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I am enclosing what I will call my opinion letter in which I
have hit the high spots of the proposed agreement submitted
to you by Fremont Energy Corporation. I have held this back
hoping that Houston would be in the office, but as soon as
he returned from Seattle he left immediately for Cheyenne
and will be there until the first of the week. Therefore,
these are only my own reactions to these agreements and are
not a composite of our joint thinking. I felt, however,
that you should have at least this much without further
delay.

I finally was able to contact Mr. Hofer, attorney here, whom
Houston had heard was conducting an action on behalf of its
stockholders against Fremont Energy, but he informs me he
knows nothing about such an action nor had he ever heard the
name of the company. Therefore, if such an action is
pending, we have not yet been able to verify this fact or
get any information concerning it.

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You have explained to us that the Supply System has been
negotiating with Fremont Energy for the purchase of in-
terests in certain lode mining claims purportedly staked and
owned by it in the Red Desert area of Sweetwater County,
Wyoming, and you have left with us for study and review two
agreements and a form of "Mining Deed" proposed and sub-
mitted for your approval by Fremont. You inform us that
these agreements concern some 18,000 such lode claims. It
might be better to discuss and analyze these documents
separately.

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Broadly, this agreement. recites that Fremont owns or
has the right to acquire certain lode mining claims sup-
posedly described upon Exhibits A and B, but which exhibits
are not attached to the copy of this document left with us,
and that you (Supply System) desire to conduct certain
exploratory operations on these lands and to acquire an
option to purchase those claims indicated as valuable by
virtue of this exploration. The main thrust of this agree-
ment is an employment contract whereby you retain Fremont to
represent your interests as a consultant, to explore these
lands and to assist you in the development of ore bodies,
which exploration and consultation is referred to as "the
project".

This agreement contains several definitions of the terms used which includes "area of interest" an area lying within 5 miles of the described lands ("said lands"), except a certain State of Wyoming lease particularly described, within which you may acquire claims or other interests under

certain conditions, and which shall then become subject to this agreement. The chief supervisory or directive force in this agreement would appear to be a "technical committee" composed of three representatives chosen by each party, and which may operate only upon the approval or direction of a majority.

Fremont, as the "consultant" shall be the advisor and recommend areas and methods of exploration as well as acquisition of lands or interests within the area of interest, upon approval by the technical committee. Supply System agrees to spend a total of $1,500,000.00 for the project, $750,000.00 during the 1977 exploration season, with a like amount during the 1978 season, and not less than an additional $500,000.00 during the 1979 season, should this agreement be extended an additional year. Included in these sums is $5,000.00 per month to be paid to Fremont for its services as consultant. The payment of the $1,500,000.00 shall also be the consideration for the option granted under the separate Option Agreement. The expenditure of, and accounting for, this money is under the supervision of Fremont and the technical committee, and the method of accounting is detailed in paragraph 14.

During the term of this agreement (two years after date, with option to extend for one additional year), Supply System may select and designate one or more "project blocks which it proposes to develop and mine, and at that time it shall pay Fremont a cash bonus equal to $1.00 per pound for fifty per cent of all U308 estimated to be recoverable from. the ore body discovered and measured in each project block. Apparently, at that time, if Supply System has spent the required funds, then it may exercise the option and receive a conveyance of the claims within each project block or blocks so designated, although it is not so definitely stated in this agreement.

Paragraph:ll provides for acquisition of lands within the area of interest. If any party or its officers or agents shall propose to acquire an interest in the area of interest, the proposal must be submitted to the other party and the technical committee. The technical committee has forty-five days within which to act and if it decides to: include these interests with the other lands, Supply System shall acquire and pay for the interests and they shall then be included in the lands subject to this agreement.

It is then provided :

"Only in the event that the Supply System does not

exercise its option on any of said lands, as enlarged, then the acquired interest shall be burdened by

a production royalty of 54%." There is no further explanation of this provision and we find it ambiguous, if not meaningless. In fact, it would appear to be in conflict with the next statement which permits the proposing party to acquire the interest free of any claim of the other in the event the technical committee should decide not to include this interest in the lands committed to the agreement.

Paragraph 15 concerns insurance to be carried by Fremont and provides for workmen's compensation statutory benefits and employer's liability. Workmen's compensation in this state is handled through a State administered fund built up by contributions assessed against.each employer equal to a percentage of the gross payroll, and not through private carriers. It also is exclusive as between employer and employee and we therefore fail to understand the requirement for "employer's liability". We are also at a loss to understand the next requirement that coverage shall contain a provision "that claims in rem shall be treated as claims in personam". The only situation we can imagine in which it might be intended this clause should take effect, in our opinion, would be contrary to law and therefore void and unenforceable. In this connection, anothér deficiency is lack of any requirement for public liability insurance to protect both parties against damages to property or injury to or death of a person not an employee, with definitely stated limits of this liability. Further, this suggests to us, and we cannot find where it is specified who shall be considered the employer, whether Fremont or Supply System. If Fremont is to be an independent contractor and the employer of all personnel, then, in our opinion, this should be definitely and carefully spelled out in the agreement.

In paragraph 16 it is provided that "the project" pays all ad valorem and severance taxes. If we understand the purport of all these: documents, there is to be no mining or actual severance of minerals until a project block has been designated and a deed issued conveying those claims or Ieases to Supply System in which the production royalty has been reserved by Fremont. If that is so, then Fremont should pay all taxes assessed against its reserved interest, not Supply System or "the project".

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