MR3 SYSTEM METALS EXTRACTION AGREEMENT

 

 

 

 

 

 

 

 

 

 

                     MR3 SYSTEM METALS EXTRACTION AGREEMENT

 

                                     between

 

                                MR3 SYSTEMS, INC.

 

                                       and

 

                          FRANKLIN LAKE RESOURCES, INC.

 

 

 

 

 

 

                                November 30, 2004

 

 

 

 

 

 

 

 

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                                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

 

 

 

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     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 such net revenue (if any) shall

               be paid to MR3.

 

     6)   REPORTING, BOOKS, RECORDS AND BANKING

 

          a)   MR3 shall provide FLR with Monthly reports on the operation and

               performance of a Facility in a format to be agreed to with FLR.

 

          b)   To the extent consistent with applicable Government

               Authorizations and Legal Requirements, MR3 shall keep accurate

               records of any accident or other occurrence at the Facility or on

               the Property that results in injury to persons or damage to

               property, together with any other records required by such

               Authorizations and Requirements. MR3 shall provide to FLR

               reasonable access to these records.

 

          c)   MR3 shall keep a daily operation log for the Project, which shall

               include information on any significant events relating to the

               operation of the Facility.

 

          d)   MR3 shall maintain the financial books and records recording the

               Project's operations and sales of its output in accordance with

               U.S. Generally Accepted Accounting Principles ("US GAAP") and

               other applicable Legal Requirements.

 

          e)   An audit of the Project's financial records and accounts shall be

               performed annually