ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT ("Agreement") is made as of the 23rd
day of November, 1998, by and between Grant Reserve Corporation, a Nevada
corporation (the "Seller') and Cherokee Mining Company Inc., a Wyoming
corporation (the "Purchaser"). The parties hereby agree as follows:
1. Sale of Assets
1.1 Assets to be Sold. Subject to the terms and conditions of
this Agreement, the Seller will sell to the Purchaser, and the Purchaser will
purchase from the Seller all of the Seller's right, title and interest in and to
(i) 7,620,000 shares of common stock, without par value, of Madison Mining
Corporation, a Montana corporation, ("Madison"), a wholly owned subsidiary of
the Seller and (ii) 36,388 shares of common stock, without par value, of Gold
King Mines Corporation ("Gold King"), representing ninety-four and thirty-two
one hundredths percent (94.32%) of Gold King's issued and outstanding shares.
The shares of Madison and Gold King common stock being sold to the Purchaser
hereunder constitute substantially all of the Seller's assets and are
collectively referred to as the "Shares."
1.2 Purchase Price. The price (the "Purchase Price") to be
paid by or on behalf of the Purchaser to the Seller for the Shares shall be (i)
$600,000 payable on the terms set forth in a Promissory Note substantially in
the form thereof attached hereto as Exhibit 1 (the "Promissory Note") and (ii)
an amount equal to eighty percent (80%) of the Net Proceeds (as defined in
Section 6.4 below) received by the Purchaser in excess of $681,715.
2. Closing Date, Delivery
2.1 Closing Date. Subject to the satisfaction of the terms and
conditions hereof, to purchase and sale of the Shares to be purchased and sold
pursuant to Section 1.1 shall be held as soon as practicable following the
approval of this Agreement by the Seller's shareholders. Such time is
hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date."
2.2 Deliveries by the Seller and the Purchaser.
(a) Delivery by the Seller. At the Closing the Seller shall
deliver to the Purchaser certificates evidencing the Shares to be purchased
hereunder by the Purchaser, which certificates shall be duly endorsed in blank
or accompanied by stock powers duly endorsed in blank.
(b) Delivery by the Purchaser. At the Closing, the Purchaser
shall deliver to the Seller:
(i) The Promissory Note; and
(ii) A Pledge Agreement in the form attached hereto as Exhibit
2 (the "Pledge Agreement") pursuant to which the Shares shall be held
as security for, among other things, the payment and performance by the
Purchaser of its obligations under the Promissory Note, this Agreement
and the Pledge Agreement.
3. Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Purchaser as follows:
3.1 Organization and Good Standing. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Each of Madison and Gold King is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Montana and Colorado, respectively. Each of Madison and Gold King is duly
qualified or authorized to do business in each jurisdiction in which it conducts
business, or own property, except where the failure so to qualify would not in
the aggregate have a material adverse effect on the Seller, Madison and Gold
King.
3.2 Authorization. The Seller has full corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement is a
valid and binding agreement of the Seller, enforceable in accordance with its
terms except (a) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and preferential
transfers, and (b) for the limitations imposed by general principles of equity.
The foregoing exceptions set forth in subsections (a) and (b) of this Section
3.2 are hereinafter referred to as the "Enforceability Exceptions."
3.3 Licenses and Permits. Madison and Gold King are each duly
licensed, with all requisite permits and qualifications, as required by
applicable law for the purpose of conducting their respective business or owning
their respective properties or both, in each jurisdiction in which they do
business or own property, and where the failure to have such license, permit or
qualification could have a material adverse effect on the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial or
otherwise), results of operations or business of either Madison or Gold King
(hereinafter, a "Material Adverse Effect"). Madison and Gold King are each in
substantial compliance with all such licenses, permits and qualifications. There
are no proceedings pending or, to the Seller's best knowledge, threatened to
revoke or terminate any such presently existing license, permit or qualification
and the Seller knows of no reason why any such license, permit or qualification
would not be renewed in the ordinary course.
-2-
Purchaser is familiar with the required licenses and permits
required of, and held by, Madison and Gold King. Purchaser has been given full
access to Seller's records to review, and make copies of if so desired, all such
licenses and permits. Purchaser also has been informed by Seller that Madison
and Gold King are in substantial compliance with all such licenses and permits.
Purchaser is purchasing the Shares with full knowledge of the attendant
responsibilities and liabilities associated with such licenses and permits.
3.4 Consents and Approvals. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will violate, result in a breach of any of the terms or provisions of,
constitute a default (or an event which, with the giving of notice or the
passage of time or both, would constitute a default) under, result in the
acceleration of any indebtedness under or performance required by, result in any
right of termination of, increase any amounts payable under, decrease any
amounts receivable under, change any other rights pursuant to, or conflict with,
any material agreement, indenture or other instrument to which the Seller is a
party or by which any of its properties are bound, or any judgment, decree,
order or award of any court, governmental body or arbitrator (domestic or
foreign) against the Seller. No consent, license, approval, order or
authorization of, or declaration, filing or registration with, or payment of
tax, fee, fine or penalty to, any governmental bureau, agency or commission or
regulatory authority (domestic or foreign) or any other person (either
governmental or private), is required to be obtained or made in connection with
the execution and delivery by the Seller of this Agreement or the consummation
of the transactions contemplated hereby except to the extent that the failure to
obtain such consent, license, approval, order or authorization or to make such
declaration, filing, registration or payment would not have a Material Adverse
Effect. All prior consents, approvals and authorizations of, and declarations,
filings and registrations with, and payments of all taxes, fees, fines and
penalties to, any governmental or regulatory authority (domestic or foreign) or
any other person (either governmental or private) required in connection with
the executions and delivery by the Seller of this Agreement or the consummation
of the transactions contemplated hereby have been obtained, made and satisfied.
The shareholders of Seller must approve this transaction.
3.5 Financial Information. The Seller's consolidated financial
statements for the year ended December 31, 1997 as reported on by the firm of
Jackson & Rhodes, P.C. and the Seller's unaudited consolidated financial
statements for the nine (9) months ended September 30, 1998 have been prepared
from the books and records of the Seller, Madison and Gold King and present
fairly the financial condition of the Seller, Madison and Gold King at and as of
such dates in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except that required footnote disclosures may be
omitted. Copies of such financial statements have previously been delivered to
Purchaser.
3.6 Real Property. The Seller has previously delivered to
Purchaser a complete description of all real property owned by Gold King and
Madison at the Closing Date (the "Real Property").
-3-
3.7 Shares of Madison and Gold King. The Shares to be
delivered to Purchaser pursuant hereto are duly and validly issued, full paid
and non-assessable and when delivered to Purchaser hereunder will not be subject
to any mortgage, lien, claim or other encumbrance whatsoever (other than as
provided in Section 2.2(b) hereof) and shall vest in Purchaser legal title to
the Shares.
4. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Seller as follows:
4.1 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of Wyoming and is duly qualified or authorized to do business in each
jurisdiction in which it conducts business, or owns property, except where the
failure to so qualify would not in the aggregate have a material adverse effect
on the Purchaser.
4.2 Authorization. The Purchaser has full corporate power and
authority to enter into this Agreement and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement is a
valid and binding agreement of the Purchaser, enforceable in accordance with its
terms except for the Enforceability Exceptions.
4.3 Acquisition of Securities. This Agreement is made with the
Purchaser in reliance upon the Purchaser's representation to the Seller, which
by the Purchaser's execution of this Agreement the Purchaser hereby confirms,
that the Shares to be received by the Purchaser will be acquired for investment
for the Purchaser's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same, and the Purchaser has no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness or commitment
providing for the disposition thereof.
4.4 No Registration. The Purchaser understands and
acknowledges that the Shares are not registered under the Securities Act of
1933, as amended (the "Act"), or under any other applicable blue sky or state
securities law. The Purchaser understands that there is no current market for
the Shares and the Purchaser further understands that it is not expected that
any such market will develop.
4.5 Consents and Approvals. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will violate, result in a breach of any of the terms or provisions of,
constitute a default (or an event which, with the giving of notice or the
passage of time or both, would constitute a default) under, result in the
acceleration of any indebtedness under or performance required by, result in any
right of termination of, increase any amounts payable under, decrease any
amounts receivable under, change any other rights pursuant to, or conflict with,
any material agreement, indenture or other instrument to which the Purchaser is
a party or by which any of its properties are bound, or any judgment, decree,
order or
-4-
award of any court, governmental body or arbitrator (domestic or foreign)
applicable to the Purchaser. No consent, approval or authorization of, or
declaration, filing or registration with, or payment of any material tax, fee,
fine or penalty to, any governmental or regulatory authority (domestic or
foreign) or any other person (either governmental or private), is required in
connection with the execution, delivery and performance by the Purchaser of this
Agreement.
5. Conditions.
5.1 Conditions to Closing.
(a) Conditions to Purchaser Obligations. The obligation of the
Purchaser to purchase the Shares at the Closing is subject to the fulfillment on
or prior to the Closing Date of the following conditions, any of which may be
waived in accordance with the provisions of Section 8.1 hereof:
(i) Representations and Warranties Correct:
Performance of Obligations. The representations and warranties
made by the Seller in Section 3 hereof shall be true and
correct when made, and shall be true and correct on the
Closing Date with the same force and effect as if they had
been made on and as said date; the Seller shall have performed
all obligations and conditions herein required to be performed
or observed by it on or prior to the Closing Date.
(ii) Authorization. All action on the part of the
Seller necessary to authorize the execution, delivery and
performance of this Agreement and other agreements provided
for herein including the approval of this transaction by the
Seller's shareholders, and the consummation of the
transactions contemplated herein and therein, shall have been
duly and validly taken by the Seller, and the Purchaser shall
have been furnished with copies of resolutions and other
instruments authorizing this Agreement and the transactions
contemplated herein.
(iii) Consents and Waivers. The Seller shall have
obtained any and all consents, permits, orders, approvals and
waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement, including the
approval of Seller's shareholders and all authorizations,
approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are
required in connection with the lawful sale of the Shares
pursuant to the terms of this Agreement.
(iv) Documents. All documents and instruments
incident to the transactions contemplated hereby shall be
reasonably satisfactory in substance and form to the Purchaser
and Purchaser's counsel.
-5-
(v) Certificate of Compliance. The Seller shall have
delivered to the Purchaser a Certificate, executed by an
authorized officer of the Seller, dated the Closing Date, to
the effect that the conditions in Section 5.1(a) have been
satisfied as of such date.
(b) Conditions to Seller Obligations. The Seller's obligation
to sell the Shares at the Closing is subject to the fulfillment on or
prior to the Closing Date of the following conditions, any of which may
be waived by the Seller in accordance with the provisions of Section
8.1 hereof:
(i) Representations and Warranties Correct. The
representations and warranties made by the Purchaser in
Section 4 hereof shall be true and correct when made, and
shall be true and correct on the Closing Date with the same
force and effect as if they had been made on and as of said
date.
(ii) Shareholder Approval. The Seller's Shareholders
shall have approved the sale of the Shares to Purchaser in
accordance with the laws of the State of Nevada.
(iii) Documents. All documents and instruments
incident to the transactions contemplated hereby shall be
reasonably satisfactory in substance and form to the Seller
and the Seller's counsel.
(iv) Certificate of Compliance. The Purchaser shall
have delivered to the Seller a Certificate, executed by an
authorized officer of the Purchaser, dated the Closing Date,
to the effect that the conditions in Section 5.1(b) have been
satisfied as of such date.
6. Purchaser's Covenants.
The Purchaser covenants that on and after the Closing Date,
and for so long as it owns any of the Real Property and until all the Real
Property is sold it will:
6.1 Sale of Real Property. Use its best efforts to sell the
Real Property, in arms length transactions, for cash considerations equal to or
greater than the fair market value of the Real Property at the time of such
sale.
6.2 Payment of Taxes. The Purchaser will pay, before they
become delinquent, all taxes, assessments and governmental charges or levies
imposed upon it or the Real Property, provided that such items need not be paid
while being contested in good faith by appropriate proceedings.
-6-
6.3 Maintenance of Corporate Existence, Etc.
The Purchaser will:
(a) Financial Records - keep true and correct records and
accounts and will prepare its financial statements, and financial
statements for Madison and Gold King, in accordance with GAAP,
consistently applied;
(b) Corporate Existence - do or cause to be done all things
necessary to preserve and keep in full force and effect its, and
Madison's and Gold King's corporate existence, rights and franchises;
(c) Compliance with Law - not be in violation of any laws,
ordinances, or governmental rules and regulations to which it or the
Real Property is subject and will not fail to obtain or maintain any
licenses, permits, franchises or other governmental authorizations
necessary to the ownership of the Real Property or to the conduct of
its business, which violation or failure to obtain or maintain, might
materially adversely affect its business or the Real Property.
6.4 Payments of Portion of Sale Proceeds Upon Sale of Real
Property. Purchaser hereby agrees to pay Seller as part of the Purchase Price
for the Shares pursuant to Section 1.2, an amount equal to eighty percent (80%)
of the cumulative Net Proceeds (as defined below) received upon the sale of the
Real Property. "Net Proceeds" shall mean any and all amounts received by
Purchaser in excess of $681,715 in connection with bona fide sales of all of the
Real Property to persons unrelated to the Purchaser or the holders or beneficial
owners of the capital stock of Purchaser, less, the reasonable costs and
expenses of sale, including reasonable brokerage commissions, attorneys fees and
recording taxes and fees, if any, incurred by Purchaser in connection with such
sales of the Real Property. The terms, including the sale price, of all sales of
Real Property must be approved by Seller, such approval shall not be
unreasonably withheld.
6.5 Sale of Shares; Issuance of Additional Shares. So long as
the Promissory Note is not fully paid, and so long as any of the Real Property
remains unsold, Purchaser will not sell or otherwise depose of, or grant any
option or warrant with respect to, any of the Shares or create or permit to
exist any lien or encumbrance upon or with respect to any of the Shares (except
for the lien created pursuant to the Pledge Agreement) and at all times will be
the sole beneficial owner of the Shares.
6.6 Sale of Assets or Merger. So long as the Promissory Note
is not fully paid and so long as any of the Real Property remains unsold,
Purchaser will not sell distribute or otherwise dispose of any of its assets or
permit the sale, distribution or other deposition of any of the assets of
Madison and Gold King, other than the Real Property in accordance with the terms
of this Agreement, and the Purchaser will not consolidate or merge with or into
any other person nor will it allow Madison or Gold King to so merge or
consolidate with or into any other person.
-7-
6.7 Liens and Encumbrances. Purchaser shall not create, permit
or suffer to exist (other than as provided in this Agreement) any mortgage,
encumbrance, lien, security interest, claim or charge against the Real Property
or any part thereof, except as expressly agreed to in writing by the Seller, and
Purchaser shall defend and cause Madison and Gold King to defend their
respective interest in and to the Real Property against the claims and demands
of all persons whomsoever, other than the claims of the Seller as provided for
herein.
7. Defaults.
7.1 Nature of Events. A "Default" shall exist if any
of the following occur and is continuing:
(a) Principal and Interest Payments - Purchaser fails to make
any payment of principal or interest on the Promissory Note on the date
such payment is due, and such payment remains unpaid for ten (10) days
after written notice of non-payment is received from Seller;
(b) Covenant Default - Purchaser fails (1) to observe or
perform any of its covenants and agreements contained in this Agreement
or (2) defaults or fails to observe and perform any of its covenants
and agreements contained in the Promissory Note or the Pledge
Agreement;
(c) Representations and Warranties - Any representation or
warranty or other statement by or on behalf of Purchaser contained in
this Agreement or in any instrument furnished in compliance with this
Agreement is false or misleading in any material respect at the time
when made;
(d) Voluntary Bankruptcy Proceedings - Purchaser shall (A)
apply for or consent to the appointment of a receiver, trustee,
liquidator or similar official for all or any substantial part of the
property of Purchaser, (B) admit in writing its inability to pay its
debts as they mature, (C) make a general assignment for the benefit of
its creditors, (D) be adjudicated bankrupt or insolvent, (E) file a
voluntary petition in bankruptcy or an answer seeking reorganization or
seeking to take advantage of any applicable insolvency law, (F) file
any answer admitting the material allegations of a petition filed
against Purchaser in any bankruptcy, reorganization or insolvency
proceeding, or (G) take any corporate action for the purpose of
effecting any of the foregoing under any bankruptcy, insolvency or any
other applicable law.
(e) Involuntary Bankruptcy Proceedings - If without its
application, approval or consent, a proceeding shall be instituted in
any court of competent jurisdiction, seeking in respect of Purchaser an
adjudication in bankruptcy, dissolution, winding-up, liquidation, a
composition arrangement with creditors, a readjustment of debt, the
appointment of a receiver, a trustee, a liquidator or similar official
for Purchaser or other like relief under any
-8-
applicable bankruptcy or insolvency law; and either (A) such proceeding
shall not be actively contested by Purchaser in good faith, or (B) such
proceedings shall continue undismissed for any period of 90 consecutive
days, or (C) any conclusive order, judgment or decree shall be entered
by any court of competent jurisdiction to effect any of the foregoing.
(f) Dissolution, Merger, Etc. - Any dissolution, merger, or
consolidation of Madison or Gold King, or any transfer of a substantial
part of the property of Madison or Gold King, should occur other than
the sale of the Real Property pursuant to the terms and provisions of
this Agreement.
(g) Covenant Default - Purchaser shall fail to pay or perform
any obligation under, or the Purchaser shall fail to keep or perform
any covenant, promise or warranty of Purchaser contained in, the
Promissory Note or this Agreement.
(h) Pledge Agreement - A Default under the Pledge Agreement.
7.2 Remedies
Upon the occurrence of any Default hereunder, all remaining
unpaid amounts due hereunder or under the Promissory Note shall, at the option
of Seller, become immediately due and payable, and Seller may exercise at any
time any rights and remedies available to it under the laws of the State of
Colorado or other applicable jurisdictions. Purchaser shall, in case of a
Default, pay all costs incurred by Seller in enforcing the rights of Seller
hereunder, including reasonable attorneys' fees and other expenses.
8. Miscellaneous
8.1 Modifications, Amendments and Waivers. The Seller and the
Purchaser may by written agreement:
(a) Extend the time for the performance of any of the
obligations or other acts of the parties hereto;
(b) Waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered
pursuant to this Agreement;
(c) Waive compliance with any of the covenants and agreements
contained in this Agreement; or
(d) Amend or supplement any of the provisions of this
Agreement.
-9-
8.2 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed and enforced in accordance with, the internal law,
and not the law pertaining to conflicts or choice of law, of the State of
Colorado.
8.3 Survival of Covenants. The covenants and agreements made
herein shall survive the Closing. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Seller
pursuant hereto or in connection with the transactions contemplated hereby shall
be deemed to be representations and warranties by the Seller hereunder as of the
date of such certificate or instrument.
8.4 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto, except that no party may assign or otherwise transfer any of
its rights under this Agreement without the written consent of the other party
hereto.
8.5 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subject matter hereof and
thereof.
8.6 Notices. All notices and other communication required or
permitted hereunder shall be effective upon receipt and shall be in writing and
delivered personally, by facsimile transmission, by overnight delivery service
or by certified mail, return receipt requested, postage prepaid, addressed as
set forth below the respective name on the signature page hereto, or at such
other address as such party shall have furnished in writing.
8.7 Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
8.8 Titles and Subtitles. The titles of the Sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one instrument.
8.10 Construction of Agreement. None of the parties hereto or
their respective counsel shall be deemed to have drafted this Agreement for
purposes of construing the terms hereof. The language in all parts of this
Agreement shall in all cases be construed according to its fair meaning, and not
strictly for or against any party hereto.
-10-
IN WITNESS WHEREOF, the parties hereto have caused this Asset
Sale Agreement to be duly executed and delivered as of the date first above
written.
THE SELLER
GRANT RESERVE CORPORATION
By: /s/ Arnold T. Kondrat
-----------------------------
Name: Arnold T. Kondrat
Title: Chairman
Address for Notices:
410 17th Street
Suite 1375
Denver, CO 80202
Attention: Arnold T. Kondrat
THE PURCHASER
CHEROKEE MINING COMPANY INC.
By: /s/ William R. Wilson
---------------------------------
Name: William R. Wilson
Title: President
Address for Notices:
410 17th Street
Suite 1375
Denver, CO 80202
Attention: William R. Wilson
-11-
EXHIBIT 1
PROMISSORY NOTE
Denver, Colorado
November 25, 1998
For Value Received, Cherokee Mining Company Inc. ("Cherokee"),
a Wyoming corporation, hereby promises to pay to the order of Grant Reserve
Corporation, a Nevada corporation ("Grant"), on November 25, 1999, upon the
presentation ans surrender hereof at the principal office of Cherokee, the
Principal Sum of SIX HUNDRED THOUSAND DOLLARS ($600,000), and to pay interest on
the amount of such Principal sum remaining unpaid from time to time at the rates
and times provided herein, until said Principal Sum is paid in full. The
interest on this Note, when due and payable, shall be paid to the registered
owner of this Note at the close of business on the Record Date applicable to
such interest payment, mailed to such registered owner at such registered
owner's address appearing as of the close of business on such Record Date on the
Note Register (as herein defined). For the purposes of this Note, the Record
Date applicable to any interest payment hereunder shall be the fifth day
(whether or not a business day) prior to the day upon which such interest
payment is due and payable hereunder.
Cherokee shall have the right at any time to prepay this Note,
in whole or in part, without any premium or penalty of any kind.
SECTION ONE
SECURITY
To secure payment of this Note, Cherokee, pursuant to the terms and provisions
of a pledge agreement of even date herewith (the "Pledge Agreement"), has
granted to Grant a security interest in (i) 7,620,000 of shares of Common Stock
in Madison Mining Corporation ("Madison") and (ii) 36,388 of shares of Common
Stock in Gold King Mines Corporation ("Gold King") acquired by Cherokee from
Grant pursuant to an asset sale agreement of even date herewith (the "Asset Sale
Agreement").
SECTION TWO
DEFAULT
The occurrence of any of the following events shall constitute
a Default hereunder:
1. Any material statement or representation of Cherokee herein
or in any other writing at any time furnished by Cherokee to Grant which shall
prove to be false or misleading in any material respect.
2. If Cherokee shall (A) apply for or consent to the
appointment of a receiver, trustee, liquidator or similar official for all or
any substantial part of the property of Cherokee. (B)
-12-
admit in writing its inability to pay its debts as they mature. (C) make a
general assignment for the benefit of its creditors, (D) be adjudicated bankrupt
or insolvent, (E) file a voluntary petition in bankruptcy or an answer seeking
reorganization or seeking to take advantage of any applicable insolvency law,
(F) file any answer admitting the material allegations of a petition filed
against Cherokee in any bankruptcy, reorganization or insolvency proceeding, or
(G) take any corporate action for the purpose of effecting any of the foregoing
under any bankruptcy, insolvency or any other applicable law.
3. If without its application, approval or consent, a
proceeding shall be instituted in any court of competent jurisdiction, seeking
in respect of Cherokee an adjudication in bankruptcy, dissolution, winding-up,
liquidation, a composition arrangement with creditors, a readjustment of debt,
the appointment of a receiver, a trustee, a liquidator or similar official for
Cherokee or other like relief under any applicable bankruptcy or insolvency law;
and either (A) such proceeding shall not be actively contested by Cherokee in
good faith, or (B) such proceedings shall continue undismissed for any period of
90 consecutive days, or (C) any conclusive order, judgment or decree shall be
entered by any court of competent jurisdiction to effect any of the foregoing.
4. The dissolution, merger or consolidation of Cherokee, or
transfer of a substantial part of the property of Cherokee, other than the sale
of the real property of Madison and Gold King pursuant to the terms and
provisions of the Asset Sale Agreement.
5. An Event of Default under the Asset Sale Agreement or the
failure of Cherokee to pay or perform any obligation under, or the failure by
Cherokee to keep or perform any covenant, promise or warranty of Cherokee
contained in, this Note, the Asset Sale Agreement or the Pledge Agreement.
SECTION THREE
REMEDIES
On any Default hereunder, all remaining unpaid amounts on the
Note shall, at the option of Grant, become immediately due and payable, and
Grant may exercise at any time any rights and remedies available to it under the
laws of the State of Colorado. Cherokee shall, in case of Default, pay all costs
incurred by Grant in collecting on the Note and enforcing the rights of Grant
hereunder, including reasonable attorneys' fees and legal expenses. In addition,
from and after the occurrence of a Default, interest shall, without the
necessity for the giving of notice or the taking of any other action by the
holder hereof, become payable by Cherokee on the balance of the Principal Sum
remaining unpaid from time to time thereafter at a floating annual percentage
rate equal to two (2) percent plus the Prime Rate existing from time to time
while any part of the Principal Sum of this Note shall remain unpaid, payable
monthly in arrears on the last calendar day of each month until the Principal
Sum of this Note shall have been paid in full. For the purposes hereof, the
Prime Rate shall be as determined by reference to The Wall Street Journal.
-13-
SECTION FOUR
NOTICE
Cherokee hereby waives presentment for payment, notice of
dishonor, protest and notice of protest and agrees to pay reasonable attorneys'
fees in the event that the same are incurred in connection with the collection
of the indebtedness evidenced hereby. Cherokee agrees not to interpose any
offsets or counterclaims in any action for the collection of the indebtedness
evidenced by this Note.
SECTION FIVE
MISCELLANEOUS
This Note shall be governed by, and construed and enforced in
accordance with, the internal law of the State of Colorado.
Cherokee shall maintain at its principal office a register
(the "Note Register") for the registration and transfer of the Note. Upon
presentation of this Note for such purpose at such principal office, Cherokee
shall register therein, and permit to be transferred thereon, this Note. The
Note shall be transferable only upon the Note Register at the written request of
the registered owner thereof or his representative duly authorized in writing,
upon surrender thereof, together with a written instrument of transfer duly
executed by the registered owner or his representative duly authorized in
writing.
The titles of the Sections of this Note are for convenience of
reference only and are not to be considered in construing this Note.
IN WITNESS WHEREOF, Cherokee Mining Company Inc. has caused
this Promissory Note to be executed in its name and on its behalf by its proper
officer thereunto duly authorized, as of the date first above written.
CHEROKEE MINING COMPANY INC.
By: /s/ William R. Wilson
----------------------------------
Name: William R. Wilson
Title: President
-14-