 months) provisions.

14.  Benefits during period between January 1, 2004 and the effective date of an employment agreement (if entered into):  at your option, the Company shall either (i) make a cash payment to you in the amount of 21% of the total amount of your retainer, plus VAT thereon, due for the said period; or (ii) acquire for you Managers Insurance Coverage as provided in above based on a monthly salary of $16,667 to cover the said period.

15.  Law of Jurisidiction:  Israel.

The above terms will be reflected in a Retention Agreement, to which shall be attached a draft of the Executive Employment Agreement, to be prepared as soon as reasonably possible and be subject to the approval of the Company's board of Directors.

 

Very truly yours,

ZION OIL & GAS, INC.

s/  John M. Brown

John M. Brown

ACCEPTED AND AGREED

s/ Philip Mandelker__

Philip Mandelker<PAGE>

                                    AGREEMENT
                                     BETWEEN
                          GOLDEN PHOENIX MINERALS, INC.
                                       AND
                             BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

         THIS  AGREEMENT,  dated  as of July 21,  2003  ("EFFECTIVE  DATE"),  is
between  GOLDEN PHOENIX  MINERALS,  INC., a Minnesota  corporation  (hereinafter
referred  to as  "GOLDEN  PHOENIX"),  and  BOREALIS  MINING  COMPANY,  a  Nevada
corporation  (hereinafter  referred to as  "BOREALIS")  which is a  wholly-owned
subsidiary of Gryphon Gold Corporation, a Nevada corporation.

         FOR AND IN  CONSIDERATION  OF the payment by Borealis to Golden Phoenix
of  US$125,000.00,  the mutual covenants  contained  herein,  and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the parties agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         1.1  DEFINITIONS.   The  following  definitions  shall  apply  in  this
Agreement:

              (a) "AREA OF  INTEREST"  means  the area  described  in  Exhibit A
hereto.

              (b) "CLAIMS" means the GP Claims and the Leased Claims.

              (c) "LEASE" means the Mining Lease  described in Exhibit B hereto,
under which Golden Phoenix is the current and only lessee.

              (d) "GP CLAIMS" means the  unpatented  lode mining claims owned by
Golden Phoenix described in Exhibit C hereto.

              (e) "LEASED  CLAIMS" means the  unpatented  mining claims that are
subject to the Lease, which claims are described in Exhibit D hereto.

              (f) "MINING VENTURE  AGREEMENT" means the Mining Venture Agreement
attached  as  Exhibit  E hereto,  which is  patterned  after the Rocky  Mountain
Mineral Law Foundation's  Exploration,  Development and Mine Operating Agreement
Model Form 5A.

              (g) "PROPERTIES" means the Claims, the Lease and any properties in
the Area of Interest that become subject to this Agreement.

<PAGE>

                                   ARTICLE II

                                      GRANT

         2.1  GRANT.  Subject  to the terms and  conditions  of this  Agreement,
Golden Phoenix hereby grants to Borealis the right to acquire up to an undivided
seventy percent (70%) interest in the Properties.

         2.2 PERMITTED USES AND  ACTIVITIES.  Subject to the paramount  title of
the  United  States in the  Claims  and  applicable  federal  and state laws and
regulations, and subject to the Lease and the terms of this Agreement,  Borealis
shall have the exclusive  right during the term of this  Agreement to enter upon
the Properties and to explore for, prospect for, develop and produce any and all
metals, ores, minerals,  mineral substances and materials of all kinds which may
be found in, upon,  under or within the  Properties.  Borealis's  rights in this
regard include, but are not limited to, the following:

                  (a) to construct roads and other improvements upon the surface
of the Properties for use by Borealis's personnel and equipment;

                  (b)  to  locate  upon  the  Properties   such  structures  and
improvements  as may be required to house  Borealis's  equipment,  supplies  and
personnel;

                  (c) to conduct  exploration  upon the  Properties  by whatever
methods and to whatever  extent  Borealis deems advisable in its sole discretion
and to remove  from the  Properties  samples of any and all  mineral  substances
found therein;

                  (d)  to  conduct  exploration,   geological,  geophysical  and
geochemical evaluation and testing and assaying of the Properties;

                  (e)  to  construct   facilities  and   improvements   for  the
development of the Properties and for the production of mineral substances found
within the Properties;

                  (f) to develop and produce mineral substances found within the
Properties;

                  (g) to use,  to the  extent  necessary  or  convenient  to the
exercise of any or all of the rights granted to Borealis herein, any surface and
underground  water and water rights now existing or  subsequently  discovered or
developed in or upon or  appurtenant to the Properties and to use all reciprocal
rights which any of the Properties may have with respect to other  properties in
the area;

                  (h) to use all easements and  rights-of-way  on or appurtenant
to the Properties in the exercise of rights granted to Borealis hereunder;

                                       2
<PAGE>

                  (i) to do all things which are  incidental  to or which may be
useful,  desirable or  convenient  in  Borealis's  exercise of any or all of the
rights granted to Borealis hereunder.

         2.3 OPERATIONAL  AUTHORITY.  Golden Phoenix also grants to Borealis all
authority and rights necessary or incident to or for the enjoyment of the rights
granted to Borealis by this Agreement, including without limitation authority to
apply  for all  permits,  licenses  and  other  approvals  deemed  necessary  or
appropriate  by  Borealis  in  connection  with the  conduct  of the  activities
contemplated herein.

                                   ARTICLE III

                      GOLDEN PHOENIX'S REPRESENTATIONS AND
                            WARRANTIES; TITLE MATTERS

         3.1  REPRESENTATIONS  AND  WARRANTIES.  Golden  Phoenix  represents and
warrants as follows:

                  (a) Golden  Phoenix has full power and authority to enter into
this  Agreement  and to  perform  the  transactions  contemplated  hereby.  This
Agreement and the provisions hereof constitute legal and binding  obligations of
Golden Phoenix enforceable in accordance with their terms. Neither the execution
and delivery of this  Agreement nor compliance by Golden Phoenix with any of the
provisions  hereof will  conflict with or result in a breach of or default under
any of the terms,  conditions  or  provisions  of any agreement or instrument to
which Golden Phoenix is a party or of any law or governmental or  administrative
regulation or restriction applicable to it.

                  (b) The  interests  of Golden  Phoenix  in the  Claims and the
Lease, and potentially in other lands included in the Area of Interest,  are not
subject to any preferential right to purchase,  right of first refusal,  area of
interest  provision,  or the like,  pursuant to which any other person or entity
has any rights to acquire an  interest  therein  that is or will be  violated or
contravened by the terms of this Agreement or the performance thereof.

                  (c) There are no consents under the terms of the Lease,  other
than consents that have been obtained in writing by Golden  Phoenix and provided
to  Borealis,  that are  required  with  respect  to the  grant of rights or the
conveyance of an interest to Borealis as provided herein.

                  (d)  There  are  no  actions,   suits,  claims,   proceedings,
litigation  or  investigations  pending  or,  to the  best of  Golden  Phoenix's
knowledge,  threatened at law or in equity,  or in arbitration,  or before or by
any federal, state, municipal or other governmental instrumentality which relate
to this  Agreement,  or the  Lease  or any of the  Claims,  or which  could,  if
continued,  adversely affect Golden Phoenix's ability to fulfill the obligations
undertaken hereby or Borealis's ability to explore or develop the Claims and the
Lease.  Golden Phoenix knows of no requirements  of federal,  state or local law
particular to the Claims or the Lease that could materially and adversely affect
Borealis's ability to explore or develop the Claims or the Lease.

                                       3
<PAGE>

                  (e) The Lease is valid,  in good standing with all  previously
due payments made, and enforceable in accordance with its terms.  There has been
no act or omission by Golden  Phoenix  which could  result by notice or lapse of
time in the breach,  termination,  abandonment,  forfeiture,  relinquishment  or
other premature termination of the rights of Golden Phoenix in the Lease.

                  (f) To the best of Golden  Phoenix's  knowledge,  the  lessors
under the Lease hold good and marketable  possessory title to the Leased Claims,
subject to paramount title of the United States,  free and clear of all defects,
liens or  encumbrances.  To the best of Golden Phoenix's  knowledge,  the Leased
Claims have been properly  located and maintained in compliance  with applicable
state and  federal  laws.  There are no liens or  encumbrances  relating  to the
Leased Claims arising by, through or under Golden Phoenix.

                  (g) Golden Phoenix has good and marketable possessory title to
the GP Claims,  subject to the  paramount  title of the  United  States.  The GP
Claims have been properly  located and maintained in compliance  with applicable
state and federal laws.  There are no liens or  encumbrances  relating to the GP
Claims.

                  (h)  Golden  Phoenix  has  good  and  marketable  title to the
leasehold interest in the Lease as the sole lessee, free from any defects, liens
or encumbrances arising by, through or under Golden Phoenix.  Golden Phoenix has
no knowledge of any claims that conflict with the Claims or of any lands covered
by the Claims that are or were not open to location.

                  (i) There are no royalties, fees or monies payable or required
to be paid to persons  having an interest  in the Claims or in the Lease  except
for the lessors under the Lease.

                  (j) Golden  Phoenix has delivered to Borealis all  information
concerning  title to the Properties in Golden  Phoenix's  possession or control,
including,  but not limited  to,  true and  correct  copies of the Lease and any
other  contracts  relating  to  the  Properties  of  which  Golden  Phoenix  has
knowledge.

                  (k) As of the Effective Date, there are no existing permits or
approvals in effect relating to operations and activities on the Properties from
any governmental or regulatory entity.

                  (l) Except as set forth on Schedule  3.1(l),  attached  hereto
and  made  a  part  hereof,  Golden  Phoenix  has no  knowledge  or  information
indicating that:

                           (i) hazardous  substances  from any source (mining or
otherwise) have been released on the Properties; or

                           (ii) any underground or above-ground site of historic
or current  mining  operations  on the  Properties  could cause or  constitute a
release or threat of  release  of  hazardous  substances  into the  environment,
subject,  however,  to the parties'  acknowledgment that prior mining operations
have occurred on the Properties and that certain  facilities,  more particularly
described in Exhibit F hereto, still exist on the Properties as a consequence of
such operations; or

                                       4
<PAGE>

                           (iv) any part of the  Properties has been included or
proposed for inclusion on the National  Priorities  List (40 C.F.R.  Section 300
App. B); or

                           (iv) any part of the  Properties  has been studied or
proposed  for study by the  Environmental  Protection  Agency  and/or  any state
regulatory agency; or

                           (v) any site of historic or current  mining,  milling
and/or smelting  workings on the Properties is presently in such condition as to
potentially  raise  liability  to the past,  present or future  owner(s)  and/or
operator(s)  of  the  Properties  pursuant  to the  Comprehensive  Environmental
Response, Compensation and Liability Act and amending statutes ("CERCLA"); or

                           (vi) any reclamation or cleanup obligations for prior
operations on the Properties are unsatisfied.

         3.2  CURE  OF  DEFECTS.  Borealis,  without  waiver  of any  rights  or
remedies,  may at its option,  take any action  necessary to cure any defects in
the title to the Properties without the prior written consent of Golden Phoenix;
provided,  however,  that any such action shall be subject to such  restrictions
and  requirements  as exist under the Lease.  Golden Phoenix agrees to cooperate
with Borealis in any such actions taken and to execute all documents and to take
such other action as may be  reasonably  necessary to assist  Borealis but shall
not have any  obligation  to incur  costs in so doing.  Borealis  may charge all
reasonable costs and expenses  (including  attorneys' fees) incurred by Borealis
in curing any defect in title to the  Properties  as  Expenditures  pursuant  to
Article IV below.  If the United States or any third person attacks the validity
of any of the unpatented mining claims included in the Properties, Borealis may,
at its option,  choose to defend their validity,  and in such event Borealis may
charge all reasonable costs and expenses (including attorneys' fees) incurred by
Borealis in defending  the validity of such claims as  Expenditures  pursuant to
Article IV below.  Golden Phoenix agrees to give Borealis notice promptly of any
such problems as to which it has knowledge.

         3.3 INCOMPLETE  TITLE. If Golden  Phoenix's title is less than the full
undivided title to the Claims and the Lease, Borealis shall have, in addition to
such other rights and remedies as it may have, the right to elect to accept such
lesser title by giving  written  notice of such election to Golden  Phoenix,  in
which event all Expenditure requirements set forth in Article IV hereunder shall
be reduced to the same proportions thereof as the undivided title actually owned
by Golden  Phoenix  bears to the undivided  title  warranted  herein.  If Golden
Phoenix's  title is less than the full undivided  title to some, but not all, of
the Claims and the Lease, then the Expenditure  requirements shall be reduced on
a proportionate acreage basis.

                                   ARTICLE IV
                       EXPLORATION AND DEVELOPMENT PROGRAM

         4.1 DEFINITION OF EXPENDITURES. "EXPENDITURES" referred to herein shall
include the following:

                                       5
<PAGE>

                  (a) all direct costs incurred by Borealis incident to carrying
out activities  permitted in Article II or elsewhere herein, on or in connection
with the  Properties,  including,  but not limited to,  expenditures  for wages,
salaries, equipment, supplies, traveling expenses, legal expenses,  photography,
geologic mapping and sampling,  assays,  maintenance of field offices, drilling,
trenching,  sampling,  assaying,  conducting geophysical or geochemical surveys,
permitting, road building,  engineering,  planning, financing (and arranging for
the same) if such financing is for the benefit of both parties,  construction of
mining and processing facilities, equipment and parts, exploration, development,
mining and processing,  project  administration,  reclamation,  payments made to
Golden Phoenix pursuant to this Agreement and pursuant to a preceding  Agreement
in Principle,  and property  acquisition and maintenance.  Property  acquisition
costs shall include without  limitation  payments to owners of properties in the
Area of Interest  that become  Properties,  payments for other  property  rights
necessary to conduct operations on the Properties, related costs of negotiating,
preparing,  and completing  agreements to acquire  property rights or agreements
needed  to  conduct  operations  thereon,  and  costs of  locating,  relocating,
amending, or converting claims. Property maintenance costs shall include without
limitation all  expenditures  incurred to preserve the Properties and agreements
related to the  conduct of  operations  thereon in good  standing,  specifically
including the performance of assessment  work, the payment of claim  maintenance
fees and the satisfaction of payment and other  obligations to the lessors under
the Lease or other leases or other  agreements  affecting the  Properties or the
conduct of operations thereon.

                  (b)  Expenditures  shall  also  include  (a) a payroll  burden
amounting to 22.5% of gross payroll  costs to allow for  workmens'  compensation
and  unemployment  insurance,  pensions and other  employee  benefits and fringe
benefits, and (b) an overhead burden amounting to 10% of direct costs (excluding
gross  payroll  costs and work  done by  independent  contractors)  to allow for
administration,  purchasing,  accounting,  engineering, legal and other services
performed for the project and not directly allocated.

         4.2 WORK  PROGRAMS.  During the term of this  Agreement  an annual work
program  will  be  formulated  by a joint  development  committee  comprised  of
representatives  from Borealis and Golden Phoenix.  The work programs shall last
for one year and shall begin and end on the  anniversary of the Effective  Date.
Borealis  will carry out the work  programs  and  provide its own  personnel  or
contractors  to do so,  but  Borealis  shall  have  reasonable  access to Golden
Phoenix  personnel when their expertise would facilitate  completion of the work
program,  on a fully  reimbursed  basis to Golden Phoenix for the hourly cost of
those  personnel  at normal  commercial  rates,  which  costs  shall  qualify as
Expenditures  hereunder.  Unless the parties agree  otherwise,  the initial work
program  will  commence  on the  Effective  Date and  will  focus  initially  on
completing  the  following  activities:  evaluation  and if  deemed  appropriate
production  of the old leach pads (phase 1),  further  evaluation  and if deemed
appropriate  production of the remaining  oxide ores in the district  (phase 2),
and evaluation and if deemed  appropriate  production of the deeper,  high-grade
sulfide mineralization found in numerous areas of the Properties (phase 3).

                                       6
<PAGE>

         4.3 OPERATIONS.  During the term of this  Agreement,  Borealis shall be
solely  responsible for conducting the work programs and shall have complete and
exclusive  control,  charge,  supervision  and  management  of all work  program
activities on or for the benefit of the Properties and of any and all equipment,
supplies,  machinery or other assets  purchased or otherwise  acquired for or in
connection with such activities.

         4.4  EXPENDITURE  REQUIREMENTS  FOR 50%  INTEREST.  In order to earn an
initial undivided fifty percent (50.0%) right,  title and interest in and to the
Properties,   Borealis   must   incur  a   total   of   five   million   dollars
(US$5,000,000.00) in Expenditures as follows:

                  (a) by expending  US$800,000.00 in Expenditures  within twelve
months from the Effective Date of this Agreement,  or by alternatively paying to
Golden  Phoenix  an amount  equal to the  difference  between  the  Expenditures
incurred by Borealis and US$800,000.00;

                  (b) by expending an additional US$1,000,000.00 in Expenditures
within  twenty-four  months from the  Effective  Date of this  Agreement,  or by
alternatively paying to Golden Phoenix an amount equal to the difference between
the Expenditures incurred by Borealis and US$1,800,000.00;

                  (c) by expending an additional US$1,500,000.00 in Expenditures
within  thirty-six  months  from the  Effective  Date of this  Agreement,  or by
alternatively paying to Golden Phoenix an amount equal to the difference between
the Expenditures incurred by Borealis and US$3,300,000.00; and

                  (d) by expending an additional US$1,700,000.00 in Expenditures
within  forty-eight  months from the  Effective  Date of this  Agreement,  or by
alternatively paying to Golden Phoenix an amount equal to the difference between
the Expenditures incurred by Borealis and US$5,000,000.00.

         4.5 DECLINING  DIFFERENTIAL PAYMENTS;  CARRYOVER OF EXPENDITURES.  With
regard to all  differential  payments  referenced  in Section 4.4 above,  Golden
Phoenix shall have the right to decline payment and instead require  Borealis to
expend that amount in Expenditures  during the next 12 month period (in addition
to  Expenditures   otherwise   required  during  that  12  month  period).   Any
Expenditures  in excess of the amounts  set forth above will be credited  toward
the next phase of required Expenditures.

         4.6  EXPENDITURES  NOT  MANDATORY.  The parties agree that Borealis can
terminate  this  Agreement  prior to  incurring  the  Expenditures  necessary to
acquire a 50% interest in the Properties,  and thus is not obligated to actually
expend any particular amount of Expenditures; however, Borealis shall not earn a
50%  interest  in the  Properties  unless  it  does  in  fact  timely  make  the
Expenditures set forth in Section 4.4 above.

                                       7
<PAGE>

         4.7  VESTING OF TITLE TO 50%  INTEREST.  At such time as  Borealis  has
incurred US$5,000,000.00 in Expenditures as herein provided, Borealis's right to
receive a 50% undivided  interest  pursuant to Section 4.4 shall vest.  Borealis
will give  written  notice to Golden  Phoenix  when its interest has vested (but
failure or delay of  Borealis to give such  notice  shall not be a condition  to
vesting or to any other rights of Borealis  hereunder).  Golden  Phoenix  shall,
within 15 days after  receiving  notice from  Borealis that its 50% interest has
vested,  assign to Borealis an undivided 50% right, title and interest in and to
the Properties free of any defects,  liens or encumbrances arising by or through
Golden Phoenix (the "50% ASSIGNMENT").

         4.8 RELEASE UPON PRIOR  TERMINATION.  If this  Agreement is  terminated
prior to  Borealis's  becoming  vested with a 50% interest in the  Properties as
provided in Section 4.7,  Borealis shall execute and deliver to Golden Phoenix a
recordable release relinquishing to Golden Phoenix all of Borealis's interest in
the Properties free of any defects,  liens or encumbrances arising by or through
Borealis.

         4.9 OPTION TO ACQUIRE ADDITIONAL 20% INTEREST.  If Borealis earns a 50%
interest  as  provided  herein,  then  Borealis  shall  have the  exclusive  and
irrevocable  option (the  "ADDITIONAL  INTEREST  OPTION") to earn an  additional
undivided 20% right,  title and interest in and to the  Properties by delivering
to  Golden  Phoenix  a  feasibility  study  analyzing  a  specific  portion  the
Properties,  or  alternatively  by incurring an  additional  US$4,000,000.00  in
Expenditures  on the  Properties  (or by paying to Golden Phoenix the difference
between actual Expenditures incurred and US$4,000,000.00,  in which event Golden
Phoenix  shall  have the right to  decline  such  payment  and  instead  require
Borealis to expend  that  amount on  development  of the  Properties  during the
following 12 month period).  The  feasibility  study,  if delivered,  shall be a
detailed study  evaluating  the technical and economic  feasibility of placing a
specific  portion of the Properties into  commercial  production with a mineable
reserve  containing  a  threshold  of at least  500,000  ounces  of gold or gold
equivalent,  and  shall  be in a form  and of a scope  generally  acceptable  to
reputable financial  institutions that provide financing to the mining industry.
If Borealis prepares the feasibility  study, it must be audited and confirmed by
either Pincock,  Allen & Holt or Behre Dohlber, as determined by Borealis, or by
another  engineering  firm proposed by Borealis and approved by Golden  Phoenix.
Borealis must fulfill these  obligations  within 18 months after the  Additional
Interest  Option  is  exercised  in order to earn the  additional  20%  interest
(unless Golden Phoenix has declined  payment and elected to require  Borealis to
expend that amount in additional  Expenditures as  contemplated  above, in which
case the 18-month period for fulfilling these obligations will be extended by 12
months).  The Additional  Interest Option may be exercised at any time within 30
days after Borealis receives the 50% Assignment (the "ADDITIONAL INTEREST OPTION
PERIOD").  Borealis may exercise the Additional Interest Option by giving Golden
Phoenix written notice thereof in accordance with Section 10.9 below at any time
during the Additional Interest Option Period.

         4.10 VESTING OF ADDITIONAL  20% INTEREST.  At such time as Borealis has
satisfied the requirements of Section 4.9 above,  Borealis's right to receive an
additional  20%  undivided  interest in the  Properties  pursuant to Section 4.9
shall  vest.  Borealis  will give  written  notice to  Golden  Phoenix  when its
additional  20%  interest  has vested (but  failure or delay of Borealis to give
such  notice  shall not be a  condition  to  vesting  or to any other  rights of
Borealis hereunder). Golden Phoenix shall, within 15 days after receiving notice
from Borealis that its additional 20% interest

                                       8
<PAGE>

has vested,  assign to Borealis an  additional  undivided  20% right,  title and
interest in and to the  Properties  free of any defects,  liens or  encumbrances
arising by or through Golden Phoenix.

         4.11  ADDITIONAL  EXPENDITURES  NOT MANDATORY.  The parties agree that,
notwithstanding  Borealis's exercise of the Additional Interest Option, Borealis
shall not be obligated to prepare or deliver a feasibility study or to incur any
additional  Expenditures  or make any  payments  to  acquire an  additional  20%
interest in the Properties;  however,  Borealis shall not earn an additional 20%
interest  in  the  Properties  unless  it  does  in  fact  timely  complete  the
requirements  set forth in Section 4.9 above. Any failure by Borealis to earn an
additional 20% interest in the Properties shall not affect Borealis's 50% vested
interest in the Properties.

                                    ARTICLE V

                                  JOINT VENTURE

         5.1 JOINT VENTURE AFTER 50% INTEREST  EARNED.  If Borealis  earns a 50%
interest in the  Properties  pursuant to Section 4.4 above,  Golden  Phoenix and
Borealis shall thereupon execute the Mining Venture  Agreement,  which agreement
shall thereafter  govern the parties' rights and obligations with respect to the
Properties except as otherwise  provided in this Article V. The parties' initial
Participating  Interests  as  specified  in Section  6.1 of the  Mining  Venture
Agreement  shall be 50% for  Borealis  and 50% for Golden  Phoenix.  If Borealis
exercises  the  Additional  Interest  Option  then Golden  Phoenix  shall not be
required to contribute  any capital costs to the venture prior to the vesting of
Borealis's  additional  20%  interest,  and  Golden  Phoenix's  share of venture
revenues,  if any, shall be credited against Golden Phoenix's share of operating
costs until the vesting of Borealis's additional 20% interest occurs.

         5.2 JOINT VENTURE AFTER 50% INTEREST EARNED BUT 20% ADDITIONAL INTEREST
NOT EARNED. If Borealis earns a 50% interest in the Properties and exercises the
Additional  Interest  Option but fails to timely complete the  requirements  set
forth in  Section  4.9 above for  earning  an  additional  20%  interest  in the
Properties,  then Borealis's  Participating Interest in the venture shall remain
50% and Golden Phoenix's Participating Interest in the venture shall remain 50%,
and this Agreement  shall terminate at the conclusion of the time period allowed
in Section 4.9 for completing said requirements.

         5.3 JOINT VENTURE AFTER 70% INTEREST  EARNED.  If Borealis  earns a 70%
interest  in the  Properties  pursuant  to Section  4.9 above,  then  Borealis's
Participating  Interest  in the  venture  shall  be  increased  to  70%,  Golden
Phoenix's  Participating  Interest in the venture shall be decreased to 30%, and
this Agreement shall terminate.

                                       9
<PAGE>

                                   ARTICLE VI

                     CORPORATE INVOLVEMENT BY GOLDEN PHOENIX

         6.1 BOARD PARTICIPATION.  Following the execution of this Agreement and
for as long as this  Agreement  remains  in  effect,  Golden  Phoenix  shall  be
entitled to provide one person of its choice to serve on the board of  directors
of Borealis.  Golden  Phoenix shall  identify that person to Borealis in writing
and that person shall  thereafter be appointed to the board of directors as soon
as reasonably possible in accordance with ordinary corporate procedures.  Golden
Phoenix shall have the right to decline to provide any such board member.

                                   ARTICLE VII

                             OPERATIONS BY BOREALIS

         7.1 CLAIM MAINTENANCE. For as long as this Agreement remains in effect,
Borealis  shall  timely  pay  the  necessary  claim  maintenance  fees  for  all
unpatented  mining claims  included in the Properties and shall make all related
federal and county filings. All such payments shall qualify as Expenditures.

         7.2 LEASE  MAINTENANCE.  Borealis shall make all payments due under the
Lease while this  Agreement is in effect.  All such  payments  shall  qualify as
Expenditures.  Borealis  shall comply with all the  provisions of the Lease with
respect to the conduct of operations on the Properties;  provided, however, that
in the event of any conflict or  inconsistency  between this  Agreement  and the
Lease as between Borealis and Golden Phoenix, this Agreement shall govern.

         7.3 AMENDMENT, RELOCATION AND CONVERSION OF CLAIMS. Borealis shall have
the right, but not the obligation, during the term of this Agreement and without
the prior consent of Golden Phoenix, but with prior notice to Golden Phoenix, to
amend or relocate  the Claims and any other claims  included in the  Properties.
Any such action shall be subject to such  restrictions and requirements as exist
under the Lease.  All  expenses  incurred by Borealis  in  connection  with such
amendments or relocations  shall be borne by Borealis,  but shall be credited as
Expenditures.  Borealis shall have the right, but not the obligation, during the
term of this Agreement and without the prior consent of Golden Phoenix, but with
prior  notice to Golden  Phoenix,  to convert  the  Claims and any other  claims
included in the  Properties as permitted  under any amendment or  replacement of
the federal  mining  laws.  The rights of Borealis  under this  Agreement  shall
extend to all amended  locations and  relocations of any claims  included in the
Properties,  and to any other interest(s) acquired by Golden Phoenix or Borealis
under the federal  mining laws and any  amendments  or  replacements  thereof by
reason of their interest in the Properties.

         7.4  INSURANCE.  Prior to the  commencement  of  operations  under this
Agreement,  Borealis shall obtain workmen's  compensation  insurance,  liability
insurance  (with coverage  amounts of not less than  $1,000,000.00  for death or
bodily injury and not less than $500,000.00 for property damage) and policies of
insurance  against other risks for which  insurance is  customarily  obtained in

                                       10
<PAGE>

similar  operations,  but not less than any coverage  required by the Lease. All
such insurance shall be maintained by Borealis at its own expense throughout the
duration of this Agreement,  but the cost thereof shall qualify as Expenditures.
Upon  request  by Golden  Phoenix,  Borealis  shall  furnish  to Golden  Phoenix
evidence that such insurance is being maintained.

         7.5  INDEMNIFICATION.   Borealis  shall  indemnify,  defend,  and  hold
harmless  Golden  Phoenix  from and against any cost,  loss,  expense,  claim or
liability  resulting  from work or  operations  on the  Properties  by  Borealis
pursuant to this Agreement (excluding any liability resulting from breach of any
warranty or  representation  of Golden Phoenix),  including  without  limitation
liability,  claims and  causes of action  for  injury to, or death of,  persons,
damage to  property,  liens  claimed or arising  from work  performed  or things
furnished,  and  failure  to  comply,  or  claims of  failure  to  comply,  with
applicable governmental laws, regulations, licenses and permits.

         7.6 PAYMENT FOR MATERIALS AND LABOR.  Borealis  shall pay for all labor
performed upon and material  furnished to the Properties by or at the request of
Borealis and shall keep the Properties  free and clear from any and all liens of
mechanics or  materialmen  in connection  with  services  performed and material
supplied at Borealis's request; provided,  however, that Borealis shall have the
right in good faith to contest the  validity of any lien,  claim or liability so
long as such contest does not  jeopardize  the Properties or the Lease or create
any burden on the interest of Golden Phoenix therein.

                                  ARTICLE VIII

                                TERM; TERMINATION

         8.1 TERM. The term of this Agreement shall commence as of the Effective
Date and shall  continue for the period of time  allowed  herein for Borealis to
complete  the actions set forth in Article IV for earning a 70%  interest in the
Properties, unless sooner terminated in the manner herein provided.

         8.2  TERMINATION BY BOREALIS.  Borealis may terminate this Agreement at
any time by giving written notice of the same to Golden Phoenix. Borealis may at
its election  relinquish its interest hereunder in any portion of the Properties
by giving written notice of the same to Golden Phoenix, without terminating this
Agreement as to the remaining portion of the Properties.

         8.3 DEFAULT.  In the event Golden  Phoenix  believes  Borealis to be in
default in the  observance  or  performance  of any of  Borealis's  covenants or
obligations  hereunder,  Golden  Phoenix may give written notice of such alleged
default,  specifying  the  details  of the  same.  Borealis  shall  have 60 days
following said notice within which to remedy the default described  therein,  or
with  respect to a default  which  cannot be cured by the  payment of money,  to
commence  action in good faith to remedy such default.  Unless Borealis shall so
comply or commence to comply this  Agreement  may be terminated at the option of
Golden Phoenix;  provided,  however, that in the event Borealis believes that it
is not in default,  Borealis may give written  notice to Golden  Phoenix  within
such 60-day  period  setting  forth such fact.  If Golden  Phoenix gives written
notice  within  30  days  of

                                       11
<PAGE>

Borealis's  notice that Golden Phoenix rejects  Borealis's  position,  then this
Agreement  shall not be  terminable  by Golden  Phoenix  until  there is a final
judicial  determination  by a court of  competent  jurisdiction  that a  default
exists and shall not be  terminated  thereafter  if Borealis  shall satisfy such
judgment within 60 days following its entry (or if an appeal of such judgment is
taken, within 60 days after its affirmance by the highest court to which such an
appeal is made).  Failure of Golden Phoenix to give such notice shall constitute
agreement by Golden  Phoenix  that  Borealis is not in default.  Golden  Phoenix
shall not be entitled to terminate  this  Agreement for any default which by its
nature it not  retroactively  curable if Borealis  has used its best  efforts to
cure such a default to the  extent  practical  or if  Borealis  has paid  Golden
Phoenix damages for Borealis's default where damages are an appropriate remedy.

         8.4  PERSONAL  PROPERTY.  All  personal  property  of  Borealis  on the
Properties  shall remain the property of Borealis.  Golden  Phoenix shall not be
responsible for any personal property of Borealis.

         8.5 INFORMATION AND DATA. In this Agreement expires or is terminated by
the parties without  entering into the Mining Venture  Agreement,  then Borealis
shall,  within 60 days of such  expiration  or  termination,  furnish  to Golden
Phoenix one set of copies of all available  noninterpretive  data which Borealis
is not prohibited  from disclosing  under the terms of any agreement,  and which
was not previously  received by Golden Phoenix  pertaining to the Properties and
developed or prepared by or for Borealis,  and shall authorize and permit Golden
Phoenix,  within 120 days of such expiration or termination,  to take possession
of any available drill core and cuttings derived from the Properties, whether or
not such  material is stored on the  Properties.  Borealis's  furnishing of such
data,  core and cuttings  shall be without any  representations  or  warranties,
express or implied, as to accuracy, reliability or completeness.  Golden Phoenix
shall assume all risks stemming from reliance upon such data,  core and cuttings
by itself and by third parties after disclosure or disposition thereof by Golden
Phoenix and shall indemnify and hold harmless  Borealis as to any claims made by
such third parties.

                                   ARTICLE IX

                                AREA OF INTEREST

         9.1 ACQUIRED PROPERTIES.  Any properties or property rights acquired by
Borealis or Golden Phoenix or any affiliate of Borealis or Golden Phoenix in the
Area of Interest while this Agreement is in effect shall be subject to the terms
of this  Agreement.  Any mining  claims  that are  partially  within the Area of
Interest shall be considered to be entirely in the Area of Interest. The parties
agree to execute such documents as are appropriate to provide record notice that
such new  properties are subject to this  Agreement.  In the event that Borealis
terminates  this  Agreement,  Borealis  shall,  upon  Golden  Phoenix's  written
request,  assign any properties or property  rights  acquired by Borealis within
the Area of Interest to Golden Phoenix,  subject to any necessary approvals.  If
such properties are held under leases or other grants of possessory  rights from
third  parties  and lie  partially  within  and  partially  outside  the Area of
Interest,  only such  portion  that lies

                                       12
<PAGE>

within the Area of  Interest  shall be  assigned  to Golden  Phoenix  unless the
properties held under any such lease or other grant are not severable.

                                    ARTICLE X

                               GENERAL PROVISIONS

         10.1 COMPLIANCE WITH LAWS. Borealis shall conduct all of its operations
on the Properties in full  compliance  with all applicable  laws and regulations
and permits,  including without  limitation all laws and regulations and permits
related to  environmental  protection  and  reclamation.  Borealis shall have no
obligation to reclaim any  disturbances  existing prior to the Effective Date or
to perform  any  corrective,  remedial  or removal  actions  with  regard to any
conditions or occurrences not solely and directly attributable to Borealis.

         10.2 CONFIDENTIALITY. The parties hereto shall treat all data, reports,
records  and  information  relating  to the  Properties  and this  Agreement  as
confidential ("CONFIDENTIAL INFORMATION"). Confidential Information shall not be
released  to any  person  or  entity  not a party to this  Agreement,  except to
auditors,  counsel,  engineering and other professional consultants,  investment
bankers,  institutional  lenders and  broker-dealers  designated by the parties,
provided that non-party uses of Confidential Information are strictly limited to
those purposes  necessary for non-party  users to perform the function for which
they were retained by the parties.  Notwithstanding the foregoing,  Confidential
Information  may be disclosed  to persons  other than those set forth above upon
the mutual  agreement  of the parties or by either  party upon  providing to the
other party (a) a copy of the proposed  disclosure  not less than 48 hours prior
to the planned date of release, and (b) a written determination in good faith by
the  disclosing  party  that  such  disclosure  is  necessary  or  desirable  in
connection  with  the  disclosing  party's  disclosure   obligations  under  any
securities laws, rules or regulations or stock exchange listing agreement or its
obligations in connection with existing or proposed credit arrangements.

         10.3 MEMORANDUM OF AGREEMENT. This Agreement shall not be recorded for,
by or on behalf of either  party.  The  parties  agree,  however,  to  execute a
memorandum  of this  Agreement  of even  date  herewith,  which  shall be a form
suitable for recording under the state and local laws of Nevada  specifying that
Borealis's  interest in the Properties is subject to the terms and conditions of
this Agreement.

         10.4  ENCUMBRANCES.  Each party shall keep the Properties debt free and
unencumbered  throughout the term of this Agreement  unless  otherwise  mutually
agreed. Either party may encumber its contractual interest in this Agreement for
project financing purposes,  provided that any such encumbrance shall be subject
and subordinate to the terms of this Agreement.

         10.5 NO  RESTRICTIONS ON OTHER  ACTIVITIES.  This Agreement is, and the
rights and obligations of the parties are,  strictly  limited to the Properties,
and the  parties  shall have the free and  unrestricted  right to  independently
engage in and receive the full benefits of any and all business  ventures of any
sort  whatsoever,  whether or not  competitive  with the  activities  undertaken
pursuant

                                       13
<PAGE>

hereto,  without  consulting  the other or  inviting  or  allowing  the other to
participate  therein.  Neither of the parties  shall be under any  fiduciary  or
other duty to the other which will  prevent it from  engaging in or enjoying the
benefits of any  competing  venture or ventures  within the general scope of the
activities contemplated by this Agreement.

         10.6  ACCESS  BY GOLDEN  PHOENIX.  During  the term of this  Agreement,
Golden Phoenix and its duly authorized agents, employees and representatives, at
its and their sole risk and  expense,  and upon  giving to  Borealis  reasonable
notice,  shall have access to the  Properties to observe  Borealis's  activities
thereon, provided that such access and observation do not unreasonably interfere
with or delay the conduct of Borealis's activities upon the Properties.

         10.7  FORCE  MAJEURE.  All  obligations  of  Borealis,  other than cash
payment  obligations,  and all conditions to the  continuation of this Agreement
shall be  suspended  and  Borealis  shall not be deemed in default or liable for
damages  or  other  legal  or  equitable  remedies  while,  but only as long as,
Borealis is prevented  from  complying  with such  obligations  or conditions in
whole or in part by strikes, lockouts, acts of God, explosion, flood, epidemics,
unavoidable  accidents,  uncontrollable  delays in transportation,  inability to
obtain necessary  materials or services in the open market,  inability to obtain
necessary permits or approvals,  unusually severe weather,  any local,  state or
federal law, regulation, order, arbitration,  administrative or judicial action,
or any other matters beyond the reasonable control of Borealis,  whether similar
to the matters herein specifically  enumerated or not; provided,  however,  that
performance  shall be resumed within a reasonable time after such cause has been
removed.  The term of this  Agreement  shall be extended by the  duration of any
such suspension. Borealis shall not be required, against its will, to adjust any
labor disputes or to question the validity or to refrain from judicially testing
the validity of any local, state or federal order, regulation or law.

         10.8 NO  PARTNERSHIP.  This  Agreement is not intended and shall not be
construed to create a partnership  within the meaning of the federal  common law
or the applicable  laws of any state or under the laws of the state in which any
party hereto is  incorporated,  organized or  conducting  business.  The parties
expressly  agree that neither party shall be responsible  for the obligations of
the other party, each party being  responsible only for its obligations  arising
hereunder.  It is not the purpose or intention of this Agreement to create,  and
this Agreement should never be construed as creating, a relationship whereby any
of the parties shall be held liable for acts,  either of omission or commission,
of any other party hereto. This Agreement shall not create any fiduciary duty on
the part of either party.

         10.9 NOTICES. All notices,  payments and other required  communications
("NOTICES")  by and to the parties  shall be in writing  and shall be  addressed
respectively as follows:

         If to Borealis         Borealis Mining Company
                                1153 Bergen Parkway, Suite 290
                                Evergreen, CO 80439-9773
                                Fax: (303) 679-9589

                                       14
<PAGE>

         If to Golden Phoenix   Golden Phoenix Minerals, Inc.
                                3595 Airway Drive, Suite 405
                                Reno, NV  89511
                                Fax: (775) 853-5010

All  Notices  shall be given (a) by personal  delivery  to the party,  or (b) by
facsimile, with the original sent by certified mail return receipt requested, or
(c) by certified mail return receipt  requested.  All Notices shall be effective
and  shall  be  deemed  delivered  (a) if by  personal  delivery  on the date of
delivery if delivered during normal business hours, and, if not delivered during
normal business hours,  on the next business day following  delivery,  (b) if by
facsimile on the next business day following  receipt of the faxed copy, and (c)
if solely by certified  mail on the next  business day after actual  receipt.  A
party may change its address by Notice to the other party.

         10.10 COSTS AND EXPENSES.  Except as otherwise  specifically  set forth
herein,  each of the parties shall bear its own expenses in connection  with the
negotiation, preparation and performance of this Agreement.

         10.11  CURRENCY.  All monetary  references  herein are to United States
Dollars.

         10.12 GOVERNING LAW;  JURISDICTION  AND VENUE.  This Agreement shall be
governed by the laws of the State of Nevada.  Each of the parties hereby attorns
to the  exclusive  jurisdiction  of the  courts  of the  state of  Nevada or the
federal  district  court for the District of Nevada,  as may be  applicable,  in
respect  of any  disputes  arising  hereunder,  with venue to be in the state of
Nevada.

         10.13  HEADINGS.  The  titles  of the  Articles  and  Sections  of this
Agreement are for the purpose of reference  only and shall not in any way affect
the interpretation of this Agreement.

         10.14 COMPLETE AGREEMENT. This Agreement, together with its Exhibits A,
B, C, D and E,  represents the entire  agreement  between the parties hereto and
supersedes  all prior  agreements  and  understandings  concerning  its  subject
matter,  including  without  limitation the Agreement in Principle  dated May 8,
2003.  This  Agreement  shall not be  amended  or  modified  except  by  written
instrument  signed by both parties  hereto.  This  Agreement has been  carefully
reviewed and  negotiated  by both  parties,  and it shall be construed as though
both parties drafted it.

         10.15 DISPUTES NOT TO INTERRUPT OPERATIONS. Any disputes or differences
between  the  parties  shall not  interrupt  performance  of this  Agreement  or
continuation of the parties' rights hereunder,  and operations on the Properties
may continue pending an appropriate resolution of the dispute or difference.

         10.16  PERPETUITIES  CLAUSE.  In the event that any  provision  of this
Agreement is determined to be in violation of the Rule Against  Perpetuities  or
any related rule  relating to the vesting of property  interests  or  restraints
upon  alienation,  it is the intent and desire of the  parties  hereto that this
Agreement shall not be void or voidable,  but that the  appropriate  court shall
reform such

                                       15
<PAGE>

provision in such a way as to approximate most closely the intent of the parties
hereto within the limits permissible under such Rule or related rule.

         10.17  COUNTERPARTS.   This  Agreement  may  be  executed  in  multiple
counterparts, which taken together shall constitute one and the same document.

         10.18 FAXED  SIGNATURES.  This  Agreement  may be executed by facsimile
signatures, each of which will be deemed an original for purposes of execution.

                                       16
<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the Effective Date.

                              GOLDEN PHOENIX MINERALS, INC., a
                              Minnesota corporation

                              By:
                                 --------------------------------------------
                              Name:
                                    -----------------------------------------
                              Title:
                                    -----------------------------------------

                              BOREALIS MINING COMPANY, a Nevada corporation

                              By:
                                 --------------------------------------------
                              Name:
                                    -----------------------------------------
                              Title:
                                    -----------------------------------------

                                       17
<PAGE>

STATE OF ______________)
                                    : SS
COUNTY OF _____________)

         This  instrument  was  acknowledged  before  me on  this  _____  day of
____________________.    20____,    by    ________________________________    as
_______________________   of  GOLDEN   PHOENIX   MINERALS,   INC.  a   Minnesota
corporation.

                                        -----------------------------------
                                        NOTARY PUBLIC, residing in
[seal]
                                        -----------------------------------
My commission expires:

---------------------------

STATE OF ______________)
                                    : SS
COUNTY OF _____________)

         This  instrument  was  acknowledged  before  me on  this  _____  day of
____________________.    20____,    by    ________________________________    as
_______________________ of BOREALIS MINING COMPANY. a Nevada corporation.

                                            -----------------------------------
                                            NOTARY PUBLIC, residing in
[seal]
                                            -----------------------------------
My commission expires:

---------------------------

                                       18
<PAGE>

                                    EXHIBIT A

                                       TO

                 AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
                           AND BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

                                AREA OF INTEREST

         The  Area of  Interest  is the  same as the  Borealis  Project  Area as
described in Exhibit III of the Lease.

                                      A-1

<PAGE>

                                    EXHIBIT B

                                       TO

                 AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
                           AND BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

                                      LEASE

         That certain Mining Lease dated January 24, 1997 from Richard J. Cavell
TTTEE F/T Richard J. Cavell Trust Dated  2/23/94,  Hardrock  Mining  Company,  a
Nevada  corporation,  and  John  W.  Whitney,  as  lessors,  and  J.D.  Welsh  &
Associates,  Inc., a Nevada  corporation,  as lessee,  a memorandum  of which is
recorded  as Entry  115828 in Book 169 at page 489 in the  official  records  of
Mineral County, Nevada.

                                      B-1
<PAGE>

                                    EXHIBIT C

                                       TO

                 AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
                           AND BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

                                 GPM & GG CLAIMS

         The 111 GPM & GG Claims are described on the following three pages.

                                      C-1
<PAGE>

                                    EXHIBIT D

                                       TO

                 AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
                           AND BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

                                  LEASED CLAIMS

         The 124 Leased Claims are described on the following six pages.

                                      D-1
<PAGE>

                                    EXHIBIT E

                                       TO

                 AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
                           AND BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

                            MINING VENTURE AGREEMENT

                          EXPLORATION, DEVELOPMENT AND
                            MINE OPERATING AGREEMENT
            (Modified Rocky Mountain Mineral Law Foundation Form 5A)

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>                        <C>
ARTICLE I                  DEFINITIONS AND CROSS-REFERENCES .....................................................
                  1.1      DEFINITIONS...........................................................................
                  1.2      CROSS-REFERENCES .....................................................................

ARTICLE II                 NAME, PURPOSES AND TERM ..............................................................
                  2.1      GENERAL...............................................................................
                  2.2      NAME .................................................................................
                  2.3      PURPOSES .............................................................................
                  2.4      LIMITATION ...........................................................................
                  2.5      TERM .................................................................................

ARTICLE III                REPRESENTATIONS AND WARRANTIES; TITLE TO
                           ASSETS; INDEMNITIES ..................................................................
                  3.1      REPRESENTATIONS AND WARRANTIES
                           OF BOTH PARTICIPANTS .................................................................
                  3.2      REPRESENTATIONS AND WARRANTIES OF GOLDEN PHOENIX .....................................
                  3.3      DISCLOSURES............................................................................
                  3.4      RECORD TITLE ..........................................................................
                  3.5      LOSS OF TITLE..........................................................................
                  3.6      ROYALTIES, PRODUCTION TAXES AND OTHER PAYMENTS
                           BASED ON PRODUCTION  ..................................................................
                  3.7      INDEMNITIES/LIMITATION OF LIABILITY....................................................
</TABLE>

                                      E-1
<PAGE>

<TABLE>
                                                                                                                  PAGE

<S>                        <C>
ARTICLE IV                 RELATIONSHIP OF THE PARTICIPANTS ......................................................
                  4.1      NO PARTNERSHIP ........................................................................
                  4.2      FEDERAL TAX ELECTIONS AND ALLOCATIONS..................................................
                  4.3      STATE INCOME TAX ......................................................................
                  4.4      TAX RETURNS............................................................................
                  4.5      OTHER BUSINESS OPPORTUNITIES ..........................................................
                  4.6      WAIVER OF RIGHTS TO PARTITION OR OTHER DIVISION
                           OF ASSETS .............................................................................
                  4.7      TRANSFER OR TERMINATION OF RIGHTS TO
                           PROPERTIES ............................................................................
                  4.8      IMPLIED COVENANTS......................................................................
                  4.9      NO THIRD PARTY BENEFICIARY RIGHTS......................................................

ARTICLE V                  CONTRIBUTIONS BY PARTICIPANTS..........................................................
                  5.1      PARTICIPANTS' INITIAL CONTRIBUTIONS....................................................
                  5.2      VALUE OF INITIAL CONTRIBUTIONS ........................................................
                  5.3      ADDITIONAL CONTRIBUTIONS ..............................................................

ARTICLE VI                 INTERESTS OF PARTICIPANTS ..............................................................
                  6.1      INITIAL PARTICIPATING INTERESTS........................................................
                  6.2      CHANGES IN PARTICIPATING INTERESTS ....................................................
                  6.3      ELIMINATION OF MINORITY INTEREST ......................................................
                  6.4      CONTINUING LIABILITIES UPON ADJUSTMENTS
                           OF PARTICIPATING INTERESTS.............................................................
                  6.5      DOCUMENTATION OF ADJUSTMENTS TO
                           PARTICIPATING INTERESTS ...............................................................
                  6.6      GRANT OF LIEN AND SECURITY INTEREST....................................................
                  6.7      SUBORDINATION OF INTERESTS ............................................................

ARTICLE VII                MANAGEMENT COMMITTEE ..................................................................
                  7.1      ORGANIZATION AND COMPOSITION ..........................................................
                  7.2      DECISIONS..............................................................................
                  7.3      MEETINGS ..............................................................................
                  7.4      ACTION WITHOUT MEETING IN PERSON ......................................................
                  7.5      MATTERS REQUIRING APPROVAL ............................................................

ARTICLE VIII               MANAGER................................................................................
                  8.1      APPOINTMENT............................................................................
                  8.2      POWERS AND DUTIES OF MANAGER ..........................................................
                  8.3      STANDARD OF CARE ......................................................................
                  8.4      RESIGNATION; DEEMED OFFER TO RESIGN....................................................
</TABLE>

                                      E-2
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>               <C>
                  8.5      PAYMENTS TO MANAGER....................................................................
                  8.6      TRANSACTIONS WITH AFFILIATES ..........................................................
                  8.7      ACTIVITIES DURING DEADLOCK ............................................................

ARTICLE IX                 PROGRAMS AND BUDGETS ..................................................................
                  9.1      INITIAL PROGRAM AND BUDGET ............................................................
                  9.2      OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS............................................
                  9.3      PRESENTATION OF PROGRAMS AND BUDGETS ..................................................
                  9.4      REVIEW AND ADOPTION OF PROPOSED PROGRAMS AND
                           BUDGETS ...............................................................................
                  9.5      ELECTION TO PARTICIPATE ...............................................................
                  9.6      RECALCULATION OR RESTORATION OF REDUCED INTEREST
                           BASED ON ACTUAL EXPENDITURES ..........................................................
                  9.7      PRE-FEASIBILITY STUDY PROGRAM AND BUDGETS ..............................................
                  9.8      COMPLETION OF PRE-FEASIBILITY STUDIES AND
                           SELECTION OF APPROVED ALTERNATIVES ....................................................
                  9.9      PROGRAMS AND BUDGETS FOR FEASIBILITY STUDY .............................................
                  9.10     DEVELOPMENT PROGRAMS AND BUDGETS; PROJECT
                           FINANCING ..............................................................................
                  9.11     EXPANSION OR MODIFICATION PROGRAMS AND BUDGETS .........................................
                  9.12     BUDGET OVERRUNS; PROGRAM CHANGES .......................................................
                  9.13     EMERGENCY OR UNEXPECTED EXPENDITURES ...................................................

ARTICLE X                  ACCOUNTS AND SETTLEMENTS ..............................................................
                  10.1     MONTHLY STATEMENTS ....................................................................
                  10.2     CASH CALLS ............................................................................
                  10.3     FAILURE TO MEET CASH CALLS ............................................................
                  10.4     COVER PAYMENT .........................................................................
                  10.5     REMEDIES ...............................................................................
                  10.6     AUDITS .................................................................................

ARTICLE XI                 DISPOSITION OF PRODUCTION ..............................................................
                  11.1     TAKING IN KIND ........................................................................
                  11.2     FAILURE OF PARTICIPANT TO TAKE IN KIND ................................................
                  11.3     HEDGING................................................................................

ARTICLE XII                WITHDRAWAL AND TERMINATION ............................................................
                  12.1     TERMINATION BY EXPIRATION OR AGREEMENT ................................................
                  12.2     TERMINATION BY DEADLOCK................................................................
                  12.3     WITHDRAWAL ............................................................................
                  12.4     CONTINUING OBLIGATIONS AND ENVIRONMENTAL
                           LIABILITIES ...........................................................................
</TABLE>

                                      E-3
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>               <C>
                  12.5     DISPOSITION OF ASSETS ON TERMINATION ..................................................
                  12.6     NON-COMPETE COVENANTS..................................................................
                  12.7     RIGHT TO DATA AFTER TERMINATION........................................................
                  12.8     CONTINUING AUTHORITY ..................................................................

ARTICLE XIII               ACQUISITIONS WITHIN AREA OF INTEREST ..................................................
                  13.1     GENERAL................................................................................
                  13.2     NOTICE TO NON-ACQUIRING PARTICIPANT....................................................
                  13.3     OPTION EXERCISED ......................................................................
                  13.4     OPTION NOT EXERCISED ..................................................................

ARTICLE XIV       ABANDONMENT AND SURRENDER OF
                           PROPERTIES.............................................................................

ARTICLE XV                 SUPPLEMENTAL BUSINESS AGREEMENT .......................................................

ARTICLE XVI                TRANSFER OF INTEREST; PREEMPTIVE RIGHT ................................................
                  16.1     GENERAL................................................................................
                  16.2     LIMITATIONS ON FREE TRANSFERABILITY....................................................
                  16.3     PREEMPTIVE RIGHT ......................................................................

ARTICLE XVII               DISPUTES ..............................................................................
                  17.1     GOVERNING LAW .........................................................................
                  17.2     JURISDICTION AND VENUE.................................................................
                  17.3     DISPUTE RESOLUTION......................................................................

ARTICLE XVIII     CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE
                           OF INFORMATION ........................................................................
                  18.1     BUSINESS INFORMATION...................................................................
                  18.2     PARTICIPANT INFORMATION ...............................................................
                  18.3     PERMITTED DISCLOSURE OF CONFIDENTIAL
                           BUSINESS INFORMATION ..................................................................
                  18.4     DISCLOSURE REQUIRED BY LAW.............................................................
                  18.5     PUBLIC ANNOUNCEMENTS ..................................................................

ARTICLE XIX                GENERAL PROVISIONS ....................................................................
                  19.1     NOTICES ...............................................................................
                  19.2     GENDER ................................................................................
                  19.3     CURRENCY ..............................................................................
                  19.4     HEADINGS ..............................................................................
                  19.5     WAIVER ................................................................................
</TABLE>

                                      E-4
<PAGE>

<TABLE>
                                                                                                    PAGE

<S>    <C>
       19.6     MODIFICATION ..........................................................................
       19.7     FORCE MAJEURE..........................................................................
       19.8     RULE AGAINST PERPETUITIES..............................................................
       19.9     FURTHER ASSURANCES ....................................................................
       19.10    ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS ..............................................
       19.11    MEMORANDUM ............................................................................
       19.12    COUNTERPARTS ..........................................................................

EXHIBIT A  ASSETS AND AREA OF INTEREST
EXHIBIT B  ACCOUNTING PROCEDURES
EXHIBIT C  TAX MATTERS
EXHIBIT D  DEFINITIONS
EXHIBIT E  NET PROCEEDS CALCULATION
EXHIBIT F  INSURANCE
EXHIBIT G  INITIAL PROGRAM AND BUDGET
EXHIBIT H  PREEMPTIVE RIGHTS
EXHIBIT I  EXISTING FACILITIES
</TABLE>

                                      E-5
<PAGE>

              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

                  This   Agreement   is  made   as  of   _______________________
("EFFECTIVE   DATE")  between  GOLDEN  PHOENIX   MINERALS,   INC.,  a  Minnesota
corporation ("GOLDEN PHOENIX"), the address of which is 3595 Airway Drive, Suite
405,  Reno,  NV  89511,  and  BOREALIS  MINING  COMPANY,  a  Nevada  corporation
("BOREALIS"), the address of which is 1153 Bergen Parkway, Suite 290, Evergreen,
CO 80439-9773.

                                    RECITALS

         A.  Golden  Phoenix  owns or  controls  certain  properties  in Mineral
County, State of Nevada, which properties are described in EXHIBIT A and defined
in EXHIBIT D.

         B.  Borealis   wishes  to  participate   with  Golden  Phoenix  in  the
exploration,  evaluation and if justified the  development and mining of mineral
resources  within the  Properties,  and Golden  Phoenix is willing to grant such
rights to Borealis.

         NOW  THEREFORE,  in  consideration  of  the  covenants  and  conditions
contained herein, Golden Phoenix and Borealis agree as follows:

                                    ARTICLE I
                        DEFINITIONS AND CROSS-REFERENCES

         1.1  DEFINITIONS.  The terms defined in EXHIBIT D and  elsewhere  shall
have the defined meaning wherever used in this Agreement, including in Exhibits.

         1.2 CROSS-REFERENCES.  References to "EXHIBITS," "ARTICLES," "SECTIONS"
and "SUBSECTIONS" refer to Exhibits,  Articles, Sections and Subsections of this
Agreement.  References to "PARAGRAPHS" and  "SUBPARAGRAPHS"  refer to paragraphs
and subparagraphs of the referenced Exhibits.

                                   ARTICLE II
                             NAME, PURPOSES AND TERM

         2.1  GENERAL.  Golden  Phoenix  and  Borealis  hereby  enter  into this
Agreement for the purposes hereinafter stated. All of the rights and obligations
of the  Participants  in connection  with the Assets or the Area of Interest and
all Operations shall be subject to and governed by this Agreement.

         2.2 NAME. The Assets shall be managed and operated by the  Participants
under the name of the BOREALIS JOINT VENTURE.  The Manager shall  accomplish any
registration  required by  applicable  assumed or  fictitious  name statutes and
similar statutes.

         2.3 PURPOSES. This Agreement is entered into for the following purposes
and for no others,  and shall serve as the exclusive  means by which each of the
Participants accomplishes such purposes:

                                      E-6
<PAGE>

                           (a)      to  conduct  Exploration  within the Area of
                                    Interest,

                           (b)      to  acquire  additional  real  property  and
                                    other interests within the Area of Interest,

                           (c)      to evaluate  the  possible  Development  and
                                    Mining of the Properties, and, if justified,
                                    to engage in Development and Mining,

                           (d)      to engage in Operations on the Properties,

                           (e)      to  engage  in  marketing  Products,  to the
                                    extent provided by ARTICLE XI,

                           (f)      to complete  and  satisfy all  Environmental
                                    Compliance    obligations   and   Continuing
                                    Obligations affecting the Properties, and

                           (g)      to  perform  any other  activity  necessary,
                                    appropriate,  or  incidental  to  any of the
                                    foregoing.

         2.4 LIMITATION. Unless the Participants otherwise agree in writing, the
Operations  shall be limited to the  purposes  described  in  SECTION  2.3,  and
nothing in this  Agreement  shall be construed  to enlarge  such  purposes or to
change the relationships of the Participants as set forth in ARTICLE 4.

         2.5 TERM.  The term of this  Agreement  shall be for twenty  (20) years
from the Effective Date and for so long thereafter as Products are produced from
the  Properties  on a continuous  basis,  and  thereafter  until all  materials,
supplies,  equipment and infrastructure  have been salvaged and disposed of, any
required Environmental Compliance is completed and accepted and the Participants
have agreed to a final accounting,  unless the Business is earlier terminated as
herein provided.  For purposes  hereof,  Products shall be deemed to be produced
from the Properties on a "CONTINUOUS  BASIS" so long as production in commercial
quantities is not halted for more than _________ consecutive years.

                                   ARTICLE III
          REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES

         3.1  REPRESENTATIONS  AND  WARRANTIES OF BOTH  PARTICIPANTS.  As of the
Effective Date, each Participant warrants and represents to the other that:

              (a) it is a corporation duly organized and in good standing in its
state of  incorporation  and is qualified to do business and is in good standing
in those  states  where  necessary  in order to carry out the  purposes  of this
Agreement;

              (b) it has the capacity to enter into and perform  this  Agreement
and all  transactions  contemplated  herein  and  that all  corporate,  board of
directors,  shareholder,

                                      E-7
<PAGE>

surface and mineral rights owner,  lessor,  lessee and other actions required to
authorize it to enter into and perform this Agreement have been properly taken;

              (c) it will not  breach  any other  agreement  or  arrangement  by
entering into or performing this Agreement;

              (d) it is not subject to any governmental order, judgment, decree,
debarment, sanction or Laws that would preclude the permitting or implementation
of Operations under this Agreement; and

              (e) this  Agreement has been duly executed and delivered by it and
is valid and binding upon it in accordance with its terms.

         3.2  REPRESENTATIONS  AND  WARRANTIES  OF  GOLDEN  PHOENIX.  As of  the
Effective  Date,  Golden  Phoenix  makes  the  following   representations   and
warranties to Borealis:

              (a) With respect to those  Properties  Golden  Phoenix owns in fee
simple,  if any,  Golden  Phoenix is in  exclusive  possession  of and owns such
Properties  free and clear of all  Encumbrances or defects in title except those
specifically identified in PARAGRAPH 1.1 OF EXHIBIT A.

              (b) With respect to those Properties in which Golden Phoenix holds
an interest under leases or other contracts:  (i) Golden Phoenix is in exclusive
possession of such  Properties;  (ii) Golden Phoenix has not received any notice
of default of any of the terms or provisions of such leases or other  contracts;
(iii) Golden Phoenix has the authority  under such leases or other  contracts to
perform fully its  obligations  under this Agreement;  (iv) to Golden  Phoenix's
knowledge,  such leases and other  contracts are valid and are in good standing;
(v) Golden  Phoenix has no knowledge of any act or omission or any  condition on
the  Properties  which could be  considered  or construed as a default under any
such  lease or other  contract;  and (vi) to Golden  Phoenix's  knowledge,  such
Properties are free and clear of all Encumbrances or defects in title except for
those specifically identified in PARAGRAPH 1.1 OF EXHIBIT A.

              (c)  Golden  Phoenix  has  delivered  to  or  made  available  for
inspection by Borealis all Existing Data in its possession or control,  and true
and correct copies of all leases or other contracts relating to the Properties.

              (d) With respect to unpatented mining claims and millsites located
by Golden Phoenix that are included within the Properties, except as provided in
PARAGRAPH  1.1 OF  EXHIBIT A and  subject to the  paramount  title of the United
States:  (i) the unpatented mining claims were properly laid out and monumented;
(ii) all required  location and validation  work was properly  performed;  (iii)
location  notices  and  certificates  were  properly  recorded  and  filed  with
appropriate governmental agencies; (iv) all assessment work required to hold the
unpatented  mining claims has been performed and all Governmental Fees have been
paid in a manner  consistent  with that  required  of the  Manager  pursuant  to
SUBSECTION 8.2(K) through the assessment year ending September 1, _____; (v) all
affidavits of assessment  work,  evidence of payment of  Governmental  Fees, and
other  filings  required  to  maintain  the  claims in good  standing  have been
properly and timely recorded or filed with  appropriate  governmental  agencies;
(vi) the claims  are free and clear of  Encumbrances  or

                                      E-8
<PAGE>

defects in title;  and (vii)  Golden  Phoenix has no  knowledge  of  conflicting
mining  claims.  Nothing in this  SUBSECTION,  however,  shall be deemed to be a
representation or a warranty that any of the unpatented mining claims contains a
valuable mineral deposit.

         (e) With respect to unpatented  mining claims and millsites not located
by Golden  Phoenix  but which are  included  within  the  Properties,  except as
provided in PARAGRAPH 1.1 OF EXHIBIT A and subject to the paramount title of the
United States:  (i) all assessment  work required to hold the unpatented  mining
claims has been performed and all  Governmental  Fees have been paid in a manner
consistent  with that  required of the Manager  pursuant  to  SUBSECTION  8.2(K)
through the assessment  year ending  September 1, _____;  (ii) all affidavits of
assessment  work,  evidence of payment of  Governmental  Fees, and other filings
required to maintain the claims in good  standing  have been properly and timely
recorded or filed with appropriate  governmental agencies;  (iii) the claims are
free and clear of Encumbrances or defects in title;  and (iv) Golden Phoenix has
no knowledge of conflicting mining claims. Nothing in this SUBSECTION,  however,
shall be deemed to be a representation  or a warranty that any of the unpatented
mining claims contains a valuable discovery of minerals.

         (f) With  respect to the  Properties,  to Golden  Phoenix's  knowledge,
there are no pending or threatened actions,  suits,  claims or proceedings,  and
there  have  been  no  previous  transactions  affecting  its  interests  in the
Properties which have not been for fair consideration.

         (g) Except as to matters  otherwise  disclosed  in writing to  Borealis
prior to the Effective Date,

              (i) to Golden Phoenix's  knowledge,  the conditions existing on or
with respect to the Properties and its ownership and operation of the Properties
are not in violation of any Laws (including without limitation any Environmental
Laws), nor causing or permitting any damage (including  Environmental Damage, as
defined below) or impairment to the health,  safety,  or enjoyment of any person
at or on the Properties or in the general vicinity of the Properties;

              (ii)  to  Golden  Phoenix's  knowledge,  there  have  been no past
violations  by it or by any of its  predecessors  in title of any  Environmental
Laws or other Laws  affecting  or  pertaining  to the  Properties,  nor any past
creation  of  damage or  threatened  damage to the air,  soil,  surface  waters,
groundwater,  flora,  fauna,  or other  natural  resources  on,  about or in the
general vicinity of the Properties  ("ENVIRONMENTAL DAMAGE"),  subject, however,
to the parties' acknowledgment that prior mining operations have occurred on the
Properties and that certain facilities, more particularly described in EXHIBIT I
hereto, still exist on the Properties as a consequence of such operations.

              (iii) Golden Phoenix has not received  inquiry from or notice of a
pending  investigation from any governmental  agency or of any administrative or
judicial proceeding concerning the violation of any Laws.

         The  representations  and  warranties set forth above shall survive the
execution  and  delivery  of any  documents  of  Transfer  provided  under  this
Agreement. For a representation or warranty made to a Participant's "KNOWLEDGE,"
the term  "knowledge"  shall mean

                                      E-9
<PAGE>

actual  knowledge  on the part of the  officers,  employees,  and  agents of the
representing Participant or of facts that would reasonably lead to the indicated
conclusions.

         3.3 DISCLOSURES.  Each of the Participants represents and warrants that
it is  unaware  of any  material  facts  or  circumstances  that  have  not been
disclosed in this Agreement,  which should be disclosed to the other Participant
in order to prevent the  representations and warranties in this ARTICLE III from
being  materially  misleading.  Golden  Phoenix has  disclosed  to Borealis  all
information it believes to be relevant concerning the Assets and has provided to
or made available for inspection by Borealis all such information,  but does not
make any representation or warranty,  express or implied,  as to the accuracy or
completeness of the information (except as provided in SECTION 3.2) or as to the
boundaries or value of the Assets. Each Participant represents to the other that
in negotiating  and entering into this Agreement it has relied solely on its own
appraisals and estimates as to the value of the Assets and upon its own geologic
and engineering interpretations related thereto.

         3.4 RECORD TITLE. Title to the Assets shall be held by the Participants
as co-tenants for the benefit of the Business.

         3.5 LOSS OF TITLE. Any failure or loss of title to the Assets,  and all
costs of defending title, shall be charged to the Business Account,  except that
all  costs  and  losses   arising  out  of  or  resulting  from  breach  of  the
representations  and  warranties of Golden Phoenix or Borealis as to title shall
be charged to Golden Phoenix or Borealis, as the case may be.

         3.6 ROYALTIES, PRODUCTION TAXES AND OTHER PAYMENTS BASED ON PRODUCTION.
All required  payments of  production  royalties,  taxes based on  production of
Products,   and  other  payments  out  of  production  to  private  parties  and
governmental  entities  shall  be  determined  and made by each  Participant  in
proportion to its  Participating  Interest,  and each Participant  undertakes to
make such payments  timely and otherwise in accordance  with applicable laws and
agreements.  If  separate  payment  is not  permitted,  each  Participant  shall
determine  and  pay  its  proportionate  share  in  advance  to the  Participant
obligated  to make such  payment  and such  Participant  shall  timely make such
payment.  Each Participant  shall furnish to the other  Participant  evidence of
timely  payment  for all  such  required  payments.  In the  event  that  either
Participant fails to make any such required payment, the other Participant shall
have the right to make such payment and shall thereby  become  subrogated to the
rights of such  third  party;  provided,  however,  that the  making of any such
payment on behalf of the other  Participant  shall not constitute  acceptance by
the paying  Participant  of any liability to such third party for the underlying
obligation.

         3.7 INDEMNITIES/LIMITATION OF LIABILITY.

              (a) Each Participant  shall indemnify the other  Participant,  its
directors,   officers,   employees,   agents  and   attorneys,   or   Affiliates
(collectively  "INDEMNIFIED  PARTICIPANT") from and against the entire amount of
any Material Loss. A "MATERIAL LOSS" shall mean all costs, expenses,  damages or
liabilities,  including  attorneys'  fees and other costs of litigation  (either
threatened  or  pending)  arising  out of or based on a breach by a  Participant
("INDEMNIFYING  PARTICIPANT")  of  any  representation,   warranty  or  covenant
contained in this Agreement, including without limitation:

                                      E-10
<PAGE>

              (i) any failure by a Participant to determine  accurately and make
timely  payment of its  proportionate  share of required  royalties,  production
taxes and other  payments  out of  production  to third  parties as  required by
SECTION 3.6;

              (ii) any action taken for or obligation or responsibility  assumed
on behalf of the other Participant, its directors,  officers,  employees, agents
and attorneys, or Affiliates by a Participant,  any of its directors,  officers,
employees, agents and attorneys, or Affiliates, in violation of SECTION 4.1;

              (iii)  failure of a Participant  or its  Affiliates to comply with
the non-compete or Area of Interest provisions of SECTION 12.6 or ARTICLE XIII;

              (iv) any Transfer that causes  termination of the tax  partnership
established by SECTION 4.2,  against which the  transferring  Participant  shall
indemnify the  non-transferring  Participant as provided in ARTICLE V of EXHIBIT
C; and

              (v) failure of a Participant  or its Affiliates to comply with the
preemptive right under SECTION 16.3 and EXHIBIT H.

         A Material  Loss  shall not be deemed to have  occurred  until,  in the
aggregate,   an  Indemnified   Participant  incurs  losses,  costs,  damages  or
liabilities  in excess of __________  Dollars  ($_____)  relating to breaches of
warranties,  representations and covenants  contained in this Agreement.  Golden
Phoenix's aggregate liability to all Indemnified Participants under this SECTION
for breaches of the  representations  in SUBSECTION  3.2(G) shall not,  however,
exceed __________ Dollars ($__________).

              (b) If any claim or  demand is  asserted  against  an  Indemnified
Participant in respect of which such Indemnified  Participant may be entitled to
indemnification  under this  Agreement,  written  notice of such claim or demand
shall  promptly  be  given to the  Indemnifying  Participant.  The  Indemnifying
Participant  shall have the right,  but not the  obligation,  by  notifying  the
Indemnified  Participant within thirty (30) days after its receipt of the notice
of the claim or demand, to assume the entire control of (subject to the right of
the  Indemnified  Participant to participate,  at the Indemnified  Participant's
expense and with counsel of the Indemnified  Participant's choice), the defense,
compromise,  or  settlement  of  the  matter,  including,  at  the  Indemnifying
Participant's expense,  employment of counsel of the Indemnifying  Participant's
choice.  Any damages to the assets or business  of the  Indemnified  Participant
caused by a failure by the Indemnifying  Participant to defend,  compromise,  or
settle a claim or demand in a reasonable and expeditious manner requested by the
Indemnified  Participant,  after the  Indemnifying  Participant 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  Participant
shall be obligated to indemnify the Indemnified  Participant.  Any settlement or
compromise  of a matter by the  Indemnifying  Participant  shall  include a full
release of claims against the  Indemnified  Participant  which has arisen out of
the indemnified claim or demand.

                                      E-11
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                                   ARTICLE IV

                        RELATIONSHIP OF THE PARTICIPANTS

         4.1 NO PARTNERSHIP. Nothing contained in this Agreement shall be deemed
to constitute  either  Participant the partner or the venturer of the other, or,
except as otherwise herein expressly provided,  to constitute either Participant
the agent or legal  representative  of the  other,  or to create  any  fiduciary
relationship  between them. The  Participants do not intend to create,  and this
Agreement  shall not be construed  to create,  any mining,  commercial  or other
partnership or joint  venture.  Neither  Participant,  nor any of its directors,
officers,  employees,  agents and  attorneys,  or  Affiliates,  shall act for or
assume any  obligation  or  responsibility  on behalf of the other  Participant,
except as otherwise expressly provided herein, and any such action or assumption
by a Participant's  directors,  officers,  employees,  agents and attorneys,  or
Affiliates shall be a breach by such Participant of this Agreement.  The rights,
duties, obligations and liabilities of the Participants shall be several and not
joint  or  collective.  Each  Participant  shall  be  responsible  only  for its
obligations  as herein  set out and  shall be  liable  only for its share of the
costs and  expenses  as  provided  herein,  and it is the  express  purpose  and
intention  of the  Participants  that their  ownership  of Assets and the rights
acquired hereunder shall be as tenants in common.

         4.2 FEDERAL TAX ELECTIONS AND ALLOCATIONS.  Without changing the effect
of SECTION 4.1, the  relationship  of the  Participants  shall  constitute a tax
partnership  within the meaning of Section 761(a) of the United States  Internal
Revenue Code of 1986, as amended. Tax elections and allocations shall be made as
set forth in EXHIBIT C.

         4.3 STATE INCOME TAX. To the extent  permissible  under applicable law,
the  relationship  of the  Participants  shall be treated  for state  income tax
purposes in the same manner as it is for federal income tax purposes.

         4.4 TAX RETURNS.  After approval of the Management  Committee,  any tax
returns or other required tax forms shall be filed in accordance with EXHIBIT C.

         4.5 OTHER BUSINESS OPPORTUNITIES.  Except as expressly provided in this
Agreement,  each Participant  shall have the right to engage in and receive full
benefits from any independent business activities or operations,  whether or not
competitive with this Business,  without  consulting with, or obligation to, the
other  Participant.  The  doctrines  of  "CORPORATE  OPPORTUNITY"  or  "BUSINESS
OPPORTUNITY"  shall not be applied to this Business nor to any other activity or
operation of either  Participant.  Neither Participant shall have any obligation
to the other with respect to any opportunity to acquire any property outside the
Area of Interest at any time, or, except as otherwise  provided in SECTION 12.6,
within  the Area of  Interest  after the  termination  of the  Business.  Unless
otherwise agreed in writing,  neither  Participant  shall have any obligation to
mill,  beneficiate  or otherwise  treat any  Products in any  facility  owned or
controlled by such Participant.

         4.6 WAIVER OF RIGHTS TO  PARTITION  OR OTHER  DIVISION  OF ASSETS.  The
Participants  hereby  waive and release all rights of  partition,  or of sale in
lieu thereof, or other division of Assets, including any such rights provided by
Law.

                                      E-12
<PAGE>

         4.7  TRANSFER  OR  TERMINATION  OF  RIGHTS  TO  PROPERTIES.  Except  as
otherwise provided in this Agreement,  neither Participant shall Transfer all or
any part of its interest in the Assets or this Agreement or otherwise  permit or
cause such interests to terminate.

         4.8 IMPLIED COVENANTS. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.

         4.9  NO  THIRD  PARTY  BENEFICIARY  RIGHTS.  This  Agreement  shall  be
construed  to benefit  the  Participants  and their  respective  successors  and
assigns  only,  and shall not be  construed  to create  third party  beneficiary
rights in any other party or in any governmental  organization or agency, except
to the extent  required  by Project  Financing  and as  provided  in  SUBSECTION
3.7(A).

                                    ARTICLE V
                          CONTRIBUTIONS BY PARTICIPANTS

         5.1 PARTICIPANTS'  INITIAL  CONTRIBUTIONS.  The Participants,  as their
Initial  Contributions,  hereby  contribute  their  respective  interests in the
Properties to the purposes of this Agreement.

         5.2 VALUE OF INITIAL CONTRIBUTIONS. Solely for the purposes of SECTIONS
6.3,  8.2(N),  9.5 and 10.5 of this Agreement and PARAGRAPH 4.1(A) OF EXHIBIT C,
the agreed value of the Participants'  respective Initial Contributions shall be
as follows:

                  Golden Phoenix    $5,000,000.00

                  Borealis          $5,000,000.00

         5.3 ADDITIONAL CONTRIBUTIONS. The Participants, subject to any election
permitted  by  SUBSECTION  9.5(A),  shall be obligated  to  contribute  funds to
adopted Programs and Budgets in accordance with their  respective  Participating
Interests.

                                   ARTICLE VI
                            INTERESTS OF PARTICIPANTS

         6.1 INITIAL  PARTICIPATING  INTERESTS.  The Participants shall have the
following initial Participating Interests:

                           Golden Phoenix   50%

                           Borealis         50%

         6.2 CHANGES IN PARTICIPATING  INTERESTS.  The  Participating  Interests
shall be eliminated or changed as follows:

              (a) Upon  withdrawal  or deemed  withdrawal as provided in Section
6.3 and ARTICLE XII;

                                      E-13
<PAGE>

              (b) Upon an election by either Participant pursuant to SECTION 9.5
to contribute less to an adopted Program and Budget than the percentage equal to
its Participating  Interest,  or to contribute nothing to an adopted Program and
Budget;

              (c) In the event of  default by either  Participant  in making its
agreed-upon  contribution  to an adopted  Program  and  Budget,  followed  by an
election by the other Participant to invoke any of the remedies in SECTION 10.5;

              (d) Upon  Transfer  by  either  Participant  of part or all of its
Participating Interest in accordance with ARTICLE XVI; or

              (e) Upon  acquisition by either  Participant of part or all of the
Participating Interest of the other Participant, however arising.

         6.3 ELIMINATION OF MINORITY INTEREST.

              (a)  A  Reduced   Participant  whose  Recalculated   Participating
Interest  becomes less than ten percent (10%) shall be deemed to have  withdrawn
from the Business and shall  relinquish its entire  Participating  Interest free
and  clear  of any  Encumbrances  arising  by,  through  or  under  the  Reduced
Participant,  except any such Encumbrances  listed in PARAGRAPH 1.1 OF EXHIBIT A
or to which  the  Participants  have  agreed.  Such  relinquished  Participating
Interest shall be deemed to have accrued automatically to the other Participant.
The Reduced  Participant's Capital Account shall be transferred to the remaining
Participant. The Reduced Participant shall have the right to receive ten percent
(10%) of Net Proceeds,  if any, to a maximum amount of seventy  percent (70%) of
the Reduced Participant's Equity Account balance as of the effective date of the
withdrawal. Upon receipt of such amount, and subject to SECTION 6.4, the Reduced
Participant  shall  thereafter have no further right,  title, or interest in the
Assets or under this Agreement, and the tax partnership established by EXHIBIT C
shall  dissolve  pursuant  to  PARAGRAPH  4.2 OF EXHIBIT C. In such  event,  the
Reduced  Participant shall execute and deliver an appropriate  conveyance of all
of its right, title and interest in the Assets to the remaining Participant.

              (b) The relinquishment, withdrawal and entitlements for which this
SECTION   provides   shall  be  effective  as  of  the  effective  date  of  the
recalculation  under  SECTIONS  9.5 or 10.5.  However,  if the final  adjustment
provided under SECTION 9.6 for any recalculation  under SECTION 9.5 results in a
Recalculated  Participating  Interest  of ten  percent  (10%) or  more:  (i) the
Recalculated  Participating Interest shall be deemed, effective retroactively as
of the first day of the Program Period, to have automatically revested; (ii) the
Reduced Participant shall be reinstated as a Participant, with all of the rights
and  obligations  pertaining  thereto;  (iii)  the right to Net  Proceeds  under
SUBSECTION  6.3(A)  shall  terminate;  and (iv) the  Manager,  on  behalf of the
Participants,   shall  make  any  necessary  reimbursements,   reallocations  of
Products,  contributions and other adjustments as provided in SUBSECTION 9.6(D).
Similarly,  if such final adjustment under SECTION 9.6 results in a Recalculated
Participating Interest for either Participant of less than ten percent (10%) for
a Program Period as to which the provisional  calculation  under SECTION 9.5 had
not resulted in a  Participating  Interest of less than ten percent (10%),  then
such  Participant,  at its election  within thirty (30) days after notice of the
final  adjustment,  may  contribute  an  amount  resulting  in a  revised

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<PAGE>

final  adjustment  and  resultant  Recalculated  Participating  Interest  of ten
percent (10%). If no such election is made, such Participant  shall be deemed to
have withdrawn under the terms of SUBSECTION  6.3(A) as of the beginning of such
Program Period, and the Manager,  on behalf of the Participants,  shall make any
necessary  reimbursements,  reallocations of Products,  contributions  and other
adjustments as provided in SUBSECTION  9.6(D),  including of any Net Proceeds to
which such Participant may be entitled for such Program Period.

         6.4 CONTINUING LIABILITIES UPON ADJUSTMENTS OF PARTICIPATING INTERESTS.
Any reduction or  elimination  of either  Participant's  Participating  Interest
under  SECTION  6.2  shall  not  relieve  such  Participant  of its share of any
liability, including, without limitation, Continuing Obligations,  Environmental
Liabilities and Environmental Compliance,  whether arising, before or after such
reduction  or  elimination,  out of acts or omissions  occurring  or  conditions
existing prior to the Effective Date or out of Operations  conducted  during the
term of this Agreement but prior to such reduction or elimination, regardless of
when any funds may be expended to satisfy such  liability.  For purposes of this
SECTION,  such  Participant's  share  of such  liability  shall  be equal to its
Participating  Interest  at the  time  the act or  omission  giving  rise to the
liability occurred, after first taking into account any reduction,  readjustment
and restoration of Participating Interests under SECTIONS 6.3, 9.5, 9.6 and 10.5
(or,  as to  such  liability  arising  out of  acts or  omissions  occurring  or
conditions  existing prior to the Effective  Date,  equal to such  Participant's
initial  Participating  Interest).  Should  the  cumulative  cost of  satisfying
Continuing  Obligations be in excess of cumulative  amounts accrued or otherwise
charged to the Environmental  Compliance Fund as described in EXHIBIT B, each of
the   Participants   shall  be  liable  for  its   proportionate   share  (i.e.,
Participating  Interest at the time of the act or  omission  giving rise to such
liability occurred), after first taking into account any reduction, readjustment
and  restoration  of  Participating  Interests  under SECTIONS 6.3, 9.5, 9.6 and
10.5, of the cost of satisfying  such  Continuing  Obligations,  notwithstanding
that either  Participant has previously  withdrawn from the Business or that its
Participating  Interest  has been  reduced or  converted  to an  interest in Net
Proceeds pursuant to SUBSECTION 6.3(A).

         6.5   DOCUMENTATION   OF   ADJUSTMENTS  TO   PARTICIPATING   INTERESTS.
Adjustments to the Participating Interests need not be evidenced during the term
of this Agreement by the execution and recording of appropriate instruments, but
each  Participant's  Participating  Interest and related Equity Account  balance
shall be shown in the  accounting  records of the Manager,  and any  adjustments
thereto, including any reduction, readjustment, and restoration of Participating
Interests under SECTIONS 6.3, 9.5, 9.6 and 10.5, shall be made monthly. However,
either Participant, at any time upon the request of the other Participant, shall
execute and acknowledge  instruments  necessary to evidence such  adjustments in
form  sufficient  for  filing  and  recording  in  the  jurisdiction  where  the
Properties are located.

         6.6 GRANT OF LIEN AND SECURITY INTEREST.

              (a) Subject to SECTION 6.7, each  Participant  grants to the other
Participant a lien upon and a security interest in its  Participating  Interest,
including all of its right, title and interest in the Assets,  whenever acquired
or arising, and the proceeds from and accessions to the foregoing.

                                      E-15
<PAGE>

              (b) The liens and security  interests granted by SUBSECTION 6.6(A)
shall secure every obligation or liability of the Participant granting such lien
or security  interest created under this Agreement,  including the obligation to
repay a Cover Payment in accordance with SECTION 10.4. Each  Participant  hereby
agrees to take all action  necessary to perfect such lien and security  interest
and hereby appoints the other Participant its attorney-in-fact to execute,  file
and record all financing  statements and other documents necessary to perfect or
maintain such lien and security interest.

         6.7  SUBORDINATION OF INTERESTS.  Each Participant  shall, from time to
time, take all necessary actions, including execution of appropriate agreements,
to pledge and  subordinate  its  Participating  Interest,  any liens it may hold
which are created  under this  Agreement  other than those  created  pursuant to
SECTION 6.6 hereof, and any other right or interest it holds with respect to the
Assets (other than any statutory lien of the Manager) to any secured  borrowings
for  Operations  approved by the  Management  Committee,  including  any secured
borrowings  relating to Project  Financing,  and any  modifications  or renewals
thereof.

                                   ARTICLE VII
                              MANAGEMENT COMMITTEE

         7.1 ORGANIZATION AND COMPOSITION.  The Participants  hereby establish a
Management  Committee to determine  overall  policies,  objectives,  procedures,
methods and actions under this Agreement. The Management Committee shall consist
of three  members  appointed by Golden  Phoenix and three  members  appointed by
Borealis.  Each  Participant  may appoint one or more  alternates  to act in the
absence of a regular  member.  Any alternate so acting shall be deemed a member.
Appointments  by a  Participant  shall be made or changed by notice to the other
members.  Borealis  shall  designate one of its members to serve as the chair of
the Management Committee.

         7.2 DECISIONS. Each Participant, acting through its appointed member(s)
in attendance at the meeting,  shall have the votes on the Management  Committee
in proportion to its Participating  Interest.  Unless otherwise provided in this
Agreement,  the vote of the Participant with a Participating Interest over fifty
percent (50%) shall determine the decisions of the Management Committee.  In the
case of any tie vote, the vote of Borealis shall  determine the decisions of the
Management Committee.

         7.3 MEETINGS.

              (a) The Management  Committee shall hold regular meetings at least
quarterly in Reno,  Nevada,  or at other agreed  places.  The Manager shall give
thirty  (30) days notice to the  Participants  of such  meetings.  Additionally,
either  Participant may call a special meeting upon seven (7) days notice to the
other  Participant.  In case of an  emergency,  reasonable  notice  of a special
meeting  shall  suffice.  There  shall  be a  quorum  if  at  least  one  member
representing  each  Participant  is  present;  provided,   however,  that  if  a
Participant  fails to attend two consecutive  properly called  meetings,  then a
quorum shall exist at the second meeting if the other Participant is represented
by at  least  one  appointed  member,  and a vote of such  Participant  shall be
considered  the vote  required  for the  purposes of the conduct of all business
properly noticed even if such vote would otherwise require unanimity.

                                      E-16
<PAGE>

              (b) If  business  cannot  be  conducted  at a regular  or  special
meeting  due to the  lack of a  quorum,  either  Participant  may  call the next
meeting upon seven (7) days notice to the other Participant.

              (c) Each  notice of a meeting  shall  include an  itemized  agenda
prepared by the Manager in the case of a regular  meeting or by the  Participant
calling  the  meeting in the case of a special  meeting,  but any matters may be
considered if either Participant adds the matter to the agenda at least five (5)
days  before the  meeting  or with the  consent  of the other  Participant.  The
Manager shall  prepare  minutes of all meetings and shall  distribute  copies of
such minutes to the other Participant within thirty (30) days after the meeting.
Either Participant may  electronically  record the proceedings of a meeting with
the  consent  of the other  Participant.  The other  Participant  shall sign and
return or object to the minutes  prepared by the Manager within thirty (30) days
after  receipt,  and  failure  to do either  shall be deemed  acceptance  of the
minutes as prepared by the Manager. The minutes,  when signed or deemed accepted
by both Participants,  shall be the official record of the decisions made by the
Management Committee.  Decisions made at a Management Committee meeting shall be
implemented in accordance  with adopted  Programs and Budgets.  If a Participant
timely objects to minutes proposed by the Manager, the members of the Management
Committee  shall seek,  for a period not to exceed thirty (30) days from receipt
by the Manager of notice of the objections,  to agree upon minutes acceptable to
both Participants.  If the Management  Committee does not reach agreement on the
minutes of the meeting  within  such thirty (30) day period,  the minutes of the
meeting  as  prepared  by the  Manager  together  with the  other  Participant's
proposed  changes shall  collectively  constitute the record of the meeting.  If
personnel  employed in Operations are required to attend a Management  Committee
meeting,  reasonable  costs incurred in connection with such attendance shall be
charged  to  the  Business  Account.  All  other  costs  shall  be  paid  by the
Participants individually.

         7.4 ACTION  WITHOUT  MEETING IN PERSON.  In lieu of meetings in person,
the Management  Committee may conduct meetings by telephone or video conference,
so long as minutes of such meetings are prepared in accordance  with  SUBSECTION
7.3(C). The Management  Committee may also take actions in writing signed by all
members.

         7.5 MATTERS REQUIRING  APPROVAL.  Except as otherwise  delegated to the
Manager in SECTION 8.2, the Management  Committee shall have exclusive authority
to determine all matters related to overall  policies,  objectives,  procedures,
methods and actions under this Agreement.

                                  ARTICLE VIII
                                     MANAGER

         8.1  APPOINTMENT.  The  Participants  hereby  appoint  Borealis  as the
Manager with overall management  responsibility for Operations.  Borealis hereby
agrees to serve until it resigns as provided in SECTION 8.4.

                                      E-17
<PAGE>

         8.2 POWERS AND DUTIES OF MANAGER.  Subject to the terms and  provisions
of this Agreement, the Manager shall have the following powers and duties, which
shall be discharged in accordance with adopted Programs and Budgets.

              (a) The Manager shall manage,  direct and control Operations,  and
shall  prepare and present to the  Management  Committee  proposed  Programs and
Budgets as provided in ARTICLE IX.

              (b) The Manager shall  implement  the decisions of the  Management
Committee,  shall make all expenditures necessary to carry out adopted Programs,
and shall promptly advise the Management  Committee if it lacks sufficient funds
to carry out its responsibilities under this Agreement.

              (c) The Manager shall use  reasonable  efforts to: (i) purchase or
otherwise  acquire  all  material,  supplies,   equipment,  water,  utility  and
transportation services required for Operations, such purchases and acquisitions
to be made to the extent reasonably possible on the best terms available, taking
into account all of the circumstances; (ii) obtain such customary warranties and
guarantees as are available in connection with such purchases and  acquisitions;
and (iii) keep the Assets  free and clear of all  Encumbrances,  except any such
Encumbrances listed in PARAGRAPH 1.1 OF EXHIBIT A and those existing at the time
of, or created concurrent with, the acquisition of such Assets, or mechanic's or
materialmen's  liens  (which shall be  contested,  released or  discharged  in a
diligent  matter)  or  Encumbrances  specifically  approved  by  the  Management
Committee.

              (d) The  Manager  shall  conduct  such title  examinations  of the
Properties  and cure such title defects  pertaining to the  Properties as may be
advisable in its reasonable judgment.

              (e) The  Manager  shall:  (i)  make or  arrange  for all  payments
required by leases, licenses, permits, contracts and other agreements related to
the Assets;  (ii) pay all taxes,  assessments and like charges on Operations and
Assets except taxes  determined or measured by a Participant's  sales revenue or
net  income  and  taxes,   including   production   taxes,   attributable  to  a
Participant's share of Products,  and shall otherwise promptly pay and discharge
expenses incurred in Operations;  provided,  however,  that if authorized by the
Management Committee, the Manager shall have the right to contest (in the courts
or otherwise) the validity or amount of any taxes, assessments or charges if the
Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake
such other steps or proceedings as the Manager may deem reasonably  necessary to
secure a cancellation,  reduction,  readjustment or equalization  thereof before
the Manager  shall be  required  to pay them,  but in no event shall the Manager
permit or allow  title to the Assets to be lost as the result of the  nonpayment
of any  taxes,  assessments  or  like  charges;  and  (iii)  do all  other  acts
reasonably necessary to maintain the Assets.

              (f) The  Manager  shall:  (i)  apply  for all  necessary  permits,
licenses and  approvals;  (ii) comply with all Laws;  (iii) notify  promptly the
Management  Committee of any allegations of substantial  violation thereof;  and
(iv)  prepare  and file all  reports or notices  required  for or as a result of
Operations.  The Manager shall not be in breach of this provision if a violation

                                      E-18
<PAGE>

has occurred in spite of the Manager's  good faith efforts to comply  consistent
with its standard of care under SECTION 8.3. In the event of any such violation,
the Manager  shall  timely cure or dispose of such  violation  on behalf of both
Participants through performance,  payment of fines and penalties,  or both, and
the cost thereof shall be charged to the Business Account.

              (g) The Manager shall prosecute and defend, but shall not initiate
without consent of the Management  Committee,  all litigation or  administrative
proceedings arising out of Operations.  The non-managing  Participant shall have
the  right  to  participate,   at  its  own  expense,   in  such  litigation  or
administrative  proceedings.  The  non-managing  Participant  shall  approve  in
advance any settlement involving payments,  commitments or obligations in excess
of Twenty-Five Thousand Dollars ($25,000.00) in cash or value.

              (h) The Manager  shall  provide  insurance  for the benefit of the
Participants  as provided in EXHIBIT F or as may  otherwise be  determined  from
time to time by the Management Committee.

              (i) The  Manager may  dispose of Assets,  whether by  abandonment,
surrender,  or  Transfer  in  the  ordinary  course  of  business,  except  that
Properties  may be  abandoned  or  surrendered  only as provided in ARTICLE XIV.
Without prior authorization from the Management Committee,  however, the Manager
shall not:  (i)  dispose of Assets in any one  transaction  (or in any series of
related  transactions)  having a value in excess of Twenty-Five Thousand Dollars
($25,000.00);  (ii) enter into any sales  contracts or commitments  for Product,
except as permitted in SECTION 11.2;  (iii) begin a liquidation of the Business;
or (iv) dispose of all or a substantial  part of the Assets necessary to achieve
the purposes of the Business.

              (j)  The   Manager   shall   have  the  right  to  carry  out  its
responsibilities   hereunder   through   agents,   Affiliates   or   independent
contractors.

              (k) The  Manager  shall  perform  or  cause  to be  performed  all
assessment and other work, and shall pay all  Governmental  Fees required by Law
in order to maintain the unpatented  mining claims,  mill sites and tunnel sites
included within the Properties.  The Manager shall have the right to perform the
assessment work required  hereunder pursuant to a common plan of exploration and
continued actual  occupancy of such claims and sites shall not be required.  The
Manager  shall not be liable on  account  of any  determination  by any court or
governmental  agency that the work  performed by the Manager does not constitute
the required annual  assessment work or occupancy for the purposes of preserving
or maintaining ownership of the claims,  provided that the work done is pursuant
to an adopted  Program  and  Budget  and is  performed  in  accordance  with the
Manager's  standard of care under  SECTION 8.3. The Manager  shall timely record
with the appropriate  county and file with the appropriate  United States agency
any required affidavits, notices of intent to hold and other documents in proper
form  attesting  to  the  payment  of  Governmental  Fees,  the  performance  of
assessment  work or  intent  to hold  the  claims  and  sites,  in each  case in
sufficient detail to reflect compliance with the requirements applicable to each
claim and site. The Manager shall not be liable on account of any  determination
by any court or  governmental  agency that any such  document  submitted  by the
Manager  does not  comply  with  applicable  requirements,  provided  that  such
document is prepared  and  recorded or filed in  accordance  with the  Manager's
standard of care under SECTION 8.3.

                                      E-19
<PAGE>

              (l) If authorized by the  Management  Committee,  the Manager may:
(i) locate, amend or relocate any unpatented mining claim or mill site or tunnel
site,  (ii) locate any fractions  resulting  from such  amendment or relocation,
(iii)  apply for patents or mining  leases or other forms of mineral  tenure for
any such unpatented  claims or sites,  (iv) abandon any unpatented mining claims
for the purpose of locating  mill sites or otherwise  acquiring  from the United
States rights to the ground covered  thereby,  (v) abandon any  unpatented  mill
sites for the purpose of locating mining claims or otherwise  acquiring from the
United States rights to the ground covered thereby, (vi) exchange with or convey
to the United States any of the Properties  for the purpose of acquiring  rights
to the ground covered  thereby or other adjacent  ground,  and (vii) convert any
unpatented  claims  or mill  sites  into one or more  leases  or other  forms of
mineral tenure pursuant to any Law hereafter enacted.

              (m) The Manager  shall keep and maintain  all required  accounting
and financial  records pursuant to the procedures  described in EXHIBIT B and in
accordance with customary cost accounting practices in the mining industry,  and
shall ensure  appropriate  separation of accounts unless otherwise agreed by the
Participants.

              (n)  The  Manager  shall   maintain   Equity   Accounts  for  each
Participant.  Each Participant's Equity Account shall be credited with the value
of such Participant's contributions under SECTION 5.2 and shall be credited with
amounts  contributed by such Participant  under SECTION 5.3. Each  Participant's
Equity  Account  shall be  charged  with the cash and the fair  market  value of
property  distributed to such  Participant  (net of liabilities  assumed by such
Participant  and  liabilities  to which such  distributed  property is subject).
Contributions  and  distributions   shall  include  all  cash  contributions  or
distributions  plus the agreed  value  (expressed  in  dollars)  of all  in-kind
contributions  or  distributions.  Solely for purposes of determining the Equity
Account balances of the Participants,  the Manager shall reasonably estimate the
fair market  value of all Products  distributed  to the  Participants,  and such
estimated  value shall be used  regardless of the actual amount received by each
Participant upon disposition of such Products.

              (o) The Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the members of the Management  Committee:
(i) monthly  progress  reports  that  include  statements  of  expenditures  and
comparisons of such expenditures to the adopted Budget;  (ii) periodic summaries
of data acquired; (iii) copies of reports concerning Operations; (iv) a detailed
final report within sixty (60) days after completion of each Program and Budget,
which shall include  comparisons  between actual and budgeted  expenditures  and
comparisons  between the objectives and results of Programs;  and (v) such other
reports  as any  member of the  Management  Committee  may  reasonably  request.
Subject to ARTICLE XVIII, at all reasonable  times the Manager shall provide the
Management Committee,  or other representative of a Participant upon the request
of such  Participant's  member of the Management  Committee,  access to, and the
right to inspect  and, at such  Participant's  cost and  expense,  copies of the
Existing Data and all maps,  drill logs and other  drilling data,  core,  pulps,
reports, surveys, assays, analyses,  production reports, operations,  technical,
accounting and financial records, and other Business Information,  to the extent
preserved or kept by the Manager,  subject to ARTICLE  XVIII.  In addition,  the
Manager  shall allow the  non-managing  Participant,  at the latter's sole risk,
cost and expense,  and

                                      E-20
<PAGE>

subject to reasonable safety  regulations,  to inspect the Assets and Operations
at all  reasonable  times,  so long as the  non-managing  Participant  does  not
unreasonably interfere with Operations.

              (p) The Manager shall prepare an Environmental Compliance plan for
all  Operations  consistent  with the  requirements  of any  applicable  Laws or
contractual  obligations and shall include in each Program and Budget sufficient
funding to  implement  the  Environmental  Compliance  plan and to  satisfy  the
financial assurance requirements of any applicable Law or contractual obligation
pertaining  to  Environmental   Compliance.   To  the  extent   practical,   the
Environmental  Compliance  plan  shall  incorporate  concurrent  reclamation  of
Properties disturbed by Operations.

              (q) The Manager shall undertake to perform Continuing  Obligations
when and as economic and appropriate, whether before or after termination of the
Business. The Manager shall have the right to delegate performance of Continuing
Obligations  to persons  having  demonstrated  skill and  experience in relevant
disciplines.  As part of each Program and Budget  submittal,  the Manager  shall
specify in such Program and Budget the measures to be taken for  performance  of
Continuing Obligations and the cost of such measures. The Manager shall keep the
other Participant  reasonably  informed about the Manager's efforts to discharge
Continuing  Obligations.  Authorized  representatives  of each Participant shall
have the  right  from  time to time to enter  the  Properties  to  inspect  work
directed toward satisfaction of Continuing Obligations and audit books, records,
and accounts related thereto.

              (r) The  funds  that are to be  deposited  into the  Environmental
Compliance  Fund shall be  maintained  by the  Manager in a  separate,  interest
bearing cash management account, which may include, but is not limited to, money
market investments and money market funds,  and/or in longer term investments if
approved  by the  Management  Committee.  Such  funds  shall be used  solely for
Environmental Compliance and Continuing Obligations, including the committing of
such funds, interests in property, insurance or bond policies, or other security
to satisfy Laws regarding financial assurance for the reclamation or restoration
of the Properties, and for other Environmental Compliance requirements.

              (s) If  Participating  Interests are adjusted in  accordance  with
this  Agreement  the Manager shall propose from time to time one or more methods
for fairly allocating costs for Continuing Obligations.

              (t) The Manager shall  undertake all other  activities  reasonably
necessary to fulfill the foregoing,  and to implement the policies,  objectives,
procedures,  methods and actions determined by the Management Committee pursuant
to SECTION 7.1.

         8.3  STANDARD OF CARE.  The Manager  shall  discharge  its duties under
SECTION 8.2 and conduct all  Operations  in a good,  workmanlike  and  efficient
manner, in accordance with sound mining and other applicable  industry standards
and practices,  and in accordance with Laws and with the terms and provisions of
leases,  licenses,  permits,  contracts and other  agreements  pertaining to the
Assets.  The Manager shall not be liable to the other Participant for any act or
omission  resulting  in  damage  or  loss  except  to the  extent  caused  by or
attributable  to the  Manager's  willful  misconduct  or gross  negligence.  The
Manager  shall not be in default of any of its duties

                                      E-21
<PAGE>

under  SECTION  8.2 if its  inability  or failure to  perform  results  from the
failure  of the other  Participant  to  perform  acts or to  contribute  amounts
required of it by this Agreement.

         8.4  RESIGNATION;  DEEMED OFFER TO RESIGN.  The Manager may resign upon
not less than six (6) months'  prior notice to the other  Participant,  in which
case the other  Participant may elect to become the new Manager by notice to the
resigning Participant within sixty (60) days after the notice of resignation. If
any of the following  shall occur,  the Manager shall be deemed to have resigned
upon the occurrence of the event described in each of the following Subsections,
with the  successor  Manager  to be  appointed  by the  other  Participant  at a
subsequently  called meeting of the Management  Committee,  at which the Manager
shall not be entitled to vote.  The other  Participant  may appoint  itself or a
third party as the Manager.

              (a) The  aggregate  Participating  Interest of the Manager and its
Affiliates becomes less than forty percent (40%);

              (b) The  Manager  fails to perform a material  obligation  imposed
upon it under this  Agreement  and such failure  continues for a period of sixty
(60) days after notice from the other Participant demanding performance;

              (c) The  Manager  fails to pay or  contest in good faith its bills
and Business debts as such obligations become due;

              (d)  A  receiver,   liquidator,   assignee,   custodian,  trustee,
sequestrator  or  similar  official  for a  substantial  part of its  assets  is
appointed and such appointment is neither made ineffective nor discharged within
sixty (60) days after the making thereof,  or such  appointment is consented to,
requested by, or acquiesced in by the Manager;

              (e) The Manager  commences a voluntary  case under any  applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or consents to
the entry of an order for relief in an involuntary case under any such law or to
the  appointment of or taking  possession by a receiver,  liquidator,  assignee,
custodian,  trustee,  sequestrator or other similar  official of any substantial
part of its assets; or makes a general  assignment for the benefit of creditors;
or takes corporate or other action in furtherance of any of the foregoing; or

              (f) Entry is made  against the  Manager of a  judgment,  decree or
order for relief  affecting  its ability to serve as Manager,  or a  substantial
part of its  Participating  Interest or its other assets by a court of competent
jurisdiction in an involuntary  case commenced under any applicable  bankruptcy,
insolvency or other similar law of any jurisdiction now or hereafter in effect.

Under  SUBSECTIONS (D), (E) or (F) above, the appointment of a successor Manager
shall be deemed to pre-date the event causing a deemed resignation.

         8.5  PAYMENTS TO  MANAGER.  The Manager  shall be  compensated  for its
services and reimbursed for its costs hereunder in accordance with EXHIBIT B.

                                      E-22
<PAGE>

         8.6 TRANSACTIONS WITH AFFILIATES.  If the Manager engages Affiliates to
provide services hereunder, it shall do so on terms no less favorable than would
be the case in arm's-length transactions with unrelated persons.

         8.7 ACTIVITIES  DURING  DEADLOCK.  If the Management  Committee for any
reason fails to adopt an Exploration,  Pre-Feasibility Study,  Feasibility Study
or  Development  Program and Budget,  the Manager shall  continue  Operations at
levels  sufficient to maintain the Properties.  If the Management  Committee for
any reason fails to adopt an initial  Mining Program and Budget or any Expansion
or Modification  Programs and Budgets,  the Manager shall continue Operations at
levels sufficient to maintain the then current Operations and Properties. If the
Management  Committee for any reason fails to adopt Mining  Programs and Budgets
subsequent  to the initial  Mining  Program and Budget,  subject to the contrary
direction  of the  Management  Committee  and receipt of  necessary  funds,  the
Manager shall  continue  Operations at levels  comparable  with the last adopted
Mining Program and Budget. All of the foregoing shall be subject to the contrary
direction of the Management Committee and the receipt of necessary funds.

                                   ARTICLE IX
                              PROGRAMS AND BUDGETS

         9.1 INITIAL PROGRAM AND BUDGET. The Initial Program and Budget to which
both Participants have agreed is hereby adopted and is attached as EXHIBIT G.

         9.2  OPERATIONS  PURSUANT TO PROGRAMS AND BUDGETS.  Except as otherwise
provided  in SECTION  9.13 and  ARTICLE  XIII,  Operations  shall be  conducted,
expenses  shall be  incurred,  and Assets  shall be  acquired  only  pursuant to
adopted Programs and Budgets.  Every Program and Budget adopted pursuant to this
Agreement  shall  provide for accrual of  reasonably  anticipated  Environmental
Compliance  expenses  for all  Operations  contemplated  under the  Program  and
Budget.

         9.3 PRESENTATION OF PROGRAMS AND BUDGETS. Proposed Programs and Budgets
shall be  prepared  by the  Manager  for a period  of one (1) year or any  other
period as approved by the  Management  Committee,  and shall be submitted to the
Management  Committee for review and  consideration.  All proposed  Programs and
Budgets may include  Exploration,  Pre-Feasibility  Studies,  Feasibility Study,
Development,  Mining and Expansion or Modification Operations components, or any
combination  thereof,  and  shall be  reviewed  and  adopted  upon a vote of the
Management  Committee in accordance  with SECTIONS 7.2 and 9.4. Each Program and
Budget  adopted by the  Management  Committee,  regardless  of length,  shall be
reviewed at least once a year at a meeting of the Management  Committee.  During
the period  encompassed by any Program and Budget,  and at least four (4) months
prior to its expiration, a proposed Program and Budget for the succeeding period
shall be prepared by the Manager and submitted to the  Management  Committee for
review and consideration.

         9.4 REVIEW AND ADOPTION OF PROPOSED PROGRAMS AND BUDGETS. Within thirty
(30) days after  submission of a proposed  Program and Budget,  each Participant
shall submit in writing to the Management Committee:

                                      E-23
<PAGE>

              (a)  Notice  that  the  Participant  approves  any  or  all of the
components of the proposed Program and Budget;

              (b) Modifications proposed by the Participant to the components of
the proposed Program and Budget; or

              (c)  Notice  that  the  Participant  rejects  any  or  all  of the
components of the proposed Program and Budget.

If a  Participant  fails  to give  any of the  foregoing  responses  within  the
allotted time, the failure shall be deemed to be a vote by the  Participant  for
adoption of the Manager's  proposed Program and Budget. If a Participant makes a
timely submission to the Management  Committee  pursuant to SUBSECTIONS  9.4(A),
(B) or (C), then the Manager working with the other Participant shall seek for a
period of time not to exceed twenty (20) days to develop a complete  Program and
Budget acceptable to both Participants. The Manager shall then call a Management
Committee  meeting in accordance  with SECTION 7.3 for purposes of reviewing and
voting upon the proposed Program and Budget.

         9.5 ELECTION TO PARTICIPATE.

              (a) By notice to the Management  Committee within twenty (20) days
after the final vote adopting a Program and Budget, and notwithstanding its vote
concerning  adoption  of a  Program  and  Budget,  a  Participant  may  elect to
participate  in the  approved  Program  and  Budget:  (i) in  proportion  to its
respective   Participating  Interest,  (ii)  in  some  lesser  amount  than  its
respective  Participating  Interest, or (iii) not at all. In case of an election
under  SUBSECTION  9.5(A)(II)  or (III),  its  Participating  Interest  shall be
recalculated as provided in SUBSECTION 9.5(B) below, with dilution  effective as
of the first day of the Program Period for the adopted Program and Budget.  If a
Participant  fails to so notify the Management  Committee of the extent to which
it elects to  participate,  the  Participant  shall be deemed to have elected to
contribute  to  such  Program  and  Budget  in  proportion  to  its   respective
Participating Interest as of the beginning of the Program Period.

              (b) If a Participant  elects to  contribute to an adopted  Program
and Budget some lesser amount than in proportion to its respective Participating
Interest,  or not at all,  and the other  Participant  elects to fund all or any
portion of the deficiency, the Participating Interest of the Reduced Participant
shall be provisionally recalculated as follows:

              (i) for an election made before Payout,  by dividing:  (A) the sum
of (1) the amount  credited to the Reduced  Participant's  Equity  Account  with
respect to its Initial  Contribution  under SECTION 5.2, (2) the total of all of
the Reduced  Participant's  contributions under SECTION 5.3, and (3) the amount,
if any, the Reduced  Participant elects to contribute to the adopted Program and
Budget; by (B) the sum of (1), (2) and (3) above for both Participants; and then
multiplying the result by one hundred; or

                                      E-24
<PAGE>

              (ii)  for  an  election  made  after   Payout,   by  reducing  its
Participating  Interest  in an amount  equal to two times the amount by which it
would have been reduced  under  SUBSECTION  9.5(B)(I) if such election were made
before Payout.

The  Participating  Interest of the other  Participant shall be increased by the
amount  of  the  reduction  in  the   Participating   Interest  of  the  Reduced
Participant,  and  if the  other  Participant  elects  not to  fund  the  entire
deficiency, the Manager shall adjust the Program and Budget to reflect the funds
available.

              (c) Whenever the Participating Interests are recalculated pursuant
to this SUBSECTION 9.5, (i) the Equity  Accounts of both  Participants  shall be
revised to bear the same ratio to each other as their recalculated Participating
Interests;  and (ii) the portion of Capital Account  attributable to the reduced
Participating  Interest of the Reduced  Participant  shall be transferred to the
other Participant.

         9.6  RECALCULATION  OR RESTORATION OF REDUCED  INTEREST BASED ON ACTUAL
EXPENDITURES.

              (a) If a Participant makes an election under SUBSECTION 9.5(A)(II)
or (III),  then within sixty (60) days after the  conclusion of such Program and
Budget,  the Manager  shall report the total amount of money  expended  plus the
total obligations incurred by the Manager for such Budget.

              (b) If the Manager expended or incurred obligations that were more
or  less  than  the  adopted  Budget,  the  Participating   Interests  shall  be
recalculated  pursuant to SUBSECTION 9.5(B) by substituting  each  Participant's
actual  contribution  to the  adopted  Budget for that  Participant's  estimated
contribution at the time of the Reduced Participant's  election under SUBSECTION
9.5(A).

              (c) If the Manager  expended or incurred  obligations of less than
80 percent (80%) of the adopted Budget, within thirty (30) days of receiving the
Manager's report on expenditures,  the Reduced  Participant may notify the other
Participant  of  its  election  to  reimburse  the  other  Participant  for  the
difference  between any amount  contributed  by the Reduced  Participant to such
adopted Program and Budget and the Reduced Participant's proportionate share (at
the Reduced  Participant's former  Participating  Interest) of the actual amount
expended or incurred for the Program,  plus interest on the difference  accruing
at the rate  described in SECTION  10.3 plus three (3)  percentage  points.  The
Reduced Participant shall deliver the appropriate amount (including interest) to
the other Participant with such notice. Failure of the Reduced Participant to so
notify and tender such amount shall result in dilution  occurring in  accordance
with this ARTICLE IX and shall bar the Reduced Participant from its rights under
this SUBSECTION 9.6(C) concerning the relevant adopted Program and Budget.

              (d) All recalculations under this SECTION IX shall be effective as
of the first day of the Program Period for the Program and Budget.  The Manager,
on behalf of both Participants, shall make such reimbursements, reallocations of
Products,  contributions  and other adjustments as are necessary so that, to the
extent  possible,  each Participant will be placed in the

                                      E-25
<PAGE>

position it would have been in had its  Participating  Interests as recalculated
under this SECTION been in effect throughout the Program Period for such Program
and  Budget.   If  the   Participants   are  required  to  make   contributions,
reimbursements or other adjustments  pursuant to this SECTION, the Manager shall
have the right to purchase or sell a Participant's share of Products in the same
manner as under  SECTION  11.2 and to apply the proceeds of such sale to satisfy
that  Participant's  obligation to make such  contributions,  reimbursements  or
adjustments.

              (e) Whenever the Participating Interests are recalculated pursuant
to this SECTION,  (i) the Participants' Equity Accounts shall be revised to bear
the same ratio to each other as their Recalculated  Participating Interests; and
(ii) the portion of Capital Account  attributable  to the reduced  Participating
Interest  of  the  Reduced   Participant  shall  be  transferred  to  the  other
Participant.

         9.7 PRE-FEASIBILITY STUDY PROGRAM AND BUDGETS.

              (a) At such time as either  Participant  is of the good  faith and
reasonable opinion that economically viable Mining Operations may be possible on
the Properties,  the Participant may propose to the Management  Committee that a
Pre-Feasibility  Study Program and Budget, or a Program and Budget that includes
Pre-Feasibility  Studies, be prepared. Such proposal shall be made in writing to
the  other  Participant,  shall  reference  the data upon  which  the  proposing
Participant  bases its  opinion,  and shall  call a  meeting  of the  Management
Committee pursuant to SECTION 7.3. If such proposal is adopted by the Management
Committee,  the Manager shall prepare or have prepared a  Pre-Feasibility  Study
Program and Budget as approved by the Management  Committee and shall submit the
same to the Management  Committee  within sixty (60) days following  adoption of
the proposal.

              (b)  Pre-Feasibility  Studies  may be  conducted  by the  Manager,
Feasibility Contractors, or both, or may be conducted by the Manager and audited
by  Feasibility   Contractors,   as  the  Management  Committee  determines.   A
Pre-Feasibility  Study Program  shall include the work  necessary to prepare and
complete  the  Pre-Feasibility  Study  approved in the  proposal  adopted by the
Management Committee, which may include some or all of the following:

              (i) analyses of various  alternatives  for mining,  processing and
beneficiation of Products;

              (ii)  analyses of  alternative  mining,  milling,  and  production
rates;

              (iii)  analyses of  alternative  sites for placement of facilities
(i.e., water supply facilities,  transport facilities, reagent storage, offices,
shops,  warehouses,   stock  yards,  explosives  storage,  handling  facilities,
housing, public facilities);

              (iv)  analyses of  alternatives  for waste  treatment and handling
(including a description of each alternative of the method of tailings  disposal
and the location of the proposed disposal site);

              (v)  estimates  of  recoverable  proven and  probable  reserves of
Products  and  of  related  substances,  in  terms  of  technical  and  economic
constraints  (extraction  and

                                      E-26
<PAGE>

treatment of Products),  including the effect of grade,  losses, and impurities,
and the estimated mineral composition and content thereof,  and review of mining
rates commensurate with such reserves;

              (vi)   analyses   of   environmental   impacts   of  the   various
alternatives,  including an analysis of the permitting,  environmental liability
and other  Environmental  Law  implications  of each  alternative,  and costs of
Environmental Compliance for each alternative;

              (vii) conduct of appropriate  metallurgical tests to determine the
efficiency  of  alternative  extraction,  recovery  and  processing  techniques,
including an estimate of water, power, and reagent consumption requirements;

              (viii)  conduct  of  hydrology  and other  studies  related to any
required dewatering; and

              (ix)  conduct  of  other  studies  and  analyses  approved  by the
Management Committee.

              (c) The  Manager  shall  have the  discretion  to base its and any
Feasibility Contractors' Pre-Feasibility Study on the cumulative results of each
discipline  studied, so that if a particular portion of the work would result in
the conclusion that further work based on these results would be unwarranted for
a  particular  alternative,  the Manager  shall have no  obligation  to continue
expenditures   on  other   Pre-Feasibility   Studies   related  solely  to  such
alternative.

         9.8  COMPLETION  OF  PRE-FEASIBILITY  STUDIES AND SELECTION OF APPROVED
ALTERNATIVES.  As soon  as  reasonably  practical  following  completion  of all
Pre-Feasibility  Studies  required to evaluate  fully the  alternatives  studied
pursuant  to  Pre-Feasibility  Programs,  the  Manager  shall  prepare  a report
summarizing  all  Pre-Feasibility  Studies  and  shall  submit  the  same to the
Management Committee. Such report shall incorporate the following:

              (a) the  results of the  analyses  of the  alternatives  and other
matters evaluated in the conduct of the Pre-Feasibility Programs;

              (b) reasonable  estimates of capital costs for the Development and
start-up  of the  mine,  mill and  other  processing  and  ancillary  facilities
required  by  the  Development  and  Mining  alternatives  evaluated  (based  on
flowsheets,  piping and  instrumentation  diagrams,  and other major engineering
diagrams), which cost estimates shall include reasonable estimates of:

              (i)  capitalized  pre-stripping  expenditures,  if an open  pit or
surface mine is proposed;

              (ii) expenditures required to purchase,  construct and install all
machinery,   equipment  and  other  facilities  and  infrastructure   (including
contingencies) required to bring a mine into commercial production, including an
analysis of costs of equipment or supply contracts in lieu of Development  costs
for each Development and Mining alternative evaluated;

                                      E-27
<PAGE>

              (iii)  expenditures  required  to perform all other  related  work
required to commence  commercial  production  of  Products  and, if  applicable,
process   Products   (including   reasonable   estimates   of  working   capital
requirements); and

              (iv)  all  other  direct  and  indirect   costs  and  general  and
administrative  expenses  that may be required  for a proper  evaluation  of the
Development and Mining alternatives and annual production levels evaluated.  The
capital cost  estimates  shall include a schedule of the timing of the estimated
capital requirements for each alternative;

              (c) a reasonable estimate of the annual expenditures  required for
the first year of Operations after  completion of the capital program  described
in  SUBSECTION  9.8(B)  for  each  Development  alternative  evaluated,  and for
subsequent  years of  Operations,  including  estimates  of  annual  production,
processing, administrative, operating and maintenance expenditures, taxes (other
than  income  taxes),   working  capital  requirements,   royalty  and  purchase
obligations,   equipment   leasing  or  supply   contract   expenditures,   work
commitments,   Environmental  Compliance  costs,  post-Operations  Environmental
Compliance  and  Continuing  Obligations  funding  requirements  and  all  other
anticipated  costs of such  Operations.  This  analysis  shall  also  include an
estimate of the number of employees required to conduct such Operations for each
alternative;

              (d) a review of the nature, extent and rated capacity of the mine,
machinery, equipment and other facilities preliminarily estimated to be required
for the purpose of producing and marketing  Products under each  Development and
Mining alternative analyzed;

              (e) an analysis (and sensitivity  analyses reasonably requested by
either  Participant),  based  on  various  target  rates  of  return  and  price
assumptions  requested  by either  Participant,  of whether  it is  technically,
environmentally,  and  economically  feasible to place a prospective ore body or
deposit  within  the  Properties  into  commercial  production  for  each of the
Development and Mining  alternatives  analyzed (including a discounted cash flow
rate of return  investment  analysis for each  alternative and net present value
estimate using various discount rates requested by either Participant); and

              (f) such  other  information  as the  Management  Committee  deems
appropriate.

Within sixty (60) days after  delivery of the  Pre-Feasibility  Study summary to
the  Participants,  a  Management  Committee  meeting  shall be convened for the
purposes of reviewing  the  Pre-Feasibility  Study  summary and selecting one or
more Approved Alternatives, if any.

         9.9 PROGRAMS AND BUDGETS FOR FEASIBILITY STUDY.  Within sixty (60) days
following the selection of an Approved Alternative,  the Manager shall submit to
the Management  Committee a Program and a Budget,  which shall include necessary
Operations,  for the preparation of a Feasibility Study. A Feasibility Study may
be prepared by the Manager, Feasibility Contractors, or both, or may be prepared
by the  Manager  and  audited  by  Feasibility  Contractors,  as the  Management
Committee determines.

                                      E-28
<PAGE>

         9.10 DEVELOPMENT PROGRAMS AND BUDGETS; PROJECT FINANCING.

              (a) Unless otherwise determined by the Management  Committee,  the
Manager  shall not  submit to the  Management  Committee  a Program  and  Budget
including  Development  of the mine described in a completed  Feasibility  Study
until sixty (60) days following the receipt by Manager of the Feasibility Study.
The Program and Budget,  which includes Development of the mine described in the
completed Feasibility Study, shall be based on the estimated cost of Development
described  in  the  Feasibility  Study  for  the  Approved  Alternative,  unless
otherwise directed by the Management Committee.

              (b) Promptly following  adoption of the Program and Budget,  which
includes  Development as described in a completed  Feasibility  Study, but in no
event more than ninety (90) days  thereafter,  the Manager  shall  submit to the
Management  Committee a report on material  bids received for  Development  work
("BID REPORT"). If bids described in the Bid Report result in the aggregate cost
of  Development  work  exceeding  one  hundred  twenty  percent  (120%)  of  the
Development cost estimates that formed the basis of the Development component of
the adopted Program and Budget, the Program and Budget,  which includes relevant
Development,  shall  be  deemed  to  have  been  resubmitted  to the  Management
Committee  based on the  aggregate  costs as  described in the Bid Report on the
date of  receipt  of the Bid  Report  and  shall  be  reviewed  and  adopted  in
accordance with SECTIONS 7.2 and 9.4.

              (c) If the Management  Committee  approves the  Development of the
mine described in a Feasibility Study and also decides to seek Project Financing
for such mine, each Participant shall, at its own cost,  cooperate in seeking to
obtain  Project  Financing  for such  mine;  provided,  however,  that all fees,
charges and costs (including  attorneys and technical  consultants fees) paid to
the Project  Financing  lenders shall be borne by the Participants in proportion
to their Participating Interests,  unless such fees are capitalized as a part of
the Project Financing.

         9.11 EXPANSION OR  MODIFICATION  PROGRAMS AND BUDGETS.  Any Program and
Budget  proposed by the Manager  involving  Expansion or  Modification  shall be
based on a Feasibility Study prepared by the Manager,  Feasibility  Contractors,
or both, or prepared by the Manager and audited by Feasibility  Contractors,  as
the  Management  Committee  determines.  The Program and Budget,  which  include
Expansion or  Modification,  shall be  submitted  for review and approval by the
Management  Committee within sixty (60) days following receipt by the Manager of
such Feasibility Study.

         9.12 BUDGET  OVERRUNS;  PROGRAM  CHANGES.  With  respect to all adopted
Programs  and  Budgets,  the Manager  shall  immediately  notify the  Management
Committee of any material  departure from an adopted Program and Budget.  If the
Manager  exceeds an adopted  Budget by more than  fifteen  percent  (15%) in the
aggregate, then the excess over fifteen percent (15%), unless directly caused by
an emergency or unexpected  expenditure  made pursuant to SECTION 9.13 or unless
otherwise authorized or ratified by the Management  Committee,  shall be for the
sole  account  of the  Manager  and such  excess  shall not be  included  in the
calculations of the Participating Interests nor deemed a contribution under this
Agreement.  Budget  overruns of fifteen  percent  (15%) or less in the aggregate
shall  be  borne  by  the   Participants  in  proportion  to  their   respective
Participating Interests.

                                      E-29
<PAGE>

         9.13 EMERGENCY OR UNEXPECTED  EXPENDITURES.  In case of emergency,  the
Manager may take any  reasonable  action it deems  necessary  to protect life or
property,  to protect  the Assets or to comply  with Laws.  The Manager may make
reasonable expenditures on behalf of the Participants for unexpected events that
are beyond its reasonable  control and that do not result from a breach by it of
its standard of care. The Manager shall promptly notify the  Participants of the
emergency or unexpected expenditure, and the Manager shall be reimbursed for all
resulting  costs  by  the   Participants  in  proportion  to  their   respective
Participating Interests.

                                    ARTICLE X
                            ACCOUNTS AND SETTLEMENTS

         10.1 MONTHLY  STATEMENTS.  The Manager  shall submit to the  Management
Committee  monthly  statements of account  reflecting  in reasonable  detail the
charges and credits to the Business Account during the preceding month.

         10.2 CASH CALLS. On the basis of each adopted  Program and Budget,  the
Manager shall submit prior to the last day of each month a billing for estimated
cash requirements for the next month. Within ten (10) days after receipt of each
billing,  or a billing made pursuant to SECTION 9.13 or 12.4,  each  Participant
shall advance its  proportionate  share of such cash  requirements.  The Manager
shall record all funds  received in the Business  Account.  The Manager shall at
all  times  maintain  a  cash  balance   approximately  equal  to  the  rate  of
disbursement  for up to sixty (60) days.  All funds in excess of immediate  cash
requirements shall be invested by the Manager for the benefit of the Business in
cash  management  accounts and  investments  selected at the  discretion  of the
Manager,  which  accounts  may  include,  but are not limited to,  money  market
investments and money market funds.

              (a)  Following the decision to commence  Development  or Mining on
any of the Properties, the Manager shall give the non-Manager notice of the time
and amount of the first cash call. The  non-Manager  shall have a period of four
(4) months from  receipt of this notice in which to obtain  financing to satisfy
its financial  obligations under the development and mining plan. If, at the end
of that four months,  the non-Manager has obtained a letter of commitment from a
lender or other financial institution to provide financing for the non-Manager's
share of expenses,  the non-Manager  shall have an additional  period of two (2)
months  in which to secure  its  financing  and meet its cash  call  obligation.
During  this  period  of  four or six  months,  the  Manager  may  proceed  with
development  of the  Properties  and advance the  non-Manager's  share of costs.
These advances by the Manager, together with interest at an annual rate equal to
two (2) percentage  points over the Prime Rate,  shall become a lien against the
non-Manager's share of production.

         10.3 FAILURE TO MEET CASH CALLS. A Participant  that fails to meet cash
calls in the  amount  and at the times  specified  in  SECTION  10.2 shall be in
default, and the amounts of the defaulted cash call shall bear interest from the
date due at an annual rate equal to three (3)  percentage  points over the Prime
Rate, but in no event shall the rate of interest exceed the maximum permitted by
Law.  Such  interest  shall  accrue  to the  benefit  of and be  payable  to the
non-defaulting  Participant,  but shall not be deemed as amounts  contributed by
the  non-defaulting  Participant in the event dilution occurs in accordance with
ARTICLE VI. In addition to any other rights and remedies

                                      E-30
<PAGE>

available to it by Law, the  non-defaulting  Participant  shall have those other
rights, remedies, and elections specified in SECTIONS 10.4 and 10.5.

         10.4 COVER PAYMENT. If a Participant  defaults in making a contribution
or cash call  required  by an adopted  Program and  Budget,  the  non-defaulting
Participant  may, but shall not be obligated to,  advance some portion or all of
the  amount  in  default  on  behalf  of the  defaulting  Participant  (a "COVER
PAYMENT").  Each and every Cover Payment shall  constitute a demand loan bearing
interest  from the date of the advance at the rate  provided in SECTION 10.3. If
more than one Cover Payment is made,  the Cover Payments shall be aggregated and
the rights and remedies  described  herein  pertaining  to an  individual  Cover
Payment shall apply to the aggregated Cover Payments.  The failure to repay such
loan upon demand shall be a default.

         10.5 REMEDIES. The Participants  acknowledge that if either Participant
defaults in making a  contribution  required by ARTICLE V or a cash call,  or in
repaying a loan, as required under SECTIONS 10.2, 10.3 or 10.4, whether or not a
Cover  Payment is made,  it will be difficult  to measure the damages  resulting
from such default (it being hereby  understood and agreed that the  Participants
have  attempted to determine  such  damages in advance and  determined  that the
calculation of such damages cannot be ascertained  with  reasonable  certainty).
Both   Participants   acknowledge   and   recognize   that  the  damage  to  the
non-defaulting  Participant could be significant.  In the event of such default,
as reasonable  liquidated  damages,  the  non-defaulting  Participant  may, with
respect to any such  default not cured  within  thirty (30) days after notice to
the defaulting  Participant of such default, elect any of the following remedies
by giving notice to the defaulting  Participant.  Such election may be made with
respect to each  failure to meet a cash call  relating  to a Program and Budget,
regardless  of the  frequency of such cash calls,  provided  such cash calls are
made in accordance with SECTION 10.2.

              (a)  The  defaulting  Participant  grants  to  the  non-defaulting
Participant  a power of sale as to all or any  portion  of its  interest  in any
Assets or in its Participating Interest that is subject to the lien and security
interest granted in SECTION 6.6 (whether or not such lien and security  interest
has been  perfected),  upon a default under  SECTIONS  10.3 or 10.4.  Such power
shall be exercised in the manner  provided by  applicable  Law or otherwise in a
commercially reasonable manner and upon reasonable notice. If the non-defaulting
Participant  elects to enforce  the lien or  security  interest  pursuant to the
terms of this  SUBSECTION,  the defaulting  Participant  shall be deemed to have
waived any available right of redemption, any required valuation or appraisal of
the secured  property prior to sale, any available right to stay execution or to
require a marshaling of assets, and any required bond in the event a receiver is
appointed, and the defaulting Participant shall be liable for any deficiency.

              (b)  The   non-defaulting   Participant  may  elect  to  have  the
defaulting  Participant's   Participating  Interest  diluted  or  eliminated  as
follows:

              (i) For a default  occurring  before Payout  relating to a Program
and Budget covering in whole or in part  Exploration,  Pre-Feasibility  Study or
Feasibility Study Operations,  the Reduced Participant's  Participating Interest
shall be recalculated  by dividing:  (X) the sum of (1) the value of the Reduced
Participant's  Initial  Contribution  under SECTION 5.2, (2) the total of all of
the Reduced  Participant's  contributions under SECTION 5.3, and (3) the amount,
if any, the

                                      E-31
<PAGE>

Reduced  Participant  contributed to the adopted Program and Budget with respect
to which the default occurred; by (Y) the sum of (1), (2) and (3) above for both
Participants; and then multiplying the result by one hundred. For such a default
occurring after Payout, the Reduced Participant's  Participating  Interest shall
be  reduced  in an amount  equal to two times the  amount by which it would have
been  reduced if such default had occurred  before  Payout.  For such a default,
whether  occurring  before  or  after  Payout,  the  Recalculated  Participating
Interest shall then be further reduced:

              (A) for a default relating  exclusively to an Exploration  Program
and  Budget,  by  multiplying  the  Recalculated  Participating  Interest by the
following percentage: 90%; or

              (B) for a default  relating  to a Program  and Budget  covering in
whole or in part Pre-Feasibility  Study and/or Feasibility Study Operations,  by
multiplying the Recalculated Participating Interest by the following percentage:
80%.

The  Participating  Interest of the other  Participant shall be increased by the
amount  of  the  reduction  in  the   Participating   Interest  of  the  Reduced
Participant,  including the further reduction under SUBSECTIONS 10.5(B)(I)(A) or
(B).

              (ii) For a default  relating to a Program  and Budget  covering in
whole or in part  Development  or Mining,  at the  non-defaulting  Participant's
election,  the defaulting  Participant  shall be deemed to have withdrawn and to
have automatically relinquished its interest in the Assets to the non-defaulting
Participant;  provided, however, the defaulting Participant shall have the right
to receive only from ten percent (10%) of Net Proceeds, if any, and not from any
other  source,   an  amount  equal  to  ten  percent  (10%)  of  the  defaulting
Participant's  Equity Account balance at the time of such default.  Upon receipt
of such  amount the  defaulting  Participant  shall  thereafter  have no further
right,  title or interest in the Assets,  but shall remain  liable to the extent
provided in SECTION 6.4.

              (iii) Dilution under this SUBSECTION 10.5(B) shall be effective as
of the date of the original default, and SECTION 9.6 shall not apply. The amount
of any Cover Payment under  SECTION 10.4 and interest  thereon,  or any interest
accrued  in  accordance  with  SECTION  10.3,  shall  be  deemed  to be  amounts
contributed by the non-defaulting Participant, and not as amounts contributed by
the defaulting Participant.

              (iv)  Whenever  the   Participating   Interests  are  recalculated
pursuant  to  this  SUBSECTION   10.5(B),   (A)  the  Equity  Accounts  of  both
Participants  shall be  adjusted  to bear the same  ratio to each other as their
recalculated  Participating  Interests;  and (B) the portion of Capital  Account
attributable to the reduced  Participating  Interest of the Reduced  Participant
shall be transferred to the other Participant.

         (c) If a Participant has defaulted in meeting a cash call or repaying a
loan, and if the non-defaulting  Participant has made a Cover Payment,  then, in
addition to a reduction in the defaulting  Participant's  Participating Interest
effected pursuant to SUBSECTION  10.5(B),  the non-defaulting  Participant shall
have the right, if the  indebtedness  arising

                                      E-32
<PAGE>

from a default or Cover Payment is not discharged within forty-five (45) days of
the  default  and upon not less  than  thirty  (30) days  advance  notice to the
defaulting Participant, to elect to purchase all the right, title, and interest,
whenever  acquired  or arising,  of the  defaulting  Participant  in the Assets,
including  but not  limited to its  Participating  Interest  or  interest in Net
Proceeds,  together  with all  proceeds  from and  accessions  of the  foregoing
(collectively  the  "DEFAULTING  PARTICIPANT'S  ENTIRE  INTEREST") at a purchase
price  equal to  eighty  percent  (80%)  of the fair  market  value  thereof  as
determined by a qualified  independent appraiser appointed by the non-defaulting
Participant.  If the defaulting  Participant  conveys notice of objection to the
person so appointed within ten (10) days after receiving notice thereof, then an
independent  and qualified  appraiser  shall be appointed by the joint action of
the  appraiser  appointed  by the  non-defaulting  Participant  and a  qualified
independent  appraiser  appointed  by  the  defaulting  Participant;   provided,
however,  that if the  defaulting  Participant  fails to  designate  a qualified
independent  appraiser for such purpose within ten (10) days after giving notice
of such objection,  then the person originally  designated by the non-defaulting
Participant  shall  serve  as  the  appraiser;  provided  further,  that  if the
appraisers  appointed  by  each of the  Participants  fail  to  appoint  a third
qualified  independent  appraiser  within five (5) days after the appointment of
the last of them,  then an appraiser shall be appointed by a judge of a court of
competent  jurisdiction  in the state in which the Assets are situated  upon the
application  of either  Participant.  There shall be withheld  from the purchase
price payable,  upon transfer of the Defaulting  Participant's  Entire Interest,
the amount of any Cover Payment under SECTION 10.4 and unpaid  interest  thereon
to the date of such transfer,  or any unpaid interest accrued in accordance with
SECTION 10.3 to the date of such transfer.  Upon payment of such purchase price,
the  defaulting  Participant  shall be  deemed to have  relinquished  all of the
Defaulting Participant's Entire Interest to the non-defaulting Participant,  but
shall remain liable to the extent provided in SECTION 6.4.

         10.6 AUDITS.

              (a) Within sixty (60) days after the end of each calendar year, at
the request of a  Participant,  an audit shall be completed by certified  public
accountants  selected by, and  independent  of, the Manager.  The audit shall be
conducted in accordance  with generally  accepted  auditing  standards and shall
cover  all  books  and  records  maintained  by the  Manager  pursuant  to  this
Agreement,  all Assets and  Encumbrances,  and all  transactions  and Operations
conducted during such calendar year,  including production and inventory records
and all costs for which the Manager sought  reimbursement  under this Agreement,
together with all other matters customarily included in such audits. All written
exceptions  to and claims upon the Manager for  discrepancies  disclosed by such
audit  shall be made not more than three (3) months  after  receipt of the audit
report,  unless  either  Participant  elects to  conduct  an  independent  audit
pursuant  to  SUBSECTION  10.6(B)  which is ongoing at the end of such three (3)
month period,  in which case such  exceptions  and claims may be made within the
period  provided in SUBSECTION  10.6(b).  Failure to make any such  exception or
claim  within  such  period  shall  mean the audit is deemed to be  correct  and
binding  upon the  Participants.  The cost of all audits  under this  SUBSECTION
shall be charged to the Business Account.

              (b) Notwithstanding the annual audit conducted by certified public
accountants  selected by the Manager,  each Participant  shall have the right to
have an independent audit of all Business books, records and accounts, including
all charges to the Business  Account.  This audit shall review all issues raised
by  the  requesting  Participant,   with  all  costs  borne  by  the  requesting
Participant.  The requesting Participant shall give the other Participant thirty
(30) days

                                      E-33
<PAGE>

prior notice of such audit. Any audit conducted on behalf of either  Participant
shall be made during the Manager's normal business hours and shall not interfere
with Operations.  Neither  Participant shall have the right to audit records and
accounts  of the  Business  relating to  transactions  or  Operations  more than
twenty-four (24) months after the calendar year during which such  transactions,
or  transactions  related  to such  Operations,  were  charged  to the  Business
Account. All written exceptions to and claims upon the Manager for discrepancies
disclosed  by such  audit  shall be made not more than  three (3)  months  after
completion and delivery of such audit, or they shall be deemed waived.

                                   ARTICLE XI
                            DISPOSITION OF PRODUCTION

         11.1 TAKING IN KIND. Each Participant  shall take in kind or separately
dispose  of its  share  of  all  Products  in  proportion  to its  Participating
Interest.  Any extra  expenditure  incurred  in the  taking in kind or  separate
disposition by either  Participant of its proportionate  share of Products shall
be borne by such  Participant.  Nothing in this Agreement  shall be construed as
providing,  directly or indirectly,  for any joint or  cooperative  marketing or
selling of Products or permitting  the processing of Products owned by any third
party at any processing  facilities  constructed by the Participants pursuant to
this  Agreement.  The Manager  shall give  notice in advance of the  anticipated
delivery date upon which Products will be available.

         11.2 FAILURE OF PARTICIPANT TO TAKE IN KIND. If a Participant  fails to
take its  proportionate  share of Products in kind,  the Manager  shall have the
right, but not the obligation,  for a period of time consistent with the minimum
needs of the  industry,  but not to  exceed  one (1) year from the  notice  date
described  in SECTION  11.1,  to purchase  the  Participant's  share for its own
account or to sell such share as agent for the  Participant at not less than the
prevailing market price in the area.  Subject to the terms of any such contracts
of sale then  outstanding,  during any period that the Manager is  purchasing or
selling a Participant's share of production, the Participant may elect by notice
to the  Manager to take in kind.  The  Manager  shall be entitled to deduct from
proceeds of any sale by it for the account of a Participant  reasonable expenses
incurred in such a sale.

         11.3 HEDGING.  Neither Participant shall have any obligation to account
to the other Participant for, nor have any interest or right of participation in
any profits or proceeds  nor have any  obligation  to share in any losses  from,
futures contracts, forward sales, trading in puts, calls, options or any similar
hedging,  price protection or marketing mechanism employed by a Participant with
respect to its  proportionate  share of any Products  produced or to be produced
from the Properties.

                                   ARTICLE XII
                           WITHDRAWAL AND TERMINATION

         12.1  TERMINATION  BY  EXPIRATION OR AGREEMENT.  This  Agreement  shall
terminate as expressly  provided  herein,  unless earlier  terminated by written
agreement.

                                      E-34
<PAGE>

         12.2  TERMINATION  BY DEADLOCK.  If the Management  Committee  fails to
adopt a Program and Budget for twelve (12) months  after the  expiration  of the
latest adopted Program and Budget, either Participant may elect to terminate the
Business  by  giving  sixty  (60)  days  notice  of  termination  to  the  other
Participant.

         12.3 WITHDRAWAL.  A Participant may elect to withdraw from the Business
by giving notice to the other  Participant  of the effective date of withdrawal,
which shall be the later of the end of the then current Program Period or thirty
(30) days after the date of the notice. Upon such withdrawal, the Business shall
terminate,  and the withdrawing  Participant shall be deemed to have transferred
to the remaining Participant all of its Participating Interest, including all of
its interest in the Assets,  without cost and free and clear of all Encumbrances
arising  by,  through  or  under  such  withdrawing  Participant,  except  those
described  in  PARAGRAPH  1.1 OF EXHIBIT A and those to which both  Participants
have  agreed.  The  withdrawing   Participant  shall  execute  and  deliver  all
instruments  as may  be  necessary  in  the  reasonable  judgment  of the  other
Participant  to effect the transfer of its  interests in the Assets to the other
Participant.  If  within a sixty  (60) day  period  both  Participants  elect to
withdraw,  then the Business shall instead be deemed to have been  terminated by
the consent of the Participants pursuant to SECTION 12.1.

         12.4  CONTINUING   OBLIGATIONS  AND   ENVIRONMENTAL   LIABILITIES.   On
termination of the Business under SECTIONS 12.1, 12.2 or 12.3, each  Participant
shall remain liable for its  respective  share of  liabilities  to third persons
(whether such arises before or after such withdrawal),  including  Environmental
Liabilities and Continuing Obligations.  The withdrawing  Participant's share of
such liabilities shall be equal to its  Participating  Interest at the time such
liability  was  incurred,   after  first  taking  into  account  any  reduction,
readjustment,  and  restoration of  Participating  Interests under SECTIONS 6.3,
9.5, 9.6 and 10.5 (or, as to  liabilities  arising prior to the Effective  Date,
its initial Participating Interest).

         12.5 DISPOSITION OF ASSETS ON TERMINATION.  Promptly after  termination
under SECTIONS 12.1 or 12.2, the Manager shall take all action necessary to wind
up the activities of the Business,  in accordance  with EXHIBIT C. All costs and
expenses  incurred in connection  with the  termination of the Business shall be
expenses chargeable to the Business Account.

         12.6  NON-COMPETE  COVENANTS.  Neither  a  Participant  that  withdraws
pursuant to SECTION  12.3, or is deemed to have  withdrawn  pursuant to SECTIONS
6.3 or  10.5,  nor  any  Affiliate  of such a  Participant,  shall  directly  or
indirectly  acquire any  interest or right to explore or mine,  or both,  on any
property any part of which is within the Area of Interest for  twenty-four  (24)
months after the effective date of withdrawal. If a withdrawing Participant,  or
the Affiliate of a  withdrawing  Participant,  breaches this SECTION 12.6,  such
Participant  shall  be  obligated  to  offer to  convey  to the  non-withdrawing
Participant,  without cost, any such property or interest so acquired (or ensure
its Affiliate  offers to convey the property or interest to the  non-withdrawing
Participant, if the acquiring party is the withdrawing Participant's Affiliate).
Such offer shall be made in writing  and can be accepted by the  non-withdrawing
Participant at any time within ten (10) days after the offer is received by such
non-withdrawing Participant. Failure of a Participant's Affiliate to comply with
this SECTION 12.6 shall be a breach by such Participant of this Agreement.

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<PAGE>

         12.7 RIGHT TO DATA AFTER TERMINATION. After termination of the Business
pursuant to SECTIONS 12.1 or 12.2,  each  Participant  shall be entitled to make
copies of all applicable  information  acquired  hereunder  before the effective
date of  termination  not  previously  furnished  to it,  but a  terminating  or
withdrawing Participant shall not be entitled to any such copies after any other
termination or withdrawal.

         12.8  CONTINUING  AUTHORITY.  On  termination  of  the  Business  under
SECTIONS  12.1,  12.2 or 12.3 or the  deemed  withdrawal  of either  Participant
pursuant to SECTION 10.5,  the  Participant  which was the Manager prior to such
termination or withdrawal (or the other Participant in the event of a withdrawal
by the Manager) shall have the power and authority to do all things on behalf of
both Participants  which are reasonably  necessary or convenient to: (a) wind up
Operations  and  (b)  complete  any  transaction  and  satisfy  any  obligation,
unfinished or unsatisfied, at the time of such termination or withdrawal, if the
transaction or obligation  arises out of Operations prior to such termination or
withdrawal.  The Manager  shall have the power and authority to grant or receive
extensions  of time or change  the  method of  payment  of an  already  existing
liability  or  obligation,  prosecute  and  defend  actions  on  behalf  of both
Participants and the Business,  encumber  Assets,  and take any other reasonable
action in any matter with respect to which the former  Participants  continue to
have, or appear or are alleged to have, a common interest or a common liability.

                                  ARTICLE XIII
                      ACQUISITIONS WITHIN AREA OF INTEREST

         13.1  GENERAL.  Any  interest or right to acquire any  interest in real
property or water  rights  related  thereto  within the Area of Interest  either
acquired or proposed to be acquired  during the term of this  Agreement by or on
behalf of either Participant ("ACQUIRING  PARTICIPANT") or any Affiliate of such
Participant  shall be subject  to the terms and  provisions  of this  Agreement.
Golden Phoenix and Borealis and their  respective  Affiliates for their separate
account  shall be free to acquire  lands and interests in lands outside the Area
of Interest and to locate mining claims outside the Area of Interest. Failure of
any Affiliate of either  Participant to comply with this ARTICLE XIII shall be a
breach by such Participant of this Agreement.

         13.2 NOTICE TO NON-ACQUIRING PARTICIPANT. Within thirty (30) days after
the acquisition or proposed acquisition,  as the case may be, of any interest or
the right to acquire any  interest in real  property or water  rights  wholly or
partially  within the Area of Interest  (except  real  property  acquired by the
Manager pursuant to a Program), the Acquiring Participant shall notify the other
Participant of such acquisition by it or its Affiliate; provided further that if
the  acquisition  of any interest or right to acquire any  interest  pertains to
real property or water rights  partially  within the Area of Interest,  then all
such real  property  (i.e.,  the part within the Area of  Interest  and the part
outside  the Area of  Interest)  shall be  subject  to this  ARTICLE  XIII.  The
Acquiring  Participant's  notice shall describe in detail the  acquisition,  the
acquiring  party if that party is an Affiliate,  the lands and minerals  covered
thereby, any water rights related thereto, the cost thereof, and the reasons why
the  Acquiring   Participant   believes  that  the   acquisition   (or  proposed
acquisition) of the interest is in the best interests of the Participants  under
this Agreement. In addition to such notice, the Acquiring Participant shall make
any  and  all  information   concerning  the  relevant  interest  available  for
inspection by the other Participant.

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<PAGE>

         13.3  OPTION  EXERCISED.  Within  sixty (60) days after  receiving  the
Acquiring  Participant's  notice, the other Participant may notify the Acquiring
Participant of its election to accept a  proportionate  interest in the acquired
interest equal to its  Participating  Interest.  Promptly upon such notice,  the
Acquiring  Participant  shall  convey  or cause its  Affiliate  to convey to the
Participants,  in proportion to their  respective  Participating  Interests,  by
special  warranty  deed with title held as  described in SECTION 3.4, all of the
Acquiring Participant's (or its Affiliate's) interest in such acquired interest,
free and clear of all  Encumbrances  arising by,  through or under the Acquiring
Participant (or its Affiliate) other than those to which both  Participants have
agreed.  The acquired  interests  shall become a part of the  Properties for all
purposes of this Agreement  immediately upon such notice.  The other Participant
shall promptly pay to the Acquiring  Participant its proportionate  share of the
latter's actual out-of-pocket acquisition costs.

         13.4 OPTION NOT EXERCISED.  If the other Participant does not give such
notice within the sixty (60) day period set forth in SECTION 13.3, it shall have
no interest in the acquired interests, and the acquired interests shall not be a
part of the Assets or continue to be subject to this Agreement.

                                   ARTICLE XIV
                     ABANDONMENT AND SURRENDER OF PROPERTIES

         Either  Participant  may request the Management  Committee to authorize
the  Manager to  surrender  or  abandon  part or all of the  Properties.  If the
Management  Committee  does not  authorize  such  surrender or  abandonment,  or
authorizes  any such  surrender  or  abandonment  over the  objection  of either
Participant,  the Participant  that desires to surrender or abandon shall assign
to the objecting  Participant,  by special warranty deed and without cost to the
objecting  Participant,  all of the  abandoning  Participant's  interest  in the
Properties  sought  to be  abandoned  or  surrendered,  free  and  clear  of all
Encumbrances created by, through or under the abandoning  Participant other than
those to  which  both  Participants  have  agreed.  Upon  the  assignment,  such
properties  shall  cease  to be part of the  Properties.  The  Participant  that
desires to abandon or surrender shall remain liable for its share (determined by
its  Participating  Interest  as of the date of such  abandonment,  after  first
taking  into  account  any   reduction,   readjustment,   and   restoration   of
Participating  Interests under Sections 6.3, 9.5, 9.6 and 10.5) of any liability
with  respect to such  Properties,  including,  without  limitation,  Continuing
Obligations,  Environmental  Liabilities and Environmental  Compliance,  whether
accruing before or after such  abandonment,  arising out of activities  prior to
the  Effective  Date and out of Operations  conducted  prior to the date of such
abandonment,  regardless  of when any  funds may be  expended  to  satisfy  such
liability.

                                   ARTICLE XV
                         SUPPLEMENTAL BUSINESS AGREEMENT

         At any time during the term of this Agreement, the Management Committee
may determine by unanimous vote of both  Participants  that it is appropriate to
segregate  the Area of  Interest  into areas  subject to separate  Programs  and
Budgets for  purposes of  conducting  further  Exploration,  Pre-Feasibility  or
Feasibility  Studies,  Development,  or  Mining.  At such time,  the  Management
Committee  shall designate which portion of the Properties will comprise an area
of interest under a separate business arrangement ("SUPPLEMENTAL BUSINESS"), and
the  Participants

                                      E-37
<PAGE>

shall enter into a new agreement  ("SUPPLEMENTAL  BUSINESS  AGREEMENT")  for the
purpose of further exploring, analyzing,  developing, and mining such portion of
the Properties.  The Supplemental  Business  Agreement shall be in substantially
the same form as this Agreement,  with rights and interests of the  Participants
in the  Supplemental  Business  identical  to the  rights and  interests  of the
Participants in this Business at the time of the  designation,  unless otherwise
agreed by the  Participants,  and with the Participants  agreeing to new Capital
and Equity  Accounts and other terms  necessary  for the  Supplemental  Business
Agreement  to comply with the nature and purpose of the  designation.  Following
execution of the Supplemental Business Agreement, this Agreement shall terminate
insofar as it  affects  the  Properties  covered  by the  Supplemental  Business
Agreement.

                                   ARTICLE XVI
                     TRANSFER OF INTEREST; PREEMPTIVE RIGHT

         16.1 GENERAL. A Participant shall have the right to Transfer to a third
party an interest in its Participating  Interest,  including an interest in this
Agreement or the Assets, solely as provided in this ARTICLE XVI.

         16.2  LIMITATIONS  ON FREE  TRANSFERABILITY.  Any  Transfer  by  either
Participant under SECTION 16.1 shall be subject to the following limitations:

              (a)  Neither  Participant  shall  Transfer  any  interest  in this
Agreement or the Assets (including, but not limited to, any royalty, profits, or
other interest in the Products)  except in conjunction with the Transfer of part
or all of its Participating Interest;

              (b)  No  transferee  of  all  or  any  part  of  a   Participant's
Participating  Interest shall have the rights of a Participant  unless and until
the transferring Participant has provided to the other Participant notice of the
Transfer,  and,  except as provided in  SUBSECTIONS  16.2(G)  and  16.2(H),  the
transferee,  as of the effective date of the Transfer,  has committed in writing
to assume and be bound by this Agreement to the same extent as the  transferring
Participant;

              (c)  Neither  Participant,   without  the  consent  of  the  other
Participant,  shall make a Transfer that shall violate any Law, or result in the
cancellation of any permits, licenses, or other similar authorization;

              (d) No Transfer  permitted by this  ARTICLE XVI shall  relieve the
transferring Participant of its share of any liability,  whether accruing before
or after such Transfer,  which arises out of Operations  conducted prior to such
Transfer or exists on the Effective Date;

              (e)  Neither  Participant,   without  the  consent  of  the  other
Participant,  shall make a  Transfer  that shall  cause  termination  of the tax
partnership  established  by SECTION  4.2. If such  termination  is caused,  the
transferring  Participant  shall indemnify the other  Participant  for, from and
against any and all loss,  cost,  expense,  damage,  liability or claim therefor
arising from the Transfer,  including without  limitation any increase in taxes,
interest and penalties or decrease in credits caused by such termination and any
tax on indemnification proceeds received by the Indemnified Participant.

                                      E-38
<PAGE>

              (f) In the event of a Transfer of less than all of a Participating
Interest,  the  transferring  Participant  and its  transferee  shall act and be
treated as one Participant; provided however, that in order for such Transfer to
be effective, the transferring Participant and its transferee must first:

              (i) agree, as between  themselves,  that one of them is authorized
to act as the sole agent  ("AGENT")  on their behalf with respect to all matters
pertaining to this Agreement and the Business; and

              (ii) notify the other Participant of the designation of the Agent,
and in such notice warrant and represent to other Participant that:

              (A) the Agent has the sole  authority  to act on behalf of, and to
bind,  the  transferring  Participant  and its  transferee  with  respect to all
matters pertaining to this Agreement and the Business;

              (B) the other  Participant  may rely on all decisions of,  notices
and other  communications  from,  and  failures to respond by, the Agent,  as if
given (or not given) by the transferring Participant and its transferee; and

              (C) all decisions of, notices and other  communications  from, and
failures  to respond by, the other  Participant  to the Agent shall be deemed to
have  been  given  (or  not  given)  to the  transferring  Participant  and  its
transferee.

The  transferring  Participant and its transferee may change the Agent (but such
replacement  must be one of them) by giving  notice  to the  other  Participant,
which notice must conform to SUBSECTION 16.2(F)(II).

              (g)  If  the  Transfer  is  the  grant  of  an  Encumbrance  in  a
Participating  Interest  to  secure  a loan  or  other  indebtedness  of  either
Participant  in a bona  fide  transaction,  other  than a  transaction  approved
unanimously by the  Management  Committee or Project  Financing  approved by the
Management Committee,  such Encumbrance shall be granted only in connection with
such  Participant's  financing  payment  or  performance  of that  Participant's
obligations  under  this  Agreement  and shall be  subject  to the terms of this
Agreement  and the  rights  and  interests  of the other  Participant  hereunder
(including  without limitation under SECTION 6.7). Any such Encumbrance shall be
further subject to the condition that the holder of such Encumbrance ("CHARGEE")
first  enter  into a  written  agreement  with  the  other  Participant  in form
satisfactory  to the other  Participant,  acting  reasonably,  binding  upon the
Chargee, to the effect that:

              (i) the Chargee  shall not enter into  possession or institute any
proceedings  for  foreclosure  or  partition  of the  encumbering  Participant's
Participating  Interest  and  that  such  Encumbrance  shall be  subject  to the
provisions of this Agreement;

              (ii) the Chargee's remedies under the Encumbrance shall be limited
to  the  sale  of  the  whole  (but  only  of  the  whole)  of  the  encumbering
Participant's Participating Interest to the other Participant,  or, failing such
a sale,  at a public  auction to be held at

                                      E-39
<PAGE>

least ninety (90) days after prior notice to the other Participant, such sale to
be subject to the  purchaser  entering into a written  agreement  with the other
Participant  whereby such purchaser  assumes all  obligations of the encumbering
Participant under the terms of this Agreement.  The price of any preemptive sale
to the other  Participant  shall be the remaining  principal  amount of the loan
plus accrued interest and related expenses, and such preemptive sale shall occur
within sixty (60) days of the Chargee's  notice to the other  Participant of its
intent to sell the encumbering Participant's  Participating Interest. Failure of
a sale to the  other  Participant  to  close by the end of such  period,  unless
failure is caused by the encumbering Participant or by the Chargee, shall permit
the Chargee to sell the encumbering  Participant's  Participating  Interest at a
public sale; and

              (iii) the charge shall be subordinate to any  then-existing  debt,
including Project  Financing  previously  approved by the Management  Committee,
encumbering the transferring Participant's Participating Interest;

              (h) If a sale or other  commitment or  disposition  of Products or
proceeds from the sale of Products by either Participant upon distribution to it
pursuant  to  ARTICLE  XI  creates  in a third  party  a  security  interest  by
Encumbrance in Products or proceeds therefrom prior to such  distribution,  such
sales, commitment or disposition shall be subject to the terms and conditions of
this Agreement including, without limitation, SECTION 6.7.

         16.3 PREEMPTIVE RIGHT. Any Transfer by either Participant under SECTION
16.1 and any Transfer by an Affiliate of Control of either  Participant shall be
subject to a preemptive right of the other Participant to the extent provided in
EXHIBIT H. Failure of a Participant's  Affiliate to comply with this ARTICLE XVI
and EXHIBIT H shall be a breach by such Participant of this Agreement.

                                  ARTICLE XVII
                                    DISPUTES

         17.1  GOVERNING  LAW.  Except for matters of title to the Properties or
their  Transfer,  which  shall  be  governed  by the law of  their  situs,  this
Agreement  shall be governed by and  interpreted in accordance  with the laws of
the State of Nevada,  without  regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws of any other
jurisdiction.

         17.2 JURISDICTION AND VENUE. Each of the Participants hereby attorns to
the exclusive  jurisdiction  of the courts of the state of Nevada or the federal
district court for the District of Nevada,  as may be applicable,  in respect of
any  disputes  arising  under this  Agreement,  with venue to be in the state of
Nevada.

         17.3 DISPUTE  RESOLUTION.  All disputes  arising under or in connection
with  this  Agreement  which  cannot  be  resolved  by  agreement   between  the
Participants  shall be resolved in accordance  with applicable Law. If any legal
action or other proceeding is brought for the enforcement of this Agreement,  or
because  of  an  alleged  dispute,  breach,  default,  or  misrepresentation  in
connection  with any of the  provisions  of this  Agreement,  the  successful or
substantially  prevailing  Participant  shall be entitled to recover  reasonable
attorneys'  fees and other

                                      E-40
<PAGE>

costs incurred in that action or proceeding,  in addition to any other relief to
which it or they may be entitled.

                                 ARTICLE XVIII
          CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE OF INFORMATION

         18.1  BUSINESS  INFORMATION.  All Business  Information  shall be owned
jointly by the  Participants  as their  Participating  Interests are  determined
pursuant  to this  Agreement.  Both  before  and  after the  termination  of the
Business,  all Business  Information  may be used by either  Participant for any
purpose, whether or not competitive with the Business,  without consulting with,
or obligation to, the other Participant. Except as provided in SECTIONS 18.3 and
18.4,  or  with  the  prior  written  consent  of the  other  Participant,  each
Participant  shall keep  confidential and not disclose to any third party or the
public any portion of the Business  Information  that  constitutes  Confidential
Information.

         18.2 PARTICIPANT INFORMATION.  In performing its obligations under this
Agreement,  neither  Participant  shall be obligated to disclose any Participant
Information.  If a Participant  elects to disclose  Participant  Information  in
performing its obligations under this Agreement,  such Participant  Information,
together  with  all  improvements,  enhancements,  refinements  and  incremental
additions  to  such  Participant  Information  that  are  developed,  conceived,
originated or obtained by either Participant in performing its obligations under
this Agreement  ("ENHANCEMENTS"),  shall be owned exclusively by the Participant
that originally  developed,  conceived,  originated or obtained such Participant
Information. Each Participant may use and enjoy the benefits of such Participant
Information and Enhancements in the conduct of the Business  hereunder,  but the
Participant that did not originally develop, conceive,  originate or obtain such
Participant   Information   may  not  use  such   Participant   Information  and
Enhancements for any other purpose.  Except as provided in SECTION 18.4, or with
the  prior  written  consent  of the other  Participant,  which  consent  may be
withheld in such  Participant's  sole discretion,  each  Participant  shall keep
confidential  and not  disclose  to any third party or the public any portion of
Participant  Information and  Enhancements  owned by the other  Participant that
constitutes Confidential Information.

         18.3 PERMITTED DISCLOSURE OF CONFIDENTIAL BUSINESS INFORMATION.  Either
Participant may disclose Business Information that is Confidential  Information:
(a)  to a  Participant's  officers,  directors,  partners,  members,  employees,
Affiliates,   shareholders,   agents,   attorneys,   accountants,   consultants,
contractors,   subcontractors  or  advisors,   for  the  sole  purpose  of  such
Participant's  performance of its obligations  under this Agreement;  (b) to any
party to whom the disclosing  Participant  contemplates a Transfer of all or any
part of its  Participating  Interest,  for the sole  purpose of  evaluating  the
proposed  Transfer;  (c) to any  actual  or  potential  lender,  underwriter  or
investor  for  the  sole  purpose  of  evaluating  whether  to make a loan to or
investment in the disclosing Participant;  or (d) to a third party with whom the
disclosing  Participant   contemplates  any  independent  business  activity  or
operation.

              The Participant  disclosing  Confidential  Information pursuant to
this SECTION 18.3 shall  disclose such  Confidential  Information  to only those
parties  who  have  a bona  fide  need  to  have  access  to  such  Confidential
Information  for the purpose for which  disclosure  to such parties is

                                      E-41
<PAGE>

permitted  under this SECTION  18.3 and who have agreed in writing  supplied to,
and  enforceable  by,  the  other   Participant  to  protect  the   Confidential
Information from further disclosure, to use such Confidential Information solely
for such  purpose and to otherwise  be bound by the  provisions  of this ARTICLE
XVIII. Such writing shall not preclude parties  described in SUBSECTION  18.3(B)
from  discussing  and  completing  a Transfer  with the other  Participant.  The
Participant disclosing Confidential  Information shall be responsible and liable
for any use or disclosure  of the  Confidential  Information  by such parties in
violation of this Agreement and such other writing.

         18.4 DISCLOSURE REQUIRED BY LAW.  Notwithstanding anything contained in
this ARTICLE XVIII, a Participant may disclose any Confidential  Information if,
in  the  opinion  of  the  disclosing  Participant's  legal  counsel:  (a)  such
disclosure  is legally  required  to be made in a  judicial,  administrative  or
governmental  proceeding pursuant to a valid subpoena or other applicable order;
or (b) such  disclosure is legally  required to be made pursuant to the rules or
regulations  of a stock  exchange or similar  trading  market  applicable to the
disclosing Participant.

              Prior to any  disclosure of  Confidential  Information  under this
SECTION 18.4, the  disclosing  Participant  shall give the other  Participant at
least ten (10) days prior written  notice (unless less time is permitted by such
rules, regulations or proceeding) and, in making such disclosure, the disclosing
Participant  shall  disclose  only  that  portion  of  Confidential  Information
required to be  disclosed  and shall take all  reasonable  steps to preserve the
confidentiality  thereof,  including,  without limitation,  obtaining protective
orders  and  supporting  the  other  Participant  in  intervention  in any  such
proceeding.

         18.5 PUBLIC ANNOUNCEMENTS. Prior to making or issuing any press release
or other public  announcement or disclosure of Business  Information that is not
Confidential  Information,  a  Participant  shall first  consult  with the other
Participant  as to the content and timing of such  announcement  or  disclosure,
unless in the good faith judgment of such  Participant,  there is not sufficient
time  to  consult  with  the  other  Participant  before  such  announcement  or
disclosure must be made under applicable Laws; but in such event, the disclosing
Participant  shall notify the other  Participant,  as soon as  possible,  of the
pendency  of such  announcement  or  disclosure,  and it shall  notify the other
Participant  before such announcement or disclosure is made if at all reasonably
possible.  Any press  release or other public  announcement  or disclosure to be
issued by either  Participant  relating to this Business shall also identify the
other Participant.

                                   ARTICLE XIX
                               GENERAL PROVISIONS

         19.1  NOTICES.  All notices,  payments and other  required or permitted
communications  ("Notices") to either Participant shall be in writing, and shall
be addressed respectively as follows:

                  If to Borealis            Borealis Mining Company
                                            1153 Bergen Parkway, Suite 290
                                            Evergreen, CO  80439-9773
                                            Tele: (303) 679-9819
                                            Fax: (303) 679-9589

                                      E-42
<PAGE>

                  If to Golden Phoenix          Golden Phoenix Minerals, Inc.
                                                3595 Airway Drive, Suite 405
                                                Reno, NV 89511
                                                Tele: (775) 853-4919
                                                Fax: (775) 853-5010

              All  Notices  shall  be  given  (a) by  personal  delivery  to the
Participant,  (b) by  electronic  communication,  capable of producing a printed
transmission,  (c) by registered or certified mail return receipt requested,  or
(d) by  overnight  or  other  express  courier  service.  All  Notices  shall be
effective  and shall be deemed  given on the date of  receipt  at the  principal
address if received during normal  business  hours,  and, if not received during
normal  business  hours,  on the next business day following  receipt,  or if by
electronic communication, on the date of such communication.  Either Participant
may change its address by Notice to the other Participant.

         19.2 GENDER.  The singular shall include the plural, and the plural the
singular wherever the context so requires, and the masculine,  the feminine, and
the neuter genders shall be mutually inclusive.

         19.3  CURRENCY.  All  references  to "DOLLARS" or "$" herein shall mean
lawful currency of the United States of America.

         19.4 HEADINGS.  The subject headings of the Sections and Subsections of
this  Agreement and the  Paragraphs  and  Subparagraphs  of the Exhibits to this
Agreement are included for purposes of  convenience  only,  and shall not affect
the construction or interpretation of any of its provisions.

         19.5 WAIVER.  The failure of either Participant to insist on the strict
performance of any provision of this  Agreement or to exercise any right,  power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this  Agreement  or limit such  Participant's  right  thereafter  to enforce any
provision or exercise any right.

         19.6  MODIFICATION.  No  modification  of this Agreement shall be valid
unless made in writing and duly executed by both Participants.

         19.7 FORCE MAJEURE. Except for the obligation to make payments when due
hereunder, the obligations of a Participant shall be suspended to the extent and
for the period that performance is prevented by any cause,  whether  foreseeable
or unforeseeable,  beyond its reasonable control, including, without limitation,
labor  disputes  (however  arising  and  whether  or not  employee  demands  are
reasonable or within the power of the Participant to grant);  acts of God; Laws,
instructions or requests of any government or governmental entity;  judgments or
orders of any court;  inability  to obtain on  reasonably  acceptable  terms any
public  or  private  license,  permit  or other  authorization;  curtailment  or
suspension  of  activities  to remedy or avoid an actual or alleged,  present or
prospective  violation of Environmental Laws; action or inaction by any federal,
state or local  agency that delays or prevents  the  issuance or granting of any
approval or authorization  required to conduct  Operations beyond the reasonable
expectations of the Participant  seeking the

                                      E-43
<PAGE>

approval  or  authorization;  acts  of  war  or  conditions  arising  out  of or
attributable  to war,  whether  declared  or  undeclared;  riot,  civil  strife,
insurrection or rebellion;  fire,  explosion,  earthquake,  storm,  flood,  sink
holes, drought or other adverse weather condition; delay or failure by suppliers
or  transporters  of  materials,  parts,  supplies,  services or equipment or by
contractors'  or  subcontractors'  shortage of, or  inability to obtain,  labor,
transportation,   materials,   machinery,   equipment,  supplies,  utilities  or
services; accidents; breakdown of equipment, machinery or facilities; actions by
native rights groups,  environmental  groups,  or other similar special interest
groups;  or any other cause whether similar or dissimilar to the foregoing.  The
affected  Participant shall promptly give notice to the other Participant of the
suspension of performance,  stating  therein the nature of the  suspension,  the
reasons therefor,  and the expected duration thereof.  The affected  Participant
shall resume  performance as soon as reasonably  possible.  During the period of
suspension  the  obligations of both  Participants  to advance funds pursuant to
SECTION 10.2 shall be reduced to levels consistent with then current Operations.

         19.8 RULE AGAINST  PERPETUITIES.  The  Participants  do not intend that
there shall be any violation of the Rule Against Perpetuities,  the Rule Against
Unreasonable  Restraints  on the  Alienation  of Property,  or any similar rule.
Accordingly,  if any right or option to acquire any interest in the  Properties,
in a Participating Interest, in the Assets, or in any real property exists under
this Agreement, such right or option must be exercised, if at all, so as to vest
such interest within time periods  permitted by applicable  rules.  If, however,
any such violation should  inadvertently  occur,  the Participants  hereby agree
that a court shall reform that  provision in such a way as to  approximate  most
closely the intent of the Participants  within the limits permissible under such
rules.

         19.9 FURTHER ASSURANCES. Each of the Participants shall take, from time
to time and without additional  consideration,  such further actions and execute
such  additional  instruments  as may be  reasonably  necessary or convenient to
implement  and carry out the intent and purpose of this  Agreement  or as may be
reasonably required by lenders in connection with Project Financing.

         19.10 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement contains
the entire understanding of the Participants and supersedes all prior agreements
and  understandings  between the  Participants  relating  to the subject  matter
hereof.  This  Agreement  shall be binding  upon and inure to the benefit of the
respective successors and permitted assigns of the Participants.

         19.11  MEMORANDUM.  At the  time  of  execution  of this  Agreement,  a
Memorandum  or short form of this  Agreement,  or a Financing  Statement(s)  (to
which  copies  of the  Memorandum  or  short  form of this  Agreement  shall  be
attached),  shall also be executed and  acknowledged by both  Participants,  and
delivered to the Manager for recording and filing in those appropriate recording
districts  and Uniform  Commercial  Code filing  offices as may be  necessary to
provide  constructive notice of this Agreement and the rights and obligations of
the  Participants  hereunder.  The Manager  shall  record and file in the proper
recording districts, county recording offices and Uniform Commercial Code filing
offices,  all such documents  delivered to it by the  Participants.  Unless both
Participants agree, this Agreement shall not be recorded.

         19.12  COUNTERPARTS.  This  Agreement  may be executed in any number of
counterparts,  and it  shall  not be  necessary  that  the  signatures  of  both
Participants be contained on

                                      E-44
<PAGE>

any  counterpart.  Each  counterpart  shall  be  deemed  an  original,  but  all
counterparts together shall constitute one and the same instrument.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the Effective Date.

                                             GOLDEN PHOENIX MINERALS, INC., a
                                             Minnesota corporation

                                             By:
                                                 ------------------------------
                                             Name:
                                                   ----------------------------
                                             Title:
                                                    ---------------------------

                                             BOREALIS MINING COMPANY, a
                                             Nevada corporation

                                             By:
                                                 ------------------------------
                                             Name:
                                                   ----------------------------
                                             Title:
                                                    ---------------------------

                                      E-45
<PAGE>

STATE OF                            )
         ---------------------------
                                    : ss.
COUNTY OF                           )
          --------------------------

         This  instrument  was  acknowledged  before  me on  this  _____  day of
___________________, 20____, by _____________________________________________ as
_____________________ of GOLDEN PHOENIX MINERALS, INC., a Minnesota corporation.

                                                --------------------------------
[seal]                                          NOTARY PUBLIC, residing in
                                                --------------------------------
My commission expires:
---------------------

STATE OF                            )
         ---------------------------
                                    : ss.
COUNTY OF                           )
          --------------------------

         This  instrument  was  acknowledged  before  me on  this  _____  day of
___________________, 20____, by _____________________________________________ as
_____________________ of BOREALIS MINING COMPANY, a Nevada corporation.

                                                --------------------------------
[seal]                                          NOTARY PUBLIC, residing in
                                                --------------------------------

My commission expires:
---------------------

                                      E-46
<PAGE>

                                    EXHIBIT A
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                           ASSETS AND AREA OF INTEREST

1.1 PROPERTIES AND TITLE EXCEPTIONS

         That certain Mining Lease dated January 24, 1997 from Richard J. Cavell
TTTEE F/T Richard J. Cavell Trust Dated  2/23/94,  Hardrock  Mining  Company,  a
Nevada  corporation,  and  John  W.  Whitney,  as  lessors,  and  J.D.  Welsh  &
Associates,  Inc., a Nevada  corporation,  as lessee,  a memorandum  of which is
recorded  as Entry  115828 in Book 169 at page 489 in the  official  records  of
Mineral County,  Nevada,  which Mining Lease presently covers the 124 unpatented
mining claims described on the attached six pages labeled Exhibits A through D.

         The 111 unpatented  mining claims described on the attached three pages
labeled Exhibit 1.

1.2 AREA OF INTEREST

         The  Area of  Interest  is the  same as the  Borealis  Project  Area as
described in Exhibit III of the above described Mining Lease.

                                      E-47
<PAGE>

                                    EXHIBIT B
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                              ACCOUNTING PROCEDURES

         The financing and  accounting  procedures to be followed by the Manager
and the  Participants  under the Agreement are set forth below.  All capitalized
terms in these  Accounting  Procedures  shall have the definition  attributed to
them in the Agreement, unless defined otherwise herein.

         The purpose of these  Accounting  Procedures is to establish  equitable
methods for determining charges and credits applicable to Operations.  It is the
intent of the  Participants  that neither of them shall lose or profit by reason
of the designation of one of them to exercise the duties and responsibilities of
the Manager.  The  Participants  shall meet and in good faith  endeavor to agree
upon changes  deemed  necessary to correct any  unfairness  or inequity.  In the
event of a conflict  between the provisions of these  Accounting  Procedures and
those of the Agreement, the provisions of the Agreement shall control.

                                    ARTICLE I
                               GENERAL PROVISIONS

         1.1 GENERAL ACCOUNTING RECORDS. The Manager shall maintain detailed and
comprehensive  cost  accounting  records in  accordance  with  these  Accounting
Procedures,  including  general  ledgers,  supporting and  subsidiary  journals,
invoices,  checks and other  customary  documentation,  sufficient  to provide a
record of  revenues  and  expenditures  and  periodic  statements  of  financial
position and the results of Operations for managerial,  tax, regulatory or other
financial, regulatory, or legal reporting purposes related to the Business. Such
records  shall  be  retained  for  the  duration  of  the  period   allowed  the
Participants  for audit or the  period  necessary  to  comply  with tax or other
regulatory requirements. The records shall reflect all obligations, advances and
credits of the Participants.

         1.2 CASH  MANAGEMENT  ACCOUNTS.  The Manager shall maintain one or more
separate  cash  management  accounts  for the  payment of all  expenses  and the
deposit of all cash receipts for the Business.

         1.3 STATEMENTS AND BILLINGS.  The Manager shall prepare  statements and
bill the Participants as provided in ARTICLE X of the Agreement.  Payment of any
such billings by either Participant,  including the Manager, shall not prejudice
such  Participant's  right to protest or question the correctness  thereof for a
period not to exceed  twenty-four (24) months following the calendar year during
which such billings were received by such Participant. All written exceptions to

                                      E-48
<PAGE>

and claims upon the Manager for incorrect charges,  billings or statements shall
be made upon the Manager  within such  twenty-four  (24) month period.  The time
period  permitted  for  adjustments  hereunder  shall not  apply to  adjustments
resulting from periodic inventories as provided in PARAGRAPHS 5.1 and 5.2.

                                   ARTICLE II
                           CHARGES TO BUSINESS ACCOUNT

         Subject to the  limitations  hereinafter  set forth,  the Manager shall
charge the Business Account with the following:

         2.1 PROPERTY ACQUISITION COSTS, RENTALS,  ROYALTIES AND OTHER PAYMENTS.
All property acquisition and holding costs,  including Governmental Fees, filing
fees,  license  fees,  costs of permits  and  assessment  work,  delay  rentals,
production  royalties,  including any required advances,  and all other payments
made by the Manager  which are  necessary  to acquire or  maintain  title to the
Assets.

         2.2 LABOR AND EMPLOYEE BENEFITS

              (a) Salaries and wages of the Manager's employees directly engaged
in  Operations,  including  salaries or wages of employees  who are  temporarily
assigned to and directly employed by same.

              (b)  The  Manager's  cost  of  holiday,  vacation,   sickness  and
disability benefits,  and other customary allowances  applicable to the salaries
and wages  chargeable under  SUBPARAGRAPH  2.2(A) and PARAGRAPH 2.12. Such costs
may be charged on a "when and as paid basis" or by  "percentage  assessment"  on
the amount of salaries and wages.  If percentage  assessment  is used,  the rate
shall be applied to wages or salaries excluding overtime and bonuses.  Such rate
shall be based on the Manager's  cost  experience  and it shall be  periodically
adjusted at least  annually to ensure  that the total of such  charges  does not
exceed the actual cost thereof to the Manager.

              (c) The Manager's actual cost of established  plans for employees'
group life  insurance,  hospitalization,  pension,  retirement,  stock purchase,
thrift, bonus (except production or incentive bonus plans under a union contract
based on actual rates of production,  cost savings and other production factors,
and similar  non-union  bonus plans  customary  in the  industry or necessary to
attract competent  employees,  which bonus payments shall be considered salaries
and wages under  SUBPARAGRAPH  2.2(A) or PARAGRAPH  2.12 rather than  employees'
benefit  plans) and other benefit plans of a like nature  applicable to salaries
and wages chargeable under SUBPARAGRAPHS 2.2(A) or PARAGRAPH 2.12, provided that
the plans are limited to the extent feasible to those customary in the industry.

              (d) Cost of assessments imposed by governmental authority that are
applicable  to  salaries  and wages  chargeable  under  SUBPARAGRAPH  2.2(A) and
PARAGRAPH 2.12,  including all penalties except those resulting from the willful
misconduct or gross negligence of the Manager.

                                      E-49
<PAGE>

         2.3 MATERIALS, EQUIPMENT AND SUPPLIES. The cost of materials, equipment
and supplies  (herein  called  "Material")  purchased  from  unaffiliated  third
parties or furnished  by either  Participant  as provided in PARAGRAPH  3.1. The
Manager  shall  purchase or furnish only so much Material as may be required for
immediate use in efficient  and  economical  Operations.  The Manager shall also
maintain  inventory levels of Material at reasonable levels to avoid unnecessary
accumulation of surplus stock.

         2.4  EQUIPMENT  AND  FACILITIES  FURNISHED  BY  MANAGER.  The  cost  of
machinery,  equipment and facilities owned by the Manager and used in Operations
or used to provide  support or utility  services to Operations  charged at rates
commensurate with the actual costs of ownership and operation of such machinery,
equipment  and  facilities.  Such  rates  shall  include  costs of  maintenance,
repairs, other operating expenses,  insurance,  taxes, depreciation and interest
at a rate not to exceed Prime Rate plus three percent (3%) per annum. Such rates
shall not  exceed the  average  commercial  rates  currently  prevailing  in the
vicinity of the Operations.

         2.5  TRANSPORTATION.   Reasonable   transportation  costs  incurred  in
connection  with the  transportation  of employees  and material  necessary  for
Operations.

         2.6 CONTRACT SERVICES AND UTILITIES.  The cost of contract services and
utilities  procured  from  outside  sources,  other than  services  described in
PARAGRAPHS 2.9 and 2.13. If contract services are performed by the Manager or an
Affiliate thereof, the cost charged to the Business Account shall not be greater
than that for which comparable  services and utilities are available in the open
market within the vicinity of Operations.  The cost of  professional  consultant
services procured from outside sources in excess of Twenty-Five Thousand Dollars
($25,000.00) per annum per contract shall not be charged to the Business Account
unless approved by the Management Committee.

         2.7 INSURANCE PREMIUMS.  Net premiums paid for insurance required to be
carried for Operations for the protection of the  Participants.  When Operations
are  conducted  in an area  where  the  Manager  may  self-insure  for  Worker's
Compensation and/or Employer's  Liability under state law, the Manager may elect
to include such risks in its  self-insurance  program and shall charge its costs
of  self-insuring  such risks to the Business Account provided that such charges
shall not exceed published manual rates.

         2.8  DAMAGES  AND  LOSSES.  All costs in excess of  insurance  proceeds
necessary to repair or replace damage or losses to any Assets resulting from any
cause other than the willful misconduct or gross negligence of the Manager.  The
Manager shall furnish the Management Committee with written notice of damages or
losses as soon as  practicable  after a report  thereof has been received by the
Manager.

         2.9 LEGAL AND  REGULATORY  EXPENSE.  Except as  otherwise  provided  in
PARAGRAPH  2.13,  all legal and  regulatory  costs and  expenses  incurred in or
resulting  from  Operations or necessary to protect or recover the Assets of the
Business,  including costs of title  investigation and title curative  services.
All  attorneys  fees and other  legal  costs to handle,  investigate  and settle
litigation  or claims,  and amounts paid in  settlement  of such  litigation  or
claims in excess of Twenty-Five

                                      E-50
<PAGE>

Thousand  Dollars  ($25,000.00)  per annum shall not be charged to the  Business
Account unless approved by the Management Committee.

         2.10 AUDIT. Cost of annual audits under SUBSECTION 10.6(A).

         2.11 TAXES.  All taxes,  assessments and like charges on Operations and
Assets which have been paid by the Manager for the benefit of the  Participants.
Each Participant is separately responsible for taxes determined or measured by a
Participant's sales revenue or net income.

         2.12 DISTRICT AND CAMP EXPENSE (FIELD SUPERVISION AND CAMP EXPENSES). A
pro  rata  portion  of:  (i)  the   salaries  and  expenses  of  the   Manager's
superintendent  and  other  employees  serving  Operations  whose  time  is  not
allocated  directly to such  Operations,  and (ii) the costs of maintaining  and
operating an office and any necessary suboffice,  and (iii) all necessary camps,
including housing facilities for employees, used for Operations.  The expense of
those facilities,  less any revenue therefrom,  shall include  depreciation or a
fair monthly rental in lieu of depreciation of the investment. The total of such
charges for all  Properties  served by the Manager's  employees  and  facilities
shall be  apportioned  to the  Business  Account  on the  basis of a ratio to be
approved by the Management Committee.

         2.13 ADMINISTRATIVE CHARGE.

              (a) Each month,  the Manager  shall charge the Business  Account a
sum for each phase of Operations as provided below,  which shall be a liquidated
amount to  reimburse  the Manager for its home office  overhead  and general and
administrative expenses to conduct each phase of Operations,  and which shall be
in lieu of any management fee and for taxes based on production of Products:

              (i) EXPLORATION  PHASE - _____ percent (_____%) of Allowable Costs
up to __________ Dollars ($__________),  and _____ percent (_____%) of Allowable
Costs over __________ Dollars ($__________).

              (ii) DEVELOPMENT PHASE - _____ percent (_____%) of Allowable Costs
up to __________ Dollars ($__________),  and _____ percent (_____%) of Allowable
Costs over __________ Dollars ($__________).

              (iii)  MAJOR  CONSTRUCTION  PHASE  -  _____  percent  (_____%)  of
Allowable  Costs up to  __________  Dollars  ($__________),  and  _____  percent
(_____%) of Allowable Costs over __________ Dollars ($__________).

              (iv) MINING PHASE - _____ percent (_____%) of Allowable Costs.

              (b) The term  "Allowable  Costs" as used in this  PARAGRAPH  for a
particular  phase of Operations  shall mean all charges to the Business  Account
excluding:  (i) the administrative charge referred to herein; (ii) depreciation,
depletion  or  amortization  of tangible or  intangible  Assets;  (iii)  amounts
charged in accordance with PARAGRAPHS 2.1 and 2.9; and

                                      E-51
<PAGE>

(iv) marketing  costs.  The Manager shall  attribute  such Allowable  Costs to a
particular phase of Operations by applying the following guidelines:

              (A) The Exploration  Phase shall cover those Operations  conducted
to ascertain the existence,  location,  extent or quantity of any deposit of ore
or mineral.

              (B) The Development Phase shall cover those Operations,  including
Pre-Feasibility  and  Feasibility  Study  Operations,   conducted  to  assess  a
commercially  feasible ore body or to extend production of an existing ore body,
and to construct or install related fixed Assets.

              (C) The Major  Construction  Phase shall  include  all  Operations
involved  in the  construction  of a  mill,  smelter  or  other  ore  processing
facilities.

              (D) The Mining Phase shall include all other Operations activities
not  otherwise  covered  above,  including  activities  conducted  after  Mining
Operations have ceased.

         (c) Various  phases of  Operations  may be conducted  concurrently,  in
which  event  the  administrative  charge  shall be  calculated  separately  for
Allowable Costs attributable to each phase.

         (d) The  monthly  administration  charge  determined  for each phase of
Operations shall be a liquidated amount to reimburse Manager for its home office
overhead and general and administrative  expenses for its conduct of Operations,
and shall be equitably  apportioned  among all of the  properties  served during
such  monthly  period  on the  basis  of a  ratio  approved  by  the  Management
Committee.

         (e) The following is a representative list of items that constitute the
Manager's  principal  business office expenses that are expressly covered by the
administrative charge provided in this PARAGRAPH, except to the extent that such
items are directly  chargeable to the Business Account under other provisions of
this ARTICLE II:

              (i)  Administrative  supervision,   which  includes  all  services
rendered by managers,  department  supervisors,  officers  and  directors of the
Manager for Operations.

              (ii)  Accounting,   data  processing,   personnel  administration,
billing and record keeping in accordance with  governmental  regulations and the
provisions of the Agreement, and preparation of reports;

              (iii) The services of tax counsel and tax administration employees
for all tax matters,  including  any protests,  except any outside  professional
fees  which the  Management  Committee  may  approve  as a direct  charge to the
Business Account;

              (iv) Routine legal  services  rendered by outside  sources and the
Manager's  legal  staff not  otherwise  charged to the  Business  Account  under
PARAGRAPH  2.9,

                                      E-52
<PAGE>

including property acquisition,  attorney management and oversight,  and support
services provided by Manager's legal staff concerning any litigation; and

              (v)  Rentals  and other  charges  for office and  records  storage
space, telephone service, office equipment and supplies.

              (f)  The   Management   Committee   shall   annually   review  the
administrative  charges  and  shall  amend  the  methodology  or  rates  used to
determine such charges if they are found to be  insufficient  or excessive based
on the principles  that the Manager shall not make a profit or suffer a loss and
that it should be fairly and adequately compensated for its costs and expenses.

         2.14  ENVIRONMENTAL  COMPLIANCE FUND.  Costs of reasonably  anticipated
Environmental  Compliance which, on a Program basis,  shall be determined by the
Management  Committee and shall be based on  proportionate  contributions  in an
amount  sufficient to establish a fund, which through  successive  proportionate
contributions   during  the  life  of  the   Business,   will  pay  for  ongoing
Environmental  Compliance  conducted during  Operations and which will aggregate
the reasonably anticipated costs of mine closure,  post-Operations Environmental
Compliance and Continuing Obligations.  The Manager shall invest such amounts on
behalf of the Participants as provided in SUBSECTION 8.2(R).

         2.15 OTHER EXPENDITURES.  Any reasonable direct expenditure, other than
expenditures  which are  covered by the  foregoing  provisions,  incurred by the
Manager for the necessary and proper conduct of Operations.

                                   ARTICLE III
                      BASIS OF CHARGES TO BUSINESS ACCOUNT

         3.1  PURCHASES.  Material  purchased  and services  procured from third
parties  shall be charged to the  Business  Account by the  Manager at  invoiced
cost,  including  applicable  transfer taxes,  less all discounts  taken. If any
Material is  determined to be defective or is returned to a vendor for any other
reason,  the Manager  shall credit the Business  Account when an  adjustment  is
received from the vendor.

         3.2 MATERIAL  FURNISHED BY A PARTICIPANT  FOR USE IN THE BUSINESS.  Any
Material  furnished by either Participant for use in the Business or distributed
to either Participant by the Manager shall be priced on the following basis:

              (a) NEW  MATERIAL:  New Material  furnished by either  Participant
shall be priced F.O.B. the nearest  reputable supply store or railway  receiving
point, where like Material is available,  at the current replacement cost of the
same kind of Material, exclusive of any available cash discounts, at the time it
is furnished (herein called "New Price"). (b) USED MATERIAL.

                                      E-53
<PAGE>

              (i) Used Material in sound and serviceable  condition and suitable
for reuse without reconditioning shall be priced as follows:

              (A) Used Material  furnished by either Participant shall be priced
at seventy-five percent (75%) of the New Price;

              (B) Used  Material  distributed  to  either  Participant  shall be
priced (i) at  seventy-five  percent (75%) of the New Price if such Material was
originally  charged  to  the  Business  Account  as new  Material,  or  (ii)  at
sixty-five  percent  (65%) of the New  Price  if such  Material  was  originally
charged to the Business  Account as good used Material at  seventy-five  percent
(75%) of the New Price.

              (ii) Other  used  Material  that,  after  reconditioning,  will be
further serviceable for original function as good secondhand  Material,  or that
is  serviceable  for  original  function  but  not  substantially  suitable  for
reconditioning, shall be priced at fifty percent (50%) of New Price. The cost of
any reconditioning shall be borne by the transferee.

              (iii)  Bad-Order  Material  which  is no  longer  usable  for  its
original purpose without excessive repair cost but further usable for some other
purpose shall be priced on a basis  comparable with items normally used for that
purpose.

              (iv) All  other  Material,  including  junk,  shall be priced at a
value commensurate with its use or at prevailing prices.

              (c) OBSOLETE MATERIAL. Any Material that is serviceable and usable
for its original  function,  but its  condition is not  equivalent to that which
would  justify a price as  provided  above,  shall be  priced by the  Management
Committee.  Such price  shall be set at a level that will  result in a charge to
the  Business  Account  equal to the value of the service to be rendered by such
Material.

         3.3 PREMIUM  PRICES.  Whenever  Material is not readily  obtainable  at
published or listed  prices  because of national  emergencies,  strikes or other
unusual  circumstances  over which the Manager  has no control,  the Manager may
charge  the  Business  Account  for the  required  Material  on the basis of the
Manager's  direct cost and  expenses  incurred in  procuring  such  Material and
making it  suitable  for use.  The  Manager  shall  give  written  notice of the
proposed charge to the Participants  prior to the time when such charge is to be
billed,  whereupon  either  Participant  shall have the right,  by notifying the
Manager within ten (10) days of the delivery of the notice from the Manager,  to
furnish  at the  usual  receiving  point  all or part of its  share of  Material
suitable for use and acceptable to the Manager.

         3.4  WARRANTY OF  MATERIAL  FURNISHED  BY THE MANAGER OR  PARTICIPANTS.
Neither  Participant  warrants  any  Material  furnished  beyond any dealer's or
manufacturer's warranty and no credits shall be made to the Business Account for
defective  Material  until  adjustments  are  received by the  Manager  from the
dealer, manufacturer or their respective agents.

                                      E-54
<PAGE>

                                   ARTICLE IV
                              DISPOSAL OF MATERIAL

         4.1  DISPOSITION  GENERALLY.  The Manager  shall have no  obligation to
purchase either  Participant's  interest in Material.  The Management  Committee
shall determine the disposition of major items of surplus Material, provided the
Manager  shall  have the right to dispose  of normal  accumulations  of junk and
scrap Material either by sale or by transfer to the  Participants as provided in
PARAGRAPH 4.2.

         4.2 DISTRIBUTION TO PARTICIPANTS. Any Material to be distributed to the
Participants  shall  be made in  proportion  to their  respective  Participating
Interests,  and  corresponding  credits shall be made to the Business Account on
the basis provided in PARAGRAPH 3.2.

         4.3 SALES.  Sales of Material to third parties shall be credited to the
Business  Account  at the net  amount  received.  Any  damages  or claims by the
Purchaser shall be charged back to the Business Account if and when paid.

                                    ARTICLE V
                                   INVENTORIES

         5.1 PERIODIC  INVENTORIES,  NOTICE AND  REPRESENTATIONS.  At reasonable
intervals,  inventories  shall be taken by the Manager,  which shall include all
such Material as is ordinarily  considered  controllable  by operators of mining
properties,  and the expense of conducting  such periodic  inventories  shall be
charged to the Business  Account.  The Manager shall give written  notice to the
Participants  of its  intent to take any  inventory  at least  thirty  (30) days
before such inventory is scheduled to take place. A Participant  shall be deemed
to have  accepted  the  results  of any  inventory  taken by the  Manager if the
Participant fails to be represented at such inventory.

         5.2  RECONCILIATION  AND ADJUSTMENT OF INVENTORIES.  Reconciliation  of
inventory  with charges to the  Business  Account  shall be made,  and a list of
overages and shortages shall be furnished to the Management Committee within six
(6) months after the inventory is taken.  Inventory adjustments shall be made by
the Manager to the Business Account for overages and shortages,  but the Manager
shall be held  accountable  to the Business  only for  shortages  due to lack of
reasonable diligence.

                                      E-55
<PAGE>

                                    EXHIBIT C
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                                   TAX MATTERS

                                    ARTICLE I
                             EFFECT OF THIS EXHIBIT

         This EXHIBIT C shall govern the relationship of the  Participants  with
respect  to tax  matters  and the  other  matters  addressed  herein.  Except as
otherwise  indicated,  capitalized  terms  used in this  EXHIBIT  shall have the
meanings given to them in the Agreement. In the event of a conflict between this
EXHIBIT and the other  provisions  of the  Agreement,  the terms of this EXHIBIT
shall control.

                                   ARTICLE II
                               TAX MATTERS PARTNER

         2.1  DESIGNATION  OF  TAX  MATTERS  PARTNER.   The  Manager  is  hereby
designated  the tax matters  partner  (hereinafter  "TMP") as defined in Section
6231(a)(7)  of the  Internal  Revenue  Code of 1986  ("the  Code")  and shall be
responsible  for, make elections for, and prepare and file any federal and state
tax returns or other  required tax forms  following  approval of the  Management
Committee.  In the event of any change in Manager,  the  Participant  serving as
Manager at the end of a taxable  year shall  continue as TMP with respect to all
matters  concerning  such year  unless the TMP for that year is  required  to be
changed  pursuant  to  applicable  Treasury  Regulations.  The TMP and the other
Participant   shall  use   reasonable   best   efforts   to   comply   with  the
responsibilities  outlined in this ARTICLE II and in Sections  6221 through 6233
of the Code (including any Treasury regulations  promulgated  thereunder) and in
doing so shall incur no liability to any other party.

         2.2  NOTICE.   Each  Participant   shall  furnish  the  TMP  with  such
information  (including information specified in Section 6230(e) of the Code) as
it may reasonably  request to permit it to provide the Internal  Revenue Service
with  sufficient  information  to allow  proper  notice to the  Participants  in
accordance  with Section 6223 of the Code.  The TMP shall keep each  Participant
informed of all  administrative  and judicial  proceedings for the adjustment at
the partnership level of partnership items in accordance with Section 6223(g) of
the Code.

         2.3 INCONSISTENT  TREATMENT OF PARTNERSHIP  ITEM. If an  administrative
proceeding contemplated under Section 6223 of the Code has begun, and the TMP so
requests,  each  Participant  shall  notify  the  TMP  of its  treatment  of any
partnership item on its federal income tax return that is inconsistent  with the
treatment of that item on the partnership return.

                                      E-56
<PAGE>

         2.4 EXTENSIONS OF LIMITATION PERIODS.  The TMP shall not enter into any
extension of the period of  limitations  as provided  under  Section 6229 of the
Code without first giving reasonable  advance notice to the other Participant of
such intended action.

         2.5 REQUESTS FOR ADMINISTRATIVE ADJUSTMENTS.  Neither Participant shall
file,  pursuant to Section  6227 of the Code,  a request  for an  administrative
adjustment of partnership  items for any partnership  taxable year without first
notifying  the other  Participant.  If the  other  Participant  agrees  with the
requested  adjustment,  the  TMP  shall  file  the  request  for  administrative
adjustment  on behalf of the  partnership.  If  consent is not  obtained  within
thirty (30) days after  notice  from the  proposing  Participant,  or within the
period  required to timely file the request for  administrative  adjustment,  if
shorter,  either  Participant,  including  the TMP,  may file that  request  for
administrative adjustment on its own behalf.

         2.6  JUDICIAL  PROCEEDINGS.  Either  Participant  intending  to  file a
petition under Section 6226,  6228 or other sections of the Code with respect to
any partnership item, or other tax matters involving the tax partnership,  shall
notify  the  other   Participant  of  such  intention  and  the  nature  of  the
contemplated  proceeding.  If the TMP is the Participant  intending to file such
petition, such notice shall be given within a reasonable time to allow the other
Participant  to  participate in the choosing of the forum in which such petition
will be filed. If both Participants do not agree on the appropriate  forum, then
the  appropriate  forum shall be decided in  accordance  with  SECTION 7.2. If a
deadlock results,  the TMP shall choose the forum. If either Participant intends
to seek  review  of any court  decision  rendered  as a result  of a  proceeding
instituted under the preceding part of this PARAGRAPH,  such  Participant  shall
notify the other Participant of such intended action.

         2.7  SETTLEMENTS.  The TMP shall not bind the  other  Participant  to a
settlement  agreement  without first  obtaining the written  consent of any such
Participant.  Either Participant who enters into a settlement  agreement for its
own  account  with  respect  to any  partnership  items,  as  defined by Section
6231(a)(3) of the Code,  shall notify the other  Participant of such  settlement
agreement and its terms within ninety (90) days from the date of settlement.

         2.8  FEES  AND  EXPENSES.  The TMP  shall  not  engage  legal  counsel,
certified  public  accountants,  or  others  without  the prior  consent  of the
Management  Committee.  Either  Participant may engage legal counsel,  certified
public  accountants,  or  others  in its own  behalf  and at its  sole  cost and
expense.  Any reasonable item of expense,  including but not limited to fees and
expenses for legal counsel,  certified public accountants,  and others which the
TMP incurs (after proper consent by the Management  Committee as provided above)
in  connection  with any  audit,  assessment,  litigation,  or other  proceeding
regarding any partnership  item, shall constitute proper charges to the Business
Account  and  shall  be  borne  by the  Participants  as any  other  item  which
constitutes a direct charge to the Business Account pursuant to the Agreement.

         2.9 SURVIVAL. The provisions of the foregoing paragraphs, including but
not limited to the  obligation  to pay fees and expenses  contained in PARAGRAPH
2.8, shall survive the  termination of the tax partnership or the termination of
either Participant's interest in the tax partnership and shall remain binding on
the  Participants  for a period of time  necessary  to resolve with the Internal
Revenue Service or the Department of the Treasury any and all matters  regarding
the  federal  income  taxation of the tax  partnership  for the  applicable  tax
year(s).

                                      E-57
<PAGE>

                                   ARTICLE III
                          TAX ELECTIONS AND ALLOCATIONS

         3.1 TAX  PARTNERSHIP  ELECTION.  It is  understood  and agreed that the
Participants  intend to create a partnership for United States federal and state
income  tax  purposes,  and,  unless  otherwise  agreed  to  hereafter  by  both
Participants,  neither  Participant  shall make an  election  to be, or have the
arrangement evidenced hereby, excluded from the application of any provisions of
Subchapter K of the Code, or any equivalent  state income tax  provision.  It is
understood and agreed that the  Participants  intend to create a partnership for
federal and state income tax purposes  only (a "tax  partnership").  The Manager
shall  file  with the  appropriate  office  of the  Internal  Revenue  Service a
partnership  income  tax  return  covering  the  Operations.   The  Participants
recognize that this  Agreement may be subject to state income tax statutes.  The
Manager  shall  file with the  appropriate  offices  of the state  agencies  any
required  partnership  state  income tax  returns.  Each  Participant  agrees to
furnish to the Manager any  information  it may have  relating to  Operations as
shall be required for proper  preparation  of such  returns.  The Manager  shall
furnish to the other  Participant  for its review a copy of each proposed income
tax return at least two weeks prior to the date the return is filed.

         3.2 TAX  ELECTIONS.  The  tax  partnership  shall  make  the  following
elections for purposes of all partnership income tax returns:

              (a) To use the accrual method of accounting.

              (b) Pursuant to the  provisions at Section  706(b)(1) of the Code,
to use as its taxable year the year ended  ______.  In this  connection,  Golden
Phoenix  represents that its taxable year is the year ending ______ and Borealis
represents that its taxable year is the year ending _____.

              (c) To deduct  currently  all  development  expenses to the extent
possible under Section 616 of the Code.

              (d)  Unless  the  Participants  unanimously  agree  otherwise,  to
compute the  allowance for  depreciation  in respect of all  depreciable  Assets
using the maximum  accelerated  tax  depreciation  method and the shortest  life
permissible  or, at the election of the Manager,  using the units of  production
method of depreciation.

              (e) To treat advance royalties as deductions from gross income for
the year paid or accrued to the extent permitted by law.

              (f) To adjust the basis of tax partnership  property under Section
754 of the Code at the request of either Participant;

              (g)  To  amortize  over  the  shortest   permissible   period  all
organizational  expenditures and business  start-up  expenses under Sections 195
and 709 of the Code;

                                      E-58
<PAGE>

         Any  other  election  required  or  permitted  to be  made  by the  tax
partnership  under the Code or any state tax law shall be made as  determined by
the Management Committee.

         Each Participant shall elect under Section 617(a) of the Code to deduct
currently  all  exploration  expenses.  Each  Participant  reserves the right to
capitalize  its share of  development  and/or  exploration  expenses  of the tax
partnership  in  accordance  with  Section  59(e) of the Code,  provided  that a
Participant's  election to capitalize  all or any portion of such expenses shall
not affect the Participant's Capital Account.

         3.3  ALLOCATIONS  TO  PARTICIPANTS.  Allocations  for  Capital  Account
purposes shall be in accordance with the following:

              (a) The Participants recognize the provision for taking production
in kind, as provided elsewhere in the Agreement,  as each Participant's right to
determine a market for the sale of a proportionate  share of production  subject
to SUBPARAGRAPH 3.3(H) below. All items of income, gain, deduction, loss, credit
or tax attribute arising from the sale and marketing of such production shall be
allocated to the Participant who designated such market.

              (b) Exploration  expenses and development cost deductions shall be
allocated  among  the   Participants   in  accordance   with  their   respective
contributions to such expenses and costs.

              (c)  Depreciation  and  amortization  deductions with respect to a
depreciable  Asset shall be allocated among the  Participants in accordance with
their  respective  contributions  to the adjusted basis of the Asset which gives
rise to the depreciation, amortization or loss deduction.

              (d) Production and operating  cost  deductions  shall be allocated
among the Participants in accordance with their respective contributions to such
costs.

              (e)  Deductions for depletion (to the extent of the amount of such
deductions that would have been determined for Capital Account  purposes if only
cost  depletion  were  allowable  for  federal  income  tax  purposes)  shall be
allocated to the Participants in accordance with their respective  contributions
to the  adjusted  basis of the  depletable  property.  Any  remaining  depletion
deductions  shall  be  allocated  to the  Participants  so that,  to the  extent
possible,  the  Participants  receive  the  same  total  amounts  of  percentage
depletion as they would have received if percentage  depletion were allocated to
the  Participants in proportion to their  respective  shares of the gross income
used  as the  basis  for  calculating  the  federal  income  tax  deduction  for
percentage depletion.

              (f) Subject to SUBPARAGRAPH 3.3(H) below, gross income on the sale
of production shall be allocated in accordance with the Participants'  rights to
share in the proceeds of such sale.

              (g) Except as provided in SUBPARAGRAPH  3.3(H) below, gain or loss
on the sale of a depreciable or depletable  asset shall be allocated so that, to
the extent  possible,

                                      E-59
<PAGE>

the net amount  reflected in the  Participants'  Capital Account with respect to
such  property  (taking  into account the cost of such  property,  depreciation,
amortization, depletion or other cost recovery deductions and gain or loss) most
closely reflects the Participants' Participating Interests.

              (h) Gains and losses on the sale of all or  substantially  all the
Assets  of the tax  partnership  shall  be  allocated  so  that,  to the  extent
possible,  the Participants'  resulting Capital Account balances are in the same
ratio as their Participating Interests at the time of such sale.

              (i) The  Participants  acknowledge  that  expenses and  deductions
allocable under the preceding provisions of this PARAGRAPH may be required to be
capitalized into production under Section 263A of the Code. With respect to such
capitalized  expenses or deductions,  the allocation of gross income on the sale
of production shall be adjusted,  in any reasonable manner consistently  applied
by the  Manager,  so that  the same  net  amount  (subject  possibly  to  timing
differences)  is  reflected  in the  Capital  Accounts  as if such  expenses  or
deductions  were instead  deductible  and  allocated  pursuant to the  preceding
provisions of this PARAGRAPH.

              (j) All deductions and losses that are not otherwise  allocated in
this PARAGRAPH  shall be allocated  among the  Participants  in accordance  with
their respective  contributions to the costs producing each such deduction or to
the adjusted basis of the Asset producing each such loss.

              (k)  Any   recapture  of   exploration   expenses   under  Section
617(b)(1)(A)  of the Code,  and any  disallowance  of  depletion  under  Section
617(b)(1)(B) of the Code,  shall be borne by the Participants in the same manner
as the related exploration expenses were allocated to, or claimed by, them.

              (l) All other items of income and gain shall be  allocated  to the
Participants in accordance with their Participating Interests.

              (m) If a reduced  Participating  Interest is restored  pursuant to
SECTION 9.6, the Manager shall endeavor to allocate items of income, gain, loss,
and  deduction  (in the  same  year  as the  restoration  of such  Participating
Interest  or, if  necessary,  in  subsequent  years) so as to cause the  Capital
Account  balances of the  Participants to be the same as they would have been if
the restored Participating Interest had never been reduced.

              (n) If the Participants' Participating Interests change during any
taxable year of the tax partnership,  the distributive share of items of income,
gain, loss and deduction of each  Participant  shall be determined in any manner
(1)  permitted  by  Section  706  of  the  Code,  and  (2)  agreed  on  by  both
Participants.  If the Participants cannot agree on a method, the method shall be
determined  by the  Manager  in  consultation  with  the tax  partnership's  tax
advisers,  with  preference  given to the  interim  closing-of-the-books  method
except where  application  of that method  would result in undue  administrative
expense in relationship to the amount of the items to be allocated.

              (o)  "Nonrecourse  deductions," as defined by Treas.  Reg. Section
1.704-2(b)(1) shall be allocated between the Participants in proportion to their
Participating Interests.

                                      E-60
<PAGE>

         3.4 REGULATORY ALLOCATIONS. Notwithstanding the provisions of PARAGRAPH
3.3 to the contrary, the following special allocations shall be given effect for
purposes of maintaining the Participants' Capital Accounts.

              (a) If either Participant  unexpectedly  receives any adjustments,
allocations,    or    distributions    described   in   Treas.    Reg.   Section
1.704-1(b)(2)(ii)(d)(4),     Section    1.704-1(b)(2)(ii)(d)(5)    or    Section
1.704-1(b)(2)(ii)(d)(6),  which  result in a deficit  Capital  Account  balance,
items of income and gain shall be specially  allocated to each such  Participant
in an amount and manner  sufficient to eliminate,  to the extent required by the
Treasury Regulations, the Capital Account deficit of such Participant as quickly
as possible.  For the purposes of this  PARAGRAPH,  each  Participant's  Capital
Account  balances  shall  be  increased  by  the  sum  of (i)  the  amount  such
Participant is obligated to restore  pursuant to any provision of the Agreement,
and (ii) the  amount  such  Participant  is deemed to be  obligated  to  restore
pursuant to the penultimate sentences of Treas. Reg. Sections  1.704-2(g)(1) and
1.704-2(i)(5).

              (b) The  "minimum  gain  chargeback"  and  "partner  minimum  gain
chargeback"  provisions of Treas.  Reg. Sections  1.704-2(f) and  1.704-2(i)(4),
respectively, are incorporated herein by reference and shall be given effect. In
accordance with Treas. Reg. Section 1.704-2(i)(1),  deductions attributable to a
"partner nonrecourse liability" shall be allocated to the Participant that bears
the economic risk of loss for such liability.

              (c) If the  allocation of deductions to either  Participant  would
cause such  Participant to have a deficit  Capital Account balance at the end of
any taxable year of the tax partnership  (after all other  allocations  provided
for in  this  ARTICLE  III  have  been  made  and  after  giving  effect  to the
adjustments  described in SUBPARAGRAPH 3.4(A)), such deductions shall instead be
allocated to the other Participant.

         3.5 CURATIVE  ALLOCATIONS.  The  allocations set forth in PARAGRAPH 3.4
(the "Regulatory  Allocations") are intended to comply with certain requirements
of the Treasury  Regulations.  It is the intent of the Participants that, to the
extent possible,  all Regulatory  Allocations  shall be offset either with other
Regulatory  Allocations  or with special  allocations  of other items of income,
gain, loss or deduction pursuant to this PARAGRAPH.  Therefore,  notwithstanding
any  other   provisions   of  this  ARTICLE  III  (other  than  the   Regulatory
Allocations),  the Manager shall make such  offsetting  special  allocations  of
income, gain, loss or deduction in whatever manner it determines  appropriate so
that,  after such offsetting  allocations are made, each  Participant's  Capital
Account balance is, to the extent possible, equal to the Capital Account balance
such Participant  would have had if the Regulatory  Allocations were not part of
this  Agreement and all items were  allocated  pursuant to PARAGRAPH 3.3 without
regard to PARAGRAPH 3.4.

         3.6 TAX  ALLOCATIONS.  Except as otherwise  provided in this PARAGRAPH,
items of taxable income, deduction, gain and loss shall be allocated in the same
manner as the corresponding item is allocated for book purposes under PARAGRAPHS
3.3,  3.4 and 3.5 of the  corresponding  item  determined  for  Capital  Account
purposes.

                                      E-61
<PAGE>

              (a) Recapture of tax  deductions  arising out of a disposition  of
property shall,  to the extent  consistent with the allocations for tax purposes
of the gain or amount realized  giving rise to such  recapture,  be allocated to
the  Participants  in the same  proportions  as the recaptured  deductions  were
originally allocated or claimed.

              (b) To the extent required by Section 704(c) of the Code,  income,
gain,  loss,  and  deduction  with  respect to property  contributed  to the tax
partnership by a Participant  shall be shared among both  Participants  so as to
take  account of the  variation  between  the basis of the  property  to the tax
partnership  and  its  fair  market  value  at the  time  of  contribution.  The
Participants intend that Section 704(c) shall effect no allocations of tax items
that are different from the allocations under PARAGRAPHS 3.3, 3.4 and 3.5 of the
corresponding  items for Capital Account purposes.  However,  to the extent that
allocations of tax items are required  pursuant to Section 704(c) of the Code to
be made other than in accordance with the allocations  under PARAGRAPHS 3.3, 3.4
and 3.5 of the corresponding items for Capital Account purposes,  Section 704(c)
shall be applied in accordance  with the  "traditional  method without  curative
allocations" under Treas. Reg. Section 1.704-3(b).

              (c)  Depletion  deductions  with respect to  contributed  property
shall be determined  without regard to any portion of the property's  basis that
is  attributable  to  precontribution  expenditures  by Golden Phoenix that were
capitalized   under  Code  Sections   616(b),   59(e)  and  291(b).   Deductions
attributable  to  precontribution   expenditures  by  Golden  Phoenix  shall  be
calculated  under such Code Sections as if Golden  Phoenix  continued to own the
depletable  property  to  which  such  deductions  are  attributable,  and  such
deductions  shall be  reported  by the tax  partnership  and shall be  allocated
solely to Golden Phoenix.

              (d) The  Participants  understand the allocations of tax items set
forth in this PARAGRAPH,  and agree to report consistently with such allocations
for federal and state tax purposes.

                                   ARTICLE IV
                          CAPITAL ACCOUNTS; LIQUIDATION

         4.1 CAPITAL ACCOUNTS.

              (a) A separate Capital Account shall be established and maintained
by the TMP for each Participant.  Such Capital Account shall be increased by (i)
the amount of money contributed by the Participant to the tax partnership,  (ii)
the fair market  value of property  contributed  by the  Participant  to the tax
partnership (net of liabilities  secured by such  contributed  property that the
partnership  is  considered to assume or take subject to under Code Section 752)
and (iii)  allocations to the Participant  under  PARAGRAPHS 3.3, 3.4 and 3.5 of
tax partnership  income and gain (or items thereof),  including  income and gain
exempt from tax; and shall be decreased by (iv) the amount of money  distributed
to the Participant by the tax partnership, (v) the fair market value of property
distributed  to the  Participant  by the tax  partnership  (net  of  liabilities
secured by such  distributed  property and that the Participant is considered to
assume or take  subject to under Code  Section  752),  (vi)  allocations  to the
Participant  under  PARAGRAPHS  3.3,  3.4  and  3.5 of  expenditures  of the tax
partnership  not  deductible  in computing  its taxable  income and not properly

                                      E-62
<PAGE>

chargeable to a Capital Account,  and (vii)  allocations of tax partnership loss
and deduction (or items  thereof),  excluding  items described in (vi) above and
percentage  depletion  to the extent it exceeds  the  adjusted  tax basis of the
depletable property to which it is attributable. The Participants agree that the
net fair market value of the property  contributed  by Golden Phoenix to the tax
partnership  pursuant  to  SECTION  5.2 of the  Agreement  is  $5,000,000.00  if
Borealis earned a 50% interest in the Properties,  and $3,857,142.86 if Borealis
earned a 50% interest in the Properties.

              (b) In the event that the Capital Accounts of the Participants are
computed  with  reference to the book value of any Asset which  differs from the
adjusted tax basis of such Asset,  then the Capital  Accounts  shall be adjusted
for depreciation,  depletion, amortization and gain or loss as computed for book
purposes  with  respect to such Asset in  accordance  with  Treasury  Regulation
Section 1.704-1(b)(2)(iv)(g).

              (c)  In  the  event  any  interest  in  the  tax   partnership  is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred  interest,   except  as  provided  in  Treasury  Regulation  Section
1.704-1(b)(2)(iv)(1).

              (d) In the event  property,  other than money, is distributed to a
Participant,  the  Capital  Accounts  of the  Participants  shall be adjusted to
reflect the manner in which the  unrealized  income,  gain,  loss and  deduction
inherent in such property (that has not been  reflected in the Capital  Accounts
previously)  would be allocated  among the  Participants  if there was a taxable
disposition of such property for the fair market value of such property  (taking
Section 7701(g) of the Code into account) on the date of distribution.  For this
purpose the fair market value of the property  shall be  determined as set forth
in PARAGRAPH 4.2(A) below.

              (e)  In  the  event  the   Management   Committee   designates   a
Supplemental Business Agreement area within the Area of Interest as described in
ARTICLE  XV of the  Agreement,  the  Management  Committee  shall  appropriately
segregate Capital Accounts to reflect that designation and shall make such other
modifications  to the  Agreement  as are  appropriate  to reflect  the manner of
administering Capital Accounts in accordance with the terms of this EXHIBIT C.

              (f)  Golden  Phoenix  is  contributing  to the  Agreement  certain
depletable  properties  with respect to which Golden  Phoenix  currently  has an
adjusted tax basis which may consist in part of depletable  expenditures  and in
part of  expenditures  capitalized  under Code  Sections  616(b),  291(b) and/or
59(e). For purposes of maintaining the Capital  Accounts,  the tax partnership's
deductions with respect to contributed  property in each year for (i) depletion,
(ii) deferred  development  expenditures  under Section 616(b)  attributable  to
pre-contribution   expenditures,   (iii)   amortization   under  Section  291(b)
attributable  to  pre-contribution  expenditures,  and (iv)  amortization  under
Section 59(e) attributable to pre-contribution  expenditures shall be the amount
of the  corresponding  item determined for tax purposes pursuant to SUBPARAGRAPH
3.6(C)  multiplied  by the ratio of (A) the book value at which the  contributed
property is recorded in the Capital  Accounts to (B) the  adjusted  tax basis of
the  contributed  property  (including  basis resulting from  capitalization  of
pre-contribution  development  expenditures  under Sections 616(b),  291(b), and
59(e)).

                                      E-63
<PAGE>

              (g) The  foregoing  provisions,  and the other  provisions  of the
Agreement relating to the maintenance of Capital Accounts and the allocations of
income,  gain, loss,  deduction and credit, are intended to comply with Treasury
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such  Regulations.  In the event the Management  Committee shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits  thereto,  are  computed  in order to comply  with such
Regulations, the Management Committee may make such modification,  provided that
it is not likely to have a material effect on the amount distributable to either
Participant upon liquidation of the tax partnership pursuant to PARAGRAPH 4.2.

              (h) If the Participants so agree,  upon the occurrence of an event
described in Treas.  Reg.  Section  1.704-1(b)(2)(iv)(5),  the Capital  Accounts
shall be restated in accordance with Treas. Reg. Section 1.704-1(b)(2)(iv)(f) to
reflect the manner in which unrealized income,  gain, loss or deduction inherent
in the assets of the tax partnership (that has not been reflected in the Capital
Accounts  previously)  would be allocated among the Participants if there were a
taxable  disposition of such assets for their fair market values,  as determined
in accordance with SECTION 4.2(A).  For purposes of PARAGRAPH 3.3, a Participant
shall be treated as  contributing  the portion of the book value of any property
that is credited to the Participant's  Capital Account pursuant to the preceding
sentence.  Following a revaluation  pursuant to this  SUBPARAGRAPH  4.1(H),  the
Participants' shares of depreciation,  depletion, amortization and gain or loss,
as computed for tax  purposes,  with respect to property  that has been revalued
pursuant to this SUBPARAGRAPH  4.1(H) shall be determined in accordance with the
principles of Code Section  704(c) as applied  pursuant to the final sentence of
SUBPARAGRAPH 3.6(B).

         4.2  LIQUIDATION.  In the event the partnership is "liquidated"  within
the  meaning  of  Treasury   Regulation   Section   1.704-1(b)(2)(ii)(g)   then,
notwithstanding  any other  provision  of the  Agreement  to the  contrary,  the
following  steps shall be taken  (after  taking into  account any  transfers  of
Capital Accounts pursuant to SECTION 6.3(A) or 12.3 of the Agreement):

              (a) The Capital Accounts of the Participants  shall be adjusted to
reflect  any  gain or loss  which  would  be  realized  by the  partnership  and
allocated to the Participants  pursuant to the provisions of ARTICLE III OF THIS
EXHIBIT C if the Assets had been sold at their fair market  value at the time of
liquidation.  The  fair  market  value of the  Assets  shall  be  determined  by
agreement of both Participants;  provided,  however,  that in the event that the
Participants  fail to agree  on the fair  market  value of any  Asset,  its fair
market  value  shall  be  determined  by  a  nationally  recognized  independent
engineering  firm  or  other  qualified   independent  party  approved  by  both
Participants.

              (b) After making the foregoing  adjustments and/or  contributions,
all remaining Assets shall be distributed to the Participants in accordance with
the  balances  in  their  Capital   Accounts  (after  taking  into  account  all
allocations under ARTICLE III, including SUBPARAGRAPH 3.3(H)).  Unless otherwise
expressly  agreed on by both  Participants,  each  Participant  shall receive an
undivided interest in each and every Asset determined by the ratio of the amount
in each Participant's  Capital Account to the total of both of the Participants'
Capital Accounts. Assets distributed to the Participants shall be deemed to have
a fair market value equal to the value assigned to them pursuant to SUBPARAGRAPH
4.2(A) above.

                                      E-64
<PAGE>

              (c) All  distributions  to the  Participants  in  respect of their
Capital  Accounts  shall be made in  accordance  with the time  requirements  of
Treasury Regulation Sections 1.704-1(b)(2)(ii)(b)(2) and (3).

         4.3 DEEMED  TERMINATIONS.  Notwithstanding  the provisions of PARAGRAPH
4.2,  if the  "liquidation"  of  the  tax  partnership  results  from  a  deemed
termination  under  Section  708(b)(1)(B)  of the Code,  then (i)  SUBPARAGRAPHS
4.2(A) and (B) shall not apply, (ii) the tax partnership shall be deemed to have
distributed its Assets in accordance with the relative  Capital Account balances
of the  Participants  as adjusted  pursuant to  SUBPARAGRAPH  4.2(A),  (iii) the
Participants  shall be deemed for tax purposes to have contributed  those Assets
to a new  partnership  pursuant to the terms of this EXHIBIT C, and (iv) the new
tax partnership  shall continue pursuant to the terms of this Agreement and this
EXHIBIT C.

                                    ARTICLE V
                               SALE OR ASSIGNMENT

         The  Participants  agree  that if  either  one of them  makes a sale or
assignment of its  Participating  Interest  under this  Agreement,  such sale or
assignment  shall be structured  so as not to cause a termination  under Section
708(b)(1)(B) of the Code. If a Section  708(b)(1)(B)  termination is caused, the
terminating Participant shall indemnify the non-terminating Participant and save
it harmless on an  after-tax  basis for any  increase  in taxes,  interest,  and
penalties or decrease in credits to the  non-terminating  Participant  caused by
the termination of the tax partnership.

                                      E-65
<PAGE>

                                    EXHIBIT D
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                                   DEFINITIONS

                  "AFFILIATE" means any person,  partnership,  limited liability
company, joint venture, corporation, or other form of enterprise which Controls,
is Controlled by, or is under common Control with a Participant.

                  "AGREEMENT"  means  this  Exploration,  Development  and  Mine
Operating  Agreement,  including  all  amendments  and  modifications,  and  all
schedules and exhibits, all of which are incorporated by this reference.

                  "APPROVED   ALTERNATIVE"   means  a  Development   and  Mining
alternative  selected by the Management  Committee from various  Development and
Mining alternatives analyzed in the Pre-Feasibility Studies.

                  "AREA OF INTEREST"  means the area  described in PARAGRAPH 1.2
OF EXHIBIT A.

                  "ASSETS" means the Properties, Products, Business Information,
and all other real and personal  property,  tangible and  intangible,  including
existing  or  after-acquired  properties  and all  contract  rights held for the
benefit of the Participants hereunder.

                 "BOREALIS" means Borealis Mining Company, a Nevada corporation.

                  "BUDGET" means a detailed estimate of all costs to be incurred
and a schedule of cash advances to be made by the Participants with respect to a
Program.

                  "BUSINESS"   means  the   contractual   relationship   of  the
Participants under this Agreement.

                  "BUSINESS ACCOUNT" means the account maintained by the Manager
for the Business in accordance with EXHIBIT B.

                  "BUSINESS INFORMATION" means the terms of this Agreement,  and
any other  agreement  relating  to the  Business,  the  Existing  Data,  and all
information,  data,  knowledge  and  know-how,  in  whatever  form  and  however
communicated   (including,   without  limitation,   Confidential   Information),
developed, conceived, originated or obtained by either Participant in performing
its obligations under this Agreement.  The term "Business Information" shall not
include

                                      E-66
<PAGE>

any  improvements,   enhancements,   refinements  or  incremental  additions  to
Participant Information that are developed, conceived, originated or obtained by
either Participant in performing its obligations under this Agreement.

                  "CAPITAL  ACCOUNT"  means  the  account  maintained  for  each
Participant in accordance with EXHIBIT C.

                  "CONFIDENTIAL   INFORMATION"  means  all  information,   data,
knowledge  and  know-how  (including,  but not limited to,  formulas,  patterns,
compilations, programs, devices, methods, techniques and processes) that derives
independent  economic  value,  actual  or  potential,  as a result  of not being
generally known to, or readily  ascertainable by, third parties and which is the
subject of efforts that are reasonable  under the  circumstances to maintain its
secrecy,   including   without   limitation   all   analyses,   interpretations,
compilations,  studies and evaluations of such information,  data, knowledge and
know-how generated or prepared by or on behalf of either Participant.

                  "CONTINUING  OBLIGATIONS" mean obligations or responsibilities
that are  reasonably  expected  to  continue  or  arise  after  Operations  on a
particular area of the Properties  have ceased or are suspended,  such as future
monitoring, stabilization, or Environmental Compliance.

                  "CONTROL"  used as a verb means,  when used with respect to an
entity, the ability,  directly or indirectly through one or more intermediaries,
to direct or cause the direction of the  management  and policies of such entity
through (i) the legal or beneficial ownership of voting securities or membership
interests;   (ii)  the  right  to  appoint  managers,   directors  or  corporate
management;  (iii)  contract;  (iv) operating  agreement;  (v) voting trust;  or
otherwise;  and,  when used with respect to a person,  means the actual or legal
ability to control the actions of another, through family relationship,  agency,
contract or  otherwise;  and  "Control"  used as a noun means an interest  which
gives the holder the ability to exercise any of the foregoing powers.

                  "COVER PAYMENT" shall have the meaning as set forth in SECTION
10.4 of the Agreement.

                  "DEVELOPMENT"  means all preparation  (other than Exploration)
for  the  removal  and  recovery  of  Products,   including   construction   and
installation  of a mill or any  other  improvements  to be used for the  mining,
handling,  milling,  processing,  or other  beneficiation  of Products,  and all
related Environmental Compliance.

                  "EFFECTIVE  DATE" means the date set forth in the  preamble to
this Agreement.

                  "ENCUMBRANCE"  or  "ENCUMBRANCES"  means  mortgages,  deeds of
trust, security interests,  pledges, liens, net profits interests,  royalties or
overriding royalty interests, other payments out of production, or other burdens
of any nature.

                  "ENVIRONMENTAL  COMPLIANCE"  means actions performed during or
after  Operations to comply with the requirements of all  Environmental  Laws or
contractual  commitments  related  to  reclamation  of the  Properties  or other
compliance with Environmental Laws.

                                      E-67
<PAGE>

                  "ENVIRONMENTAL  LAWS"  means  Laws  aimed  at  reclamation  or
restoration  of  the  Properties;  abatement  of  pollution;  protection  of the
environment;  protection of wildlife,  including  endangered  species;  ensuring
public  safety from  environmental  hazards;  protection of cultural or historic
resources; management, storage or control of hazardous materials and substances;
releases  or  threatened  releases of  pollutants,  contaminants,  chemicals  or
industrial,  toxic or  hazardous  substances  as  wastes  into the  environment,
including without  limitation,  ambient air, surface water and groundwater;  and
all other Laws relating to the  manufacturing,  processing,  distribution,  use,
treatment, storage, disposal, handling or transport of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes.

                  "ENVIRONMENTAL LIABILITIES" means any and all claims, actions,
causes  of  action,  damages,  losses,  liabilities,   obligations,   penalties,
judgments,  amounts paid in settlement,  assessments,  costs, disbursements,  or
expenses  (including,  without limitation,  attorneys' fees and costs,  experts'
fees and costs,  and  consultants'  fees and costs) of any kind or of any nature
whatsoever that are asserted against either Participant, by any person or entity
other  than  the  other  Participant,  alleging  liability  (including,  without
limitation,  liability  for studies,  testing or  investigatory  costs,  cleanup
costs,  response costs,  removal costs,  remediation  costs,  containment costs,
restoration costs,  corrective action costs,  closure costs,  reclamation costs,
natural resource damages,  property damages, business losses, personal injuries,
penalties or fines) arising out of, based on or resulting from (i) the presence,
release,  threatened release,  discharge or emission into the environment of any
hazardous  materials or substances  existing or arising on, beneath or above the
Properties  and/or  emanating  or  migrating  and/or  threatening  to emanate or
migrate from the Properties to off-site properties; (ii) physical disturbance of
the   environment;   or  (iii)  the  violation  or  alleged   violation  of  any
Environmental Laws.

                  "EQUITY  ACCOUNT"  means  the  account   maintained  for  each
Participant  by  the  Manager  in  accordance  with  SUBSECTION  8.2(N)  of  the
Agreement.

                  "EXISTING  DATA"  means  maps,  drill logs and other  drilling
data, core tests, pulps, reports, surveys, assays, analyses, production reports,
operations,  technical,  accounting  and financial  records,  and other material
information  developed in  operations on the  Properties  prior to the Effective
Date.

                  "EXPANSION" or "MODIFICATION" means (i) a material increase in
mining or production  capacity;  (ii) a material change in the recovery process;
or (iii) a material change in waste or tailings disposal methods. An increase or
change shall be deemed  "material" if it is  anticipated to cost more than ____%
of original  capital  costs  attributable  to the  Development  of the mining or
production capacity,  recovery process or waste or tailings disposal facility to
be expanded or modified.

                  "EXPLORATION"    means   all   activities    directed   toward
ascertaining the existence,  location,  quantity, quality or commercial value of
deposits of Products,  including but not limited to additional drilling required
after discovery of potentially commercial mineralization,  and including related
Environmental Compliance.

                                      E-68
<PAGE>

                  "FEASIBILITY  CONTRACTORS" means one or more engineering firms
approved by the  Management  Committee for purposes of preparing or auditing any
Pre-Feasibility Study or Feasibility Study.

                  "FEASIBILITY  STUDY"  means a report to be prepared  following
selection by the Management Committee of one or more Approved Alternatives.  The
Feasibility  Study  shall  include  a review  of  information  presented  in any
Pre-Feasibility Studies concerning the Approved Alternative(s).  The Feasibility
Study  shall  be in a form  and of a scope  generally  acceptable  to  reputable
financial institutions that provide financing to the mining industry.

                  "GOLDEN  PHOENIX"  means  Golden  Phoenix  Minerals,  Inc.,  a
Minnesota corporation.

                  "GOVERNMENTAL  FEES" means all  location  fees,  mining  claim
rental fees, mining claim maintenance  payments and similar payments required by
Law to locate and hold unpatented mining claims.

                  "INITIAL    CONTRIBUTION"   means   that   contribution   each
Participant has made or agrees to make pursuant to SECTION 5.1 of the Agreement.

                  "LAW" or "LAWS" means all applicable federal,  state and local
laws (statutory or common), rules, ordinances, regulations, grants, concessions,
franchises,   licenses,  orders,  directives,   judgments,  decrees,  and  other
governmental  restrictions,  including  permits and other similar  requirements,
whether legislative, municipal, administrative or judicial in nature.

                  "MANAGEMENT  COMMITTEE" means the committee  established under
ARTICLE VII of the Agreement.

                  "MANAGER" means the  Participant  appointed under ARTICLE VIII
of the Agreement to manage Operations, or any successor Manager.

                  "MINING"    means   the   mining,    extracting,    producing,
beneficiating, handling, milling or other processing of Products.

                  "NET PROCEEDS" means certain amounts calculated as provided in
EXHIBIT E, which may be payable to a  Participant  under  SUBSECTIONS  6.3(B) or
10.5(B)(II) of the Agreement.

                  "OPERATIONS"  means the  activities  carried  out  under  this
Agreement.

                  "PARTICIPANT"  means  Golden  Phoenix  or  Borealis,   or  any
permitted successor or assign of Golden Phoenix or Borealis under the Agreement.

                  "PARTICIPANT   INFORMATION"   means  all  information,   data,
knowledge and know-how,  in whatever form and however  communicated  (including,
without limitation,  Confidential  Information but excluding the Existing Data),
which,  as shown by written  records,  was developed,  conceived,  originated or
obtained by a  Participant:  (a) prior to entering into this  Agreement,  or (b)
independent of its performance under the terms of this Agreement.

                                      E-69
<PAGE>

                  "PARTICIPATING   INTEREST"   means  the  percentage   interest
representing  the  ownership  interest of a Participant  in the Assets,  and all
other rights and obligations arising under this Agreement,  as such interest may
from  time to time be  adjusted  hereunder.  Participating  Interests  shall  be
calculated to three decimal places and rounded to two decimal places as follows:
Decimals  of .005 or more shall be rounded up (e.g.,  1.519%  rounded to 1.52%);
decimals  of less than .005  shall be  rounded  down  (e.g.,  1.514%  rounded to
1.51%). The initial Participating Interests of the Participants are set forth in
SECTION 6.1 of the Agreement.

                  "PAYOUT" means the date on which the Equity Account balance of
each of the  Participants  has become zero or a negative  number,  regardless of
whether the Equity Account balance of either or both  Participants  subsequently
becomes a positive number. If one  Participant's  Equity Account balance becomes
zero or a negative  number before the other  Participant's,  "Payout"  shall not
occur until the date that the other  Participant's  Equity Account balance first
becomes zero or a negative number.

                  "PRE-FEASIBILITY  STUDIES" means one or more studies  prepared
to analyze whether  economically viable Mining Operations may be possible on the
Properties, as described in SECTION 9.8.

                  "PRIME RATE" means the interest  rate quoted and  published as
"Prime" as published in The Wall Street Journal, under the heading "Money Rate,"
as the rate may change from day to day.

                  "PRODUCTS"  means all ores,  minerals  and  mineral  resources
produced from the Properties.

                  "PROGRAM"   means  a  description  in  reasonable   detail  of
Operations to be conducted and objectives to be  accomplished by the Manager for
a period determined by the Management Committee.

                  "PROGRAM  PERIOD" means the time period  covered by an adopted
Program and Budget.

                  "PROJECT  FINANCING"  means  any  financing  approved  by  the
Management Committee and obtained by the Participants for the purpose of placing
a mineral deposit  situated on the Properties into  commercial  production,  but
shall not include any such financing obtained individually by either Participant
to finance payment or performance of its obligations under the Agreement.

                  "PROPERTIES"  means those interests in real property described
in PARAGRAPH 1.1 OF EXHIBIT A and all other  interests in real  property  within
the Area of Interest that are acquired and held subject to the Agreement.

                  "RECALCULATED   PARTICIPATING   INTEREST"  means  the  reduced
Participating  Interest of a Participant as recalculated under SECTIONS 9.5, 9.6
or 10.5 of the Agreement.

                                      E-70
<PAGE>

                  "REDUCED  PARTICIPANT" means a Participant whose Participating
Interest is reduced under SECTIONS 9.5 or 10.5 of the Agreement.

                  "TRANSFER" means, when used as a verb, to sell, grant, assign,
create an Encumbrance, pledge or otherwise convey, or dispose of or commit to do
any of the foregoing,  or to arrange for substitute  performance by an Affiliate
or third party (except as permitted under  SUBSECTION  8.2(J) and SECTION 8.6 of
the Agreement),  either directly or indirectly;  and, when used as a noun, means
such a sale,  grant,  assignment,  Encumbrance,  pledge or other  conveyance  or
disposition, or such an arrangement.

                                      E-71
<PAGE>

                                    EXHIBIT E
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                            NET PROCEEDS CALCULATION

         1.1 INCOME AND EXPENSES.  Net Proceeds shall be calculated by deducting
from the Gross Revenue (as defined  below)  realized (or deemed to be realized),
such costs and expenses  attributable to Exploration,  Development,  Mining, the
marketing  of  Products  and  other  Operations  as  would be  deductible  under
generally accepted  accounting  principles and practices  consistently  applied,
including without limitation:

              (a) All costs and  expenses of  replacing,  expanding,  modifying,
altering or changing from time to time the Mining facilities. Costs and expenses
of improvements  (such as haulage ways or mill facilities) that are also used in
connection  with  workings  other  than the  Properties  shall be charged to the
Properties  only  in the  proportion  that  their  use in  connection  with  the
Properties bears to their total use;

              (b) Ad valorem  real  property  and  unsecured  personal  property
taxes,  and all taxes,  other than  income  taxes,  applicable  to Mining of the
Properties,  including without  limitation all state mining taxes,  sales taxes,
severance taxes, license fees and governmental levies of a similar nature;

              (c) Allowance for overhead in accordance  with  PARAGRAPH  2.13 OF
EXHIBIT B;

              (d) All  expenses  incurred  relative  to the  sale  of  Products,
including an allowance for  commissions  at rates which are normal and customary
in the industry;

              (e) All amounts payable to the remaining Participant during Mining
pursuant to any applicable  operating or similar agreement in force with respect
thereto;

              (f) The actual cost of investment under the Agreement but prior to
beginning of Mining,  which shall include all  expenditures  for Exploration and
Development of the Properties incurred by the  non-withdrawing  Participant both
prior and  subsequent to the  withdrawing  Participant  acquiring a Net Proceeds
interest;

              (g)  Interest  on  monies  borrowed  or  advanced  for  costs  and
expenses, but in no event in excess of the maximum permitted by law;

              (h) An allowance for reasonable working capital and inventory;

                                      E-72
<PAGE>

              (i) Costs of funding the Environmental Compliance Fund as provided
in PARAGRAPH 2.14 OF EXHIBIT B;

              (j) Actual costs of Operations; and

              (k) Rental, royalty, production, and purchase payments.

         For purposes hereof, the term "Gross Revenue" shall mean the sum of (i)
gross receipts from sale of Products,  less any charges for sampling,  assaying,
or penalties;  (ii) gross receipts from the sale or other disposition of Assets;
(iii) insurance proceeds; (iv) compensation for expropriation of Assets; and (v)
judgment  proceeds.  Gross  receipts for sale of Products shall be determined by
multiplying  spot  prices for  Products  as quoted by The Wall  Street  Journal,
Reuters, E&MJ, or other reliable source on the date of a sale of Products.

         It is intended that the remaining  Participant  shall recoup from Gross
Revenue all of its on-going contributions for Exploration,  Development, Mining,
Expansion and  Modification  and marketing  Products before any Net Proceeds are
distributed to any person holding a Net Proceeds interest. No deduction shall be
made for income taxes,  depreciation,  amortization or depletion. If in any year
after the  beginning  of Mining of the  Properties  an operating  loss  relative
thereto is incurred,  the amount  thereof shall be considered as and be included
with  outstanding  costs and expenses  and carried  forward in  determining  Net
Proceeds for  subsequent  periods.  If Products are  processed by the  remaining
Participant, or are sold to an Affiliate of the remaining Participant, then, for
purposes of calculating Net Proceeds, such Products shall be deemed conclusively
to have  been  sold at a price  equal to fair  market  value to an arm's  length
purchaser FOB the  concentrator  for the Properties,  and Net Proceeds  relative
thereto  shall  be  calculated  without  reference  to  any  profits  or  losses
attributable to smelting or refining.

         1.2 PAYMENT OF NET PROCEEDS. Payments of Net Proceeds shall commence in
the calendar  quarter  following the calendar  quarter in which Net Proceeds are
first realized, and shall be made forty-five (45) days following the end of each
calendar quarter during which Net Proceeds are realized, and shall be subject to
adjustment, if required, at the end of each calendar year. The recipient of such
Net  Proceeds  payments  shall have the right to audit such  payments  following
receipt of each payment by giving  notice to the  remaining  Participant  and by
conducting such audit in accordance with SECTION 10.6 of the Agreement. Costs of
such an  audit  shall  be  borne  by the  holder  of the Net  Proceeds  interest
described herein.

         1.3 DEFINITIONS.  All capitalized  words and terms used herein have the
same meaning as in the Agreement.

                                      E-73
<PAGE>

                                    EXHIBIT F
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                                    INSURANCE

         The Manager shall,  at all times while  conducting  Operations,  comply
fully with the applicable  worker's  compensation laws and purchase,  or provide
protection for the Participants  comparable to that provided under standard form
insurance policies for the following risk categories:  (i) comprehensive  public
liability and property  damage with combined  limits of not less than __________
Dollars  ($__________)  for bodily injury and property  damage;  (ii) automobile
insurance   with   combined   limits  of  not  less  than   __________   Dollars
($__________);  and (iii) adequate and reasonable insurance against risk of fire
and other risks ordinarily insured against in similar operations. If the Manager
elects to self-insure,  it shall charge to the Business  Account an amount equal
to the  premium  it would have paid had it secured  and  maintained  a policy or
policies of insurance on a competitive bid basis in the amount of such coverage.
Each  Participant  shall  self-insure  or  purchase  for  its own  account  such
additional insurance as it deems necessary.

                                      E-74
<PAGE>

                                    EXHIBIT G
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                           INITIAL PROGRAM AND BUDGET

                    [Prepare and attach at time of execution]

                                      E-75
<PAGE>

                                    EXHIBIT H
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                                PREEMPTIVE RIGHTS

         1.1 PREEMPTIVE RIGHTS. If either Participant intends to Transfer all or
any part of its Participating  Interest,  or an Affiliate of either  Participant
intends to Transfer Control of such Participant  ("Transferring  Entity"),  such
Participant shall promptly notify the other Participant of such intentions.  The
notice shall state the price and all other pertinent terms and conditions of the
intended  Transfer,  and  shall  be  accompanied  by a copy of the  offer or the
contract for sale. If the  consideration  for the intended transfer is, in whole
or in part,  other than monetary,  the notice shall describe such  consideration
and its monetary equivalent (based upon the fair market value of the nonmonetary
consideration  and stated in terms of cash or currency).  The other  Participant
shall have ninety (90) days from the date such notice is delivered to notify the
Transferring  Entity (and the  Participant if its Affiliate is the  Transferring
Entity) whether it elects to acquire the offered  interest at the same price (or
its  monetary  equivalent  in  cash  or  currency)  and on the  same  terms  and
conditions as set forth in the notice.  If it does so elect,  the acquisition by
the  other  Participant  shall be  consummated  promptly  after  notice  of such
election is delivered;

              (a) If the other  Participant  fails to so elect within the period
provided  for  above,  the  Transferring  Entity  shall  have  ninety  (90) days
following the  expiration  of such period to consummate  the Transfer to a third
party at a price and on terms no less favorable to the Transferring  Entity than
those  offered  by the  Transferring  Entity  to the  other  Participant  in the
aforementioned notice;

              (b) If the Transferring Entity fails to consummate the Transfer to
a third party within the period set forth  above,  the  preemptive  right of the
other  Participant in such offered  interest shall be deemed to be revived.  Any
subsequent  proposal to Transfer such interest  shall be conducted in accordance
with all of the procedures set forth in this PARAGRAPH.

         1.2 EXCEPTIONS TO PREEMPTIVE RIGHT. PARAGRAPH 1.1 above shall not apply
to the following:

              (a)  Transfer  by  either  Participant  of all or any  part of its
Participating Interest to an Affiliate;

              (b)   Incorporation   of   either   Participant,    or   corporate
consolidation  or  reorganization  of either  Participant by which the surviving
entity  shall  possess  substantially  all of the  stock or all of the  property
rights and interests, and be subject to substantially all of the liabilities and
obligations of that Participant;

                                      E-76
<PAGE>

              (c) Corporate merger or amalgamation  involving either Participant
by which the surviving  entity or  amalgamated  company shall possess all of the
stock  or  all  of  the  property  rights  and  interests,  and  be  subject  to
substantially  all of the  liabilities  and  obligations  of  that  Participant;
provided,  however, that the value of the merging or amalgamating  Participant's
interest in the Assets,  evidenced by its Capital  Account balance (as described
in EXHIBIT C), does not exceed  ______  percent  (____%) of the Net Worth of the
surviving entity or amalgamated company;

              (d) the transfer of Control of either  Participant by an Affiliate
to such Participant or to another Affiliate;

              (e) subject to SUBSECTION  16.2(G) of the Agreement,  the grant by
either  Participant  of a security  interest  in its  Participating  Interest by
Encumbrance;

              (f) the  creation by any  Affiliate  of either  Participant  of an
Encumbrance affecting its Control of such Participant;

              (g) a sale or other  commitment  or  disposition  of  Products  or
proceeds from sale of Products by either  Participant  upon  distribution  to it
pursuant to ARTICLE XI of the Agreement; or

              (h) a transfer by an Affiliate of either Participant of Control of
such  Participant  to a third party,  provided  the value of such  Participant's
Capital Account balance does not exceed  __________  percent (_____%) of the Net
Worth of the  transferring  Affiliate,  or does not  exceed  __________  percent
(____%) of the Net Worth of Transferee.

         For  purposes  hereof,  the term "Net Worth"  shall mean the  remainder
after  total  liabilities  are  deducted  from  total  assets.  In the case of a
corporation, Net Worth includes both capital stock and surplus. In the case of a
limited liability company, Net Worth includes member contributions.  In the case
of a  partnership  or sole  proprietorship,  Net  Worth  includes  the  original
investment plus accumulated and reinvested profits.

                                      E-77
<PAGE>

                                    EXHIBIT I
                                       to
              EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
                                 By and Between
                          GOLDEN PHOENIX MINERALS, INC.
                                       and
                             BOREALIS MINING COMPANY

                               EXISTING FACILITIES

         Old leach pads.

                                      E-78
<PAGE>

                                    EXHIBIT F

                                       TO

                 AGREEMENT BETWEEN GOLDEN PHOENIX MINERALS, INC.
                           AND BOREALIS MINING COMPANY

                   (BOREALIS PROPERTY, MINERAL COUNTY, NEVADA)

                               EXISTING FACILITIES

         Old leach pads.

                                      E-79

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00056-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00056-of-00352.parquet"}]]