MR3 SYSTEM METALS EXTRACTION AGREEMENT
between
MR3 SYSTEMS, INC.
and
FRANKLIN LAKE RESOURCES, INC.
November 30, 2004
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND
INTERPRETATION
4
2. GRANT OF
EXCLUSIVE PROCESSING RIGHTS - THE PROJECT
6
3. MINING,
CONCENTRATION AND PROCESSING OF TARGET METALS
7
4. OBLIGATIONS OF
THE PARTIES
8
5. EXPENSES AND
DISBURSEMENTS
9
6. REPORTING,
BOOKS, RECORDS AND BANKING
9
7. GOVERNMENT
APPROVALS
10
8. TEST RESULTS
CONDITION TO MR3 PERFORMANCE
10
9. LIMITATIONS OF
LIABILITY
10
10. INCOME TAXES
10
11. ASSIGNMENT
10
12. DURATION AND
TERMINATION
11
13. FORCE MAJEURE
11
14. CONFIDENTIALITY
12
15. GENERAL PROVISIONS
14
16. GOVERNING LAW
15
17. ARBITRATION
22
18. ENTIRE AGREEMENT
16
19. REPRESENTATIONS AND
WARRANTIES
17
20. GOOD FAITH
18
21. INDEMNIFICATION
18
EXHIBIT A
19
<PAGE>
THIS AGREEMENT
is made this 30th day of November 2004, BETWEEN MR3 Systems,
Inc., a Delaware corporation, whose
corporate address is 435 Brannan Street,
Suite 200, San Francisco, California 94107
("MR3"); and Franklin Lake Resources,
Inc., a Nevada corporation; whose corporate
address is 172 Starlite Street,
South San Francisco, CA 94080-6310 ("FLR").
FLR and MR3 are at times referred to
herein individually as a "party", or
collectively as the "parties" hereto.
RECITALS
WHEREAS, MR3 is the exclusive owner and
developer of, and will continue
to develop, the MR3 Technology, which
extracts individual metals from industrial
wastes, precious metal ores, and other
complex metal sources for conversion into
pure metals and specialty chemical
products; and
WHEREAS, MR3 designs, manufactures,
installs and operates facilities utilizing
the MR3 Technology to extract and recover
metals; and
WHEREAS, FLR owns or controls mining claims
covering approximately 8,000 acres
located in and about Franklin Lake, a dry
lake bed, near Death Valley Junction,
California, of which tests, although
inconsistent, generally show the presence
of gold and other precious metals; and
WHEREAS, FLR has developed, purchased, and
otherwise acquired the FLR
Technology, and will continue to develop
such technology; and
WHEREAS, FLR leases the Amargosa Site, a
desirable location for the Project; and
WHEREAS, MR3 and FLR wish to enter into
this Agreement, under the terms of which
the parties will jointly build and operate
a Facility at the Amargosa Site to
process Source Material, Concentrate, and
other Material in order to extract
Target Metals, which are then generally
made into dore bars or other metal
Concentrates of acceptable purity for sale
to refiners and other third parties;
and
WHEREAS, development of the Project
requires financing from a third party
("Investor"), and the parties believe they
have identified a party who will be
the Investor, and who desires to provide
the funds for the Project through MR3
(for convenience, MR3 and Investor together
may be referred to as
"MR3/Investor") and secured and
collateralized against the Project, FLR, and
MR3;
NOW THEREFORE, in consideration of the
premises, terms and conditions set forth
herein, the parties agree as follows:
1) DEFINITIONS
For purposes of this Agreement, when
capitalized the following terms shall have
the following meanings (other terms are
defined in the text):
a) AGREEMENT - Means this Agreement,
including all schedules, exhibits, and
attachments hereto, as it may be amended by
the parties hereto from time to
time.
b) AMARGOSA SITE - Means approximately
eight acres of land, surrounded by a
fence, including a building containing a
Facility and several auxiliary
buildings, located at 1055 Cottonwood Lane,
Amargosa Valley, Nevada,
approximately 7.5 miles from Franklin
Lake.
c) BUILDING - Means any building or other
structure, including a mobile home,
located at the Armagosa Site.
d) CAPTIAL COSTS - Means all the capital
costs and expenses, including, without
limitation, debt service, the cost of
purchasing, designing, engineering,
constructing, fabricating and installing
all buildings and equipment necessary
to equip and operate a Facility, the filing
of any required reclamation bonds
and operating permits, and any other costs
and expenses of the Project that
would be considered capital expenditures
under U.S. Generally Accepted
Accounting Principles ("US GAAP").
e) CONCENTRATE - Means the part, resulting
from processing a Source Material
into two parts, which contains a greater
proportion of a Target Metal than was
contained in the Source Material.
f) CONFIDENTIAL INFORMATION - Means as
defined in Section 14 of this Agreement.
g) FACILITY - Means equipment and
infrastructure necessary to process Source
Material, Intermediate Product, or
Concentrate.
h) FINAL PRODUCT - Means the material
containing the Target Metal(s), after all
the processing contemplated by this
Agreement has been completed, commonly in
form of a dore bar or other metal
Concentrates of acceptable purity for sale to
or other third party.
i) FLR SYSTEM - Means the entire FLR
primary and secondary equipment, modules,
media, controls, including without
limitation, instrumentation, primary and
secondary control elements, shared
display(s), control algorithms or any
software based functions necessary to
operate a Facility, including the FLR
Technology used to make the System
effective, all of which existed prior to the
signing of this Agreement.
j) FLR TECHNOLOGY - Means all the
technology owned by FLR designed or intended
for use in processing Source Material,
Concentrate, or Intermediate Product in
order to produce a Final Product or another
Intermediate Product; it includes
without limitation patents, trade secrets,
other technical information whether
in written form or existing only in the
mind of one or more persons, know-how,
show-how, Confidential Information,
copyrights, trademarks, service marks, and
information of any nature whatsoever which
relates to the FLR System, including
any modifications, improvements, and
translations thereof, or to processes,
methods, techniques, devices, or other
items used by FLR in its efforts to
process Material into a Final Product, all
of which are so defined prior to the
signing of this Agreement.
k) GOVERNMENT AUTHORIZATIONS - Means all
authorizations, consents, permits,
waivers, privileges, and approvals from all
Governmental Instrumentalities
necessary for the performance of this
Agreement.
l) GOVERNMENTAL INSTRUMENTALITY - Means the
government of any country, state,
county or other political subdivision and
any department, division,
instrumentality, agency, corporation
commission, or the like, under the direct
or indirect control of that government.
m) GROSS REVENUE - Means the gross receipts
collected from the sale of the
Target Metals and other output from a
Facility.
n) INTERMEDIATE PRODUCT- Means Source
Material that has been subject to some
processing, but is not yet a Final
Product.
o) LEGAL REQUIREMENTS - Means all laws,
statutes, orders, decrees, regulations,
or the like, of any Governmental
Instrumentality having jurisdiction over the
matter in question.
p) MATERIAL includes Source Material,
Concentrate, and Intermediate Product.
q) MONTH - Means a calendar month.
r) MR3 SYSTEM - Shall mean the entire MR3
primary and secondary equipment,
modules, media, Facility controls
including, without limitation,
instrumentation, primary and secondary
control elements, shared display(s),
control algorithms or any software based
functions necessary and required to
operate a Facility, which selectively
removes targeted metals from any Material.
The MR3 System is proprietary to MR3 and is
deployed in various market sectors
for the extraction and purification of
Target Metals.
s) MR3 TECHNOLOGY - Means the proprietary
high affinity metals extraction and
metals separation technology owned by MR3
and embodied in the MR3 System, and
all of the know-how, show-how, Confidential
Information, copyrights, trademarks,
service marks and information of any nature
whatsoever which relates to the MR3
System, developed, possessed, conceived
and/or used by MR3, including any
modifications, improvements and
translations thereof in respect of commercial
and industrial uses. The MR3 technology
also includes several halogen leaching
technologies, both utilized in the vapor
form and liquid state, from which
Target Metals are extracted from Source
Materials, ores, tailings, and various
solid forms containing Target Metals.
t) NET REVENUE - Means the Gross Revenue,
less
(i) the sales
commissions and selling expenses,
(ii) any taxes
other charges related to such sales, and (iii) Operating
Expenses.
u) OPERATING EXPENSES - Means all
non-capital expenses reasonably necessary for,
and incurred in connection with, a party's
performance of its obligations under
this Agreement, including, without
limitation, excavation and loading, trucking
(from the Property to the Amargosa Site and
from there to the place of
disposal), concentrating, utilities,
security, BLM claim maintenance fees and
other similar governmental fees,
application fees and other charges related to
applications for and granting of
Governmental Authorizations, property taxes,
payroll and payroll taxes, workers'
compensation, day laborers, supplies,
maintenance and repair of Buildings and
equipment used in connection with
activities under this Agreement,
reclamation and similar expenses, and fees paid
to consultants, scientists, engineers,
attorneys, accountants, and other
professionals and independent contractors
directly related to a party's
obligations under this Agreement (but not
including general company overhead).
v) PROJECT - Means the excavation, and
concentrating if done on the Property,
and trucking of the Source Material and
Concentrate from the Property to the
Amargosa Site and processing of Source
Material and Concentrate under this
Agreement and for the purpose of producing
a Final Product.
w) PROPERTY - Means the claims of FLR as
set forth on the attached Exhibit A, on
land owned by the Bureau of Land
Management, which generally overlay land
commonly known as the Franklin Lake
Playa.
x) SOURCE MATERIAL - Means all material
taken from the ground on the Property
and any other material (including tailings)
acquired from a third party or from
land other than the Property intended to be
processed under this Agreement.
y) TARGET METALS - Means gold, other
precious metals, and any other metal of
commercial value that the parties desire or
attempt to extract from Source
Material.
z) TERM - Subject to the provisions of
Section 12 below, Means the duration of
this Agreement, being the period commencing
on the date of this Agreement and
continuing for a period of Two (2) years,
with evergreen renewing of the term
for Two (2) years each renewal for a total
addition period of Sixteen (16)
years. After Financing is complete, neither
Party may terminate this Agreement
unless for specific reasons stated in
Section 12. Neither party shall enter into
any agreement with any third entity which
would limit the right of the other
party.
2) EXCLUSIVE RELATIONSHIP - THE PROJECT
a) EXCLUSIVITY - FLR agrees
that it will work exclusively with MR3 in
processing the Source Material from the Property, and MR3 agrees
that
it will use Source Material from the Property exclusively in
the
processing at the Amargosa Site; provided, however, that MR3 may
agree
to process other materials sourced by FLR. Notwithstanding the
foregoing sentence, each party agrees to cooperate with the other
in
using the Facility for testing of variations in existing
processes,
trying new processes, testing material different from Source
Material,
or doing any other action that might improve performance on the
Project and profitability of the parties.
b) PROJECT PLAN - The Parties
understand that the commercial feasibility
of the Project has not been established and that a project plan
must
be executed within 60 days of the date of this Agreement (the
"Project
Plan"). When executed, the Project Plan will be attached to and
incorporated by reference into this Agreement, and the terms
and
conditions of the Project Plan shall control to the extent
consistent
with the terms contained herein. The Parties agree that the
Project
Plan will set forth, among other things as the Parties shall
deem
appropriate, the following:
i) A detailed
description of the Project and the cost of Project
implementation; and
ii)
any design documents
or specifications (unless the project
contemplates creation or development of the same); and
iii) project deliverables, if any, that either or both Parties will
be
responsible for creating and developing; and
iv) tasks,
responsibilities, covenants and agreements of each Party
relating to the project; and
v) deadlines,
interim milestones, and other matters relating to
timing and delivery or performance under the Project; and
vi) intellectual
property rights or licenses to the extent different
from the terms of this Agreement; and
vii) termination rights of the Parties relating to the Project;
and
viii) obligations of the Parties to market and implement the
Project;
and
ix) any other terms or
conditions that vary from the terms and
conditions set forth in this Agreement.
3) COLLECTION, DELIVERY, MINING
AND PROCESSING OF TARGET METALS FLR
agrees to:
a) acquire and
operate all equipment necessary to excavate and load
the Source Material on the Property, truck the Source Material
and offload it at the Armagosa Site; alternatively, it can
concentrate the Source Material at the Property and truck the
Concentrate to the Amargosa Site ; and
b) install and
operate all required mining equipment and systems at
the Armagosa Site necessary to crush, screen and concentrate
(if
applicable) the Target Metals from the Source Material and
deliver the resulting material to the Building for processing
into dore bars; and prepare and file the required mining plans
with the appropriate Governmental Instrumentalities; and
c) obtain all
operating, building, use and other permits required to
operate the MR3 System in the Building; and
d) obtain all
water rights, bonds and permits necessary to perform
hereunder; and
e) provide
security necessary at at the Property and at the Amargosa
Site, and during transportation of Target Metal dore bars; and
f) pay 100% of
all FLR operating expenses that are not paid by the
financial source for the project.
MR3 AGREES
TO:
g) Manufacture,
deliver and install a complete MR3 System an at the
Amargosa Site; and
h) provide all
consulting and technical expertise necessary for the
installation and implementation of the MR3 System; and
i) operate,
maintain and manage all aspects and activities of the
Facility at the Amargosa Site, including disposing of any
residue
generated exclusive of the tailings and remnant of the Source
Materials after the extraction of the Target Metals; and
j) commence operation of the Facility
within 60 days of receipt of
all permits required to do so, and begin processing the Source
Material within 30 days of the date of commencing such
operation;
and
k) establish a
processing rate of at least 50 tons of Source
Material per day within 60 days from commencing operations as
stated in Section 3(j); and
l) sell all of
the Facility's output and metals products, either
directly or through brokers and/or sales agents, including
without limitation, the sale of the Target Metals dore bars or
other metal Concentrates of acceptable purity for sale to
refiners and other third parties; and
m) expand MR3
Systems and the Facility as necessary to match the
growth and expansion of FLR's operations.
4) OBLIGATIONS OF THE
PARTIES
MR3 AND FLR
SHALL, IN PERFORMING THEIR DUTIES HEREUNDER:
a) Do so in a
manner that does not cause the Property or Facility to
be in violation of any applicable Legal Requirements or
Government Authorizations known to either party; and
b) Do so in a
good, workmanlike and diligent manner, in good faith,
and in the best commercial interests of both parties.
c) The parties
shall be responsible for complying with all
conditions and requirements imposed by all Government
Authorizations for the operation and maintenance of the
facility
and other activities conducted on the property.
d) The parties
shall perform their respective duties hereunder in
accordance with the government approvals and legal requirements
relating to pollution control and environmental standards
applicable to the facility and the property.
e) Each party is
an independent contractor and is not, and shall not
be construed to be, an employee, partner, joint venturer or
holder of any position with or as agent of the other party.
5) EXPENSES AND
DISBURSEMENTS
a) MR3 shall
collect all gross receipts from the sale of metals
products produced under this Agreement, and pay all Capital
Costs
and all costs and expenses listed in Section 1(u) above.
b) Within five
(5) days after the end of each semi-monthly period,
after deduction of all such Section 1(u) expenses and any
financial obligations that MR3 and FLR have jointly submitted
the
Project under lien, such as repayment of debt financing from
third party Investor, MR3 shall disburse fifty percent (50%) of
the net revenue received (if any) for such period to FLR and
the
remaining fifty percent (50%) of s
