Ann: General Security Agreement, page-310

It is pretty clear and it is shocking the conclusions some have made on the other thread. Almost dangerous. They should not be investing and should really seek proper financial/investment advice.

I will explain in chronological order.

The original process was this.

• We spend $50KUSD & Delivery the FS, TSO then owns 80% of the project.
• Following that, TSO negotiates with the Vendor to acquire the remaining 20% interest. Let's assume that the fair value (at that present time and assumed 3Moz) for a defined 3Moz deposit valued at $100/oz is $300 Million. On face value 20% of $300 Million is $60 Mil. So, the vendor's interest in the project is valued at a range of circa $60 Mil. So, hypothetically, we negotiated and settled on a cash acquisition for his stake in the project of $15-20 Million. It'd be happy days for him & TSO.
• It clearly spells out that if TSO does not acquire the final 20% interest, the Vendor will then need to contribute 20% of all project expenditure. So if we decide to raise $100 Mil to drill the entire district or develop the mine, the Vendor must Contribute $20 Mil.
• I highly doubt the Vendor has the money or would invest such a large amount of capital for no near term return. So, he would have been banking on a cash buyout after the Feasibility Study.
• Now under the NEW agreement, WHICH CLEARLY SPELLS OUT THAT ALL SHAREHOLDERS AGREED TO (after all that is what an agreement is!). there is no more option to acquire the remaining interest and the Vendor must now contribute their share of the Agreed Project Expenditure moving forward based on the agreed workplan budget.
• There would have been an underlying agreement that either party was going to screw one another. Let me explain. If the Vendor provides the 30% contribution of the $7.6 Mil budget, they main their 30% for another 12 months, but, IF TSO decides to expend more capital (say $100 Million) after the 12 months, the vendor would then need to contribute $30 Million. Which i highly doubt they have the $ to do so and would then be diluted for their entire ownership.
• Now, back to the second point i made above, the Vendor is giving away/risking a cash buyout of $15-20 Million (or whatever you $ you think) that may have happened under the old agreement, to now, full exposure of losing almost full ownership if more capital is expended after the 12 month work plan.
• Like i said, put yourself in the shoes of the Vendor, there is NO WAY you would agree to this unless you had some kind of assurance that there would be a sale of the project within 12 months! Otherwise, they'd could lose everything!
• I'm speculating that if the Vendor doesn't contribute the 30% and we acquire 85% of the project, I'm 100% certain that there are interested buyers already lined up and that is why the Vendor would be happy to reduce their stake down to 15%.
• Because, as mentioned, if TSO decides to expend more capital and not sell, the Vendor loses everything.
• The $15-20 Million the vendor is risking is alot of money, you don't risk losing this unless you know you are going to get more. Simple. Say a major district scale gold system is defined and we are offered a full cash acquisition for El Zorro for $600 Million. 15% of $600 Mil is $90 Mil ! The valuation is very comparative to the Take Over of CDV and it could be potential worth ALOT more.

IMO, anyone selling has the brain of a spastic goldfish.