Lincoln Hill LLC Operating Agreement
Lincoln Hill LLC
Operating Agreement
This
Limited Liability Company Operating Agreement is made as of April 8, 2004
(the
“Effective Date”) between Western Goldfields, Inc., an Idaho corporation
(“WGI”), and Coolcharm Gold Mining Company Ltd., a company registered in England
& Wales (“Coolcharm”).
Recitals
A.
WGI
owns
or controls certain properties (collectively the “Properties”) in Pershing
County, Nevada, which properties are described in Exhibit A and defined
in
Exhibit D.
B. WGI
and
Coolcharm entered into a letter agreement dated effective April 8, 2004 (the
“Letter Agreement”), pursuant to which WGI granted to Coolcharm the exclusive
right to explore, evaluate and develop the Properties and the option to earn
and
purchase from WGI an undivided sixty percent (60%) interest in and to the
Properties. In addition, the parties agreed to enter into a joint venture
agreement for the joint exploration, development and, if warranted, mining,
production and marketing of minerals from the Properties.
C. Under
the
Letter Agreement, the parties contemplated the execution and delivery of
a
definitive agreement for the formation and operation of a joint venture limited
liability company, which the Members’ Agreement and this Agreement
represent.
Now
therefore, in consideration of their covenants and promises, WGI and Coolcharm
agree as follows:
1. Definitions
and Cross-references.
1.1 Definitions.
The
terms
defined in Exhibit D and elsewhere shall have the defined meaning
wherever
used in this Agreement, including in Exhibits.
1.2 Cross
References.
References to “Exhibits” and “Sections” refer to Exhibits and Sections of this
Agreement.
2. Name,
Purposes and Term.
2.1 Formation.
The
Company has been duly organized pursuant to the Act and the provisions of
this
Agreement as a Nevada limited liability company by the filing of its Articles
of
Organization (as defined in the Act) in the Office of the Secretary of the
State
of Nevada effective as of the Effective Date.
2.2 Name.
The name
of the Company is “Lincoln Hill LLC” and such other name or names complying with
the Act as the Manager shall determine. The Manager shall accomplish any
filings
or registrations required by jurisdictions in which the Company conducts
its
Business.
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2.3 Purposes.
The
Company is formed for the following purposes and for no others, and shall
serve
as the exclusive means by which each of the Members accomplishes such
purposes:
2.3.1 To
conduct Exploration within the Area of Interest,
2.3.2 To
acquire additional real property and other interests within the Area of
Interest,
2.3.3 To
evaluate the possible Development and Mining of the Properties, and, if
justified, to engage in Development and Mining,
2.3.4 To
engage
in Operations on the Properties,
2.3.5 To
engage
in marketing Products,
2.3.6 To
complete and satisfy all Environmental Compliance obligations and Continuing
Obligations affecting the Properties, and
2.3.7 To
perform any other activity necessary, appropriate, or incidental to any of
the
foregoing.
2.4 LimitationLimitation.
Unless
the Members otherwise agree in writing, the Business of the Company shall
be
limited to the purposes described in Section 2.3, and nothing in this Agreement
shall be construed to enlarge such purposes.
2.5 TermTerm.
The
term
of the Company shall begin on the Effective Date and shall continue for twenty
(20) years from the Effective Date and for so long thereafter as Products
are
produced from the Properties on a continuous basis, and thereafter until
all
materials, supplies, equipment and infrastructure have been salvaged and
disposed of, and any required Environmental Compliance is completed and
accepted, unless the Company is earlier terminated as herein provided. For
purposes hereof, Products shall be deemed to be produced from the Properties
on
a “continuous basis” so long as production in commercial quantities is not
halted for more than one hundred eighty (180) consecutive days.
2.6 Resident
Agent; Offices.
The
Manager shall select a duly qualified resident agent for the company. The
registered office of the Company in the State of Nevada shall be located
at 000
Xxxxxx Xxxx, Xxxxx 000, Xxxx, Xxxxxx 00000 or at any other place within the
State of Nevada which the Manager shall select. The principal office of the
Company shall be at any other location which the Manager shall
select.
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3. Contributions
by Members.Contributions by Members.
3.1 Members’
Initial
Contributions.
3.1.1 WGI
shall
contribute to the capital of the Company its Initial Contribution as described
in Section 3.1 of the Members’ Agreement.
3.1.2 Coolcharm
shall contribute to the capital of the Company its Initial Contribution as
described in Section 3.2 of the Members’ Agreement.
3.1.3 All
information developed by WGI, Coolcharm and the Company during the term of
the
Members’ Agreement and this Agreement shall be Assets of the
Company.
3.1.4 Upon
Coolcharm’s performance of its obligations under Sections 2.1 and 2.2 of the
Members’ Agreement and its Initial Contribution, the amount of Coolcharm’s
Qualifying Expenses, including those actually incurred or paid in cash to
WGI in
accordance with Section 3.2 of the Members’ Agreement shall be credited to
Coolcharm’s Equity Account. At such time, there shall be credited to WGI’s
Equity Account the amount equal to the product of Coolcharm’s Equity Account
multiplied by two-thirds (2/3).
3.2 Failure
to Make Initial Contribution.
3.2.1 Coolcharm’s
failure to make its Initial Contribution in accordance with the provisions
of
this Section, if not cured within thirty (30) days after notice by WGI of
such
default, shall be deemed to be a resignation of Coolcharm from the Company,
the
termination of its membership in the Company and a transfer of its Ownership
Interest and Capital Account to WGI. Subject to Section 3.2.2 below,
Coolcharm’s resignation shall be effective upon such failure. Upon such event,
Coolcharm shall have no further right, title or interest in the Company or
the
Assets and it shall take such actions as are necessary to ensure that all
Assets
are free and clear of any Encumbrances arising by, through or under it, except
for such Encumbrances to which the Members may have agreed.
3.2.2 Notwithstanding
Section 3.2.1 above, if during any expenditure period Coolcharm fails
to
pay the Qualifying Expenses required for its Initial Contribution in accordance
with the provisions of Section 3.1.2, Coolcharm, in its discretion, may elect
to
pay to WGI an amount equal to one-half (1/2) of the balance of the Qualifying
Expenses for such expenditure period in accordance with Section 3.2 of the
Members’ Agreement. Coolcharm must elect to exercise and to perform its right to
pay WGI, if at all, within thirty (30) days after the end of the expenditure
period for which the full amount of the Qualifying Expenses were not incurred.
If Coolcharm timely and properly exercises and performs the option to pay
WGI in
lieu of performance of its Initial Contribution obligation for such expenditure
period, Coolcharm shall be deemed to have performed its Initial Contribution
obligation for such expenditure period, subject to its continuing obligations
under Section 3.2 of the Members’ Agreement. If Coolcharm fails to timely and
properly exercise and perform its obligation to pay WGI for Qualifying Expenses
in lieu of performance of its Initial Contribution obligation, such event
shall
be deemed to be a resignation of Coolcharm from the Company, the termination
of
its membership in the Company and a transfer of its Ownership Interest and
Capital Account to WGI. Coolcharm’s resignation shall be effective upon such
failure. Upon such event, Coolcharm shall have no further right, title or
interest in the Company or the Assets and its shall take such actions as
are
necessary to ensure that all Assets are free and clear of any Encumbrances
arising by, through or under it, except for such Encumbrances to which the
Members may have agreed.
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3.3 Record
Title.
Title to
the Assets shall be held by the Company.
4. Interests
of Members.
4.1 Initial
Ownership Interests. The
Members shall have the following initial Ownership Interests:
| WGI |
40%
|
| Coolcharm |
60%
|
4.2 Changes
in Ownership Interests.
The
Ownership Interests shall be eliminated or changed as follows:
4.2.1 Upon
resignation or deemed resignation as provided in Sections 3.2, 4.4,
and
Section 14;
4.2.2 Upon
an
election by either Member pursuant to Section 10.5 to contribute less
to an
adopted Program and Budget than the percentage equal to its Ownership Interest,
or to contribute nothing to an adopted Program and Budget;
4.2.3 In
the
event of default by either Member in making its agreed-upon contribution
to an
adopted Program and Budget, followed by an election by the other Member to
invoke any of the remedies in Section 11.5;
4.2.4 Upon
Transfer by either Member of part or all of its Ownership Interest in accordance
with Section 7; or
4.2.5 Upon
acquisition by either Member of part or all of the Ownership Interest of
the
other Member, however arising.
4.3 Admission
of New Members. Except
in
the event of a transfer permitted pursuant to Section 7, a new member may
be
admitted only with the unanimous written approval of the Members.
4.4 Conversion
and Elimination of Minority Interest. The
provisions of Sections 4.4.1 and 4.4.2 shall apply if after Coolcharm’s
completion of its Initial Contribution and vestment of its Ownership Interest
the Company completes a bankable Feasibility Study which supports the
development of a mine having proven reserves of not less than one hundred
fifty
thousand (150,000) xxxx ounces of gold and both Members elect to participate
in
the initial Development Program and Budget and, following such event, a Member’s
Ownership Interest is diluted to less than twenty percent (20%). The provisions
of Section 4.4.3 shall apply if on Coolcharm’s completion of its Initial
Contribution and vestment of its Ownership Interest the Company completes
a
bankable Feasibility Study which supports the Development of a mine having
proven reserves of not less than one hundred fifty thousand (150,000) xxxx
ounces of gold and a Member elects to convert its Ownership Interest before
such
party elects to participate in the initial Development Program and
Budget.
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4.4.1 A
Reduced
Member whose Recalculated Ownership Interest becomes less than twenty percent
(20%) shall be deemed to have withdrawn from the Company and shall relinquish
its entire Ownership Interest free and clear of any Encumbrances arising
by,
through or under the Reduced Member, except any such Encumbrances listed
in
Section 1.1 of Exhibit A or to which the Members have agreed. Such relinquished
Ownership Interest shall be deemed to have accrued automatically to the other
Member. The Reduced Member’s Capital Account shall be transferred to the
remaining Member. The Reduced Member shall have the right to receive twenty
percent (20%) of Net Proceeds, if any, or a mineral production royalty equal
to
two and one-half percent (2.5%) of the Net Smelter Returns from the production
of minerals from the Properties. Upon relinquishment of its ownership interest,
the Reduced Member shall thereafter have no further right, title, or interest
in
the Assets, in the Company or under this Agreement, and the tax partnership
established by Exhibit C shall dissolve pursuant to Section 4.2 of Exhibit
C. In
such event, the Reduced Member shall execute and deliver an appropriate
conveyance of any right, title and interest the Reduced Member may have in
the
Assets to the remaining Member.
4.4.2 The
relinquishment, resignation and entitlements for which this Section provides
shall be effective as of the effective date of the recalculation under
Sections 10.5 or 11.5. However, if the final adjustment provided under
Section 10.6 for any recalculation under Section 10.5 results in a
Recalculated Ownership Interest of twenty percent (20%) or more: (1) the
Recalculated Ownership Interest shall be deemed, effective retroactively
as of
the first day of the Program Period, to have automatically revested;
(2) the Reduced Member shall be reinstated as a Member, with all of
a
Member’s rights and obligations; (3) the right to Net Proceeds or the Net
Smelter Returns Royalty under Section 4.4.1 shall terminate; and
(4) the Manager, on behalf of the Members, shall make any necessary
reimbursements, reallocations of Products, contributions and other adjustments
as provided in Section 10.6.4. Similarly, if such final adjustment
under
Section 10.6 results in a Recalculated Ownership Interest for either
Member
of less than twenty percent (20%) for a Program Period as to which the
provisional calculation under Section 10.5 had not resulted in an
Ownership
Interest of less than twenty percent (20%), then such Member, at its election
within thirty (30) days after notice of the final adjustment, may contribute
an
amount resulting in a revised final adjustment and resultant Recalculated
Participating Interest of twenty percent (20%). If no such election is made,
such Member shall be deemed to have withdrawn under the terms of Section
4.4.1
as of the beginning of such Program Period, and the Manager, on behalf of
the
Members, shall make any necessary reimbursements, reallocations of Products,
contributions and other adjustments as provided in Section 10.6.4,
including of any Net Proceeds or Net Smelter Returns Royalty to which such
Member may be entitled for such Program Period.
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4.4.3 On
the
Management Committee’s approval of a Development Program and Budget in
accordance with Section 10.10, a Member shall have the right to elect to
withdraw from the Company, relinquish its entire Ownership Interest free
and
clear of any Encumbrances arising by, through or under the Reduced Member
and
convert its interest to the right to receive twenty percent (20%) of Net
Proceeds, if any, or two and one-half percent (2.5%) of Net Smelter Returns
Royalty in the manner described in Section 4.4.1 above. If both parties elect
to
convert their Ownership Interest in accordance with this Section, the Members
shall be deemed to have unanimously agreed to dissolve the Company, and the
Company shall be dissolved in accordance with Section 14.
4.5 Documentation
of Adjustments to Ownership Interests. Each
Member’s Ownership Interest and related Equity Account balance shall be shown in
the accounting records of the Company, and any adjustments, including any
reduction, readjustment, and restoration of Ownership Interests under
Sections 4.4, 10.5, 10.6 and 11.5, shall be made monthly. The Schedule
of
Members attached hereto shall be amended from time to time to reflect such
changes.
5. Relationship
of the Members.
5.1 Limitation
on Authority of Members. No
Member
is an agent of the Company solely by virtue of being a Member, and no Member
has
authority to act for the Company solely by virtue of being a Member. This
Section 5.1 supersedes any authority granted to the Members pursuant to the
Act.
Any Member that takes any action or binds the Company in violation of this
Section 5.1 shall be solely responsible for any loss and expense incurred
by the
Company as a result of the unauthorized action and shall indemnify and hold
the
Company harmless with respect to the loss or expense.
5.2 Federal
Tax Elections and Allocations. The
Company shall be treated as a partnership for federal income tax purposes,
and
no Member shall take any action to alter such treatment.
5.3 State
Income Tax. To
the
extent permissible under applicable law, the relationship of the Members
shall
be treated for state income tax purposes in the same manner as it is for
federal
income tax purposes.
5.4 Tax
Returns. After
approval of the Management Committee, any tax returns or other required tax
forms shall be filed in accordance with Exhibit C.
5.5 Other
Business Opportunities. Each
Member shall have the right to engage in and receive full benefits from any
independent business activities or operations, whether or not competitive
with
the Company, without consulting with, or obligation to, the other Member
or the
Company. The doctrines of “corporate opportunity” or “business opportunity”
shall not be applied to the Business nor to any other activity or operation
of
any Member. No Member shall have any obligation to the Company or any other
Member with respect to any opportunity to acquire any property outside the
Area
of Interest at any time, or within the Area of Interest after the termination
of
the Company. Unless otherwise agreed in writing, neither the Manager nor
any
Member shall have any obligation to mill, beneficiate or otherwise treat
any
Products in any facility owned or controlled by the Manager or such
Member.
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5.6 Waiver
of Rights to Partition or Other Division of Assets. The
Members waive and release all rights of partition, or of sale in lieu thereof,
or other division of Assets, including any such rights provided by
Law.
5.7 Bankruptcy
of a Member. A
Member
shall cease to have any power as a Member or Manager or any voting rights
or
rights of approval hereunder upon bankruptcy, insolvency, dissolution or
assignment for the benefit of creditors of such Member, and its successor
upon
the occurrence of any such event shall have only the rights, powers and
privileges of a transferee enumerated in Section 7.2, and shall be liable
for
all obligations of the Member under this Agreement. In no event, however,
shall
a personal representative or successor become a substitute Member unless
the
requirements of Section 7.2 are satisfied.
5.8 Implied
Covenants. There
are
no implied covenants contained in this Agreement other than those of good
faith
and fair dealing.
5.9 No
Certificate.
The
Company shall not issue certificates representing Ownership Interests in
the
Company.
5.10 Disposition
of Production. Neither
Member shall have any obligation to account to the other Member for, nor
have
any interest or right of participation in any profits or proceeds nor have
any
obligation to share in any losses from, futures contracts, forward sales,
trading in puts, calls, options or any similar hedging, price protection
or
marketing mechanism employed by a Member with respect to its proportionate
share
of any Products produced or to be produced from the Properties.
5.11 Limitation
of Liability. The
Members shall not be required to make any contribution to the capital of
the
Company except as otherwise provided in this Agreement, nor shall the Members
in
their capacity as Members or Manager be bound by, or liable for, any debt,
liability or obligation of the Company whether arising in contract, tort,
or
otherwise, except as expressly provided by this Agreement. The Members shall
be
under no obligation to restore a deficit Capital Account upon the dissolution
of
the Company or the liquidation of any of their Ownership Interests.
5.12 Indemnities.
The
Company may, and shall have the power to, indemnify and hold harmless any
Member
or Manager or other person from and against any and all claims and demands
whatsoever arising from or related to the Business, the Company or a Member’s
membership in the Company.
5.13 No
Third Party Beneficiary Rights. This
Agreement shall be construed to benefit the Members and their respective
successors and assigns only, and shall not be construed to create third party
beneficiary rights in any other party or in any governmental organization
or
agency.
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6. Representations
and Warranties. As
of the
Effective Date, each Member warrants and represents to the other
that:
6.1 It
is a
corporation duly organized and in good standing in its state of incorporation
and is qualified to do business and is in good standing in those states where
necessary in order to carry out the purposes of this Agreement;
6.2 It
has
the capacity to enter into and perform this Agreement and all transactions
contemplated herein and that all corporate, board of directors, shareholder,
surface and mineral rights owner, lessor, lessee and other actions and consents
required to authorize it to enter into and perform this Agreement have been
properly taken or obtained;
6.3 It
will
not breach any other agreement or arrangement by entering into or performing
this Agreement;
6.4 It
is not
subject to any governmental order, judgment, decree, debarment, sanction
or Laws
that would preclude the permitting or implementation of Operations under
this
Agreement; and
6.5 This
Agreement has been duly executed and delivered by it and is valid and binding
upon it in accordance with its terms.
7. Transfer
of Interest; Preemptive Right.
7.1 General.
A
Member
shall have the right to Transfer to a third party its Ownership Interest,
or any
beneficial interest therein, solely as provided in this Section 7.
7.2 Limitations
on Free Transferability. Any
Transfer by either Member under Section 7.1 shall be subject to the following
limitations:
7.2.1 Neither
Member shall Transfer any beneficial interest in the Company (including,
but not
limited to, any royalty, profits, or other interest in the Products) except
in
conjunction with the Transfer of part or all of its Ownership
Interest;
7.2.2 No
transferee of all or any part of a Member’s Ownership Interest shall have the
rights of a Member unless and until the transferring Member has provided
to the
other Member notice of the Transfer, and, except as provided in
Sections 7.2.6 and 7.2.7, the transferee, as of the effective date
of the
Transfer, has committed in writing to assume and be bound by this Agreement
to
the same extent as the transferring Member;
7.2.3 Neither
Member, without the consent of the other Member, shall make a Transfer that
shall violate any Law, or result in the cancellation of any permits, licenses,
or other similar authorization;
7.2.4 No
Transfer permitted by this Section shall relieve the transferring Member
of any
liability of such transferring Member under this Agreement, whether accruing
before or after such Transfer;
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7.2.5 Any
Member that makes a Transfer that shall cause termination of the tax partnership
established by Section 5.2 shall indemnify the other Member for, from and
against any and all loss, cost, expense, damage, liability or claim therefore
arising from the Transfer, including without limitation any increase in taxes,
interest and penalties or decrease in credits caused by such termination
and any
tax on indemnification proceeds received by the indemnified Member;
7.2.6 In
the
event of a Transfer of less than all of an Ownership Interest, the transferring
Member and its transferee shall act and be treated as one Member under this
Agreement; provided however, that in order for such Transfer to be effective,
the transferring Member and its transferee must first:
7.2.6.1 Agree,
as
between themselves, that one of them is authorized to act as the sole agent
(“Agent”) on their behalf with respect to all matters pertaining to this
Agreement and the Company; and
7.2.6.2 Notify
the other Member of the designation of the Agent, and in such notice warrant
and
represent to the other Member that:
7.2.6.2.1 The
Agent
has the sole authority to act on behalf of, and to bind, the transferring
Member
and its transferee with respect to all matters pertaining to this Agreement
and
the Company;
7.2.6.2.2 The
other
Member may rely on all decisions of, notices and other communications from,
and
failures to respond by, the Agent, as if given (or not given) by the
transferring Member and its transferee; and
7.2.6.2.3 All
decisions of, notices and other communications from, and failures to respond
by,
the other Member to the Agent shall be deemed to have been given (or not
given)
to the transferring Member and its transferee.
The
transferring Member and its transferee may change the Agent (but such
replacement must be one of them) by giving notice to the other Member, which
notice must conform to Section 7.2.6.2.
7.2.7 If
the
Transfer is the grant of an Encumbrance on an Ownership Interest to secure
a
loan or other indebtedness of either Member in a bona fide transaction, other
than a transaction approved unanimously by the Management Committee or Project
Financing approved by the Management Committee, such Encumbrance shall be
granted only in connection with such Member’s financing payment or performance
of that Member’s obligations under this Agreement and shall be subject to the
terms of this Agreement and the rights and interests of the other Member
hereunder. Any such Encumbrance shall be further subject to the condition
that
the holder of such Encumbrance (AChargee@)
first
enters into a written agreement with the other Member in form satisfactory
to
the other Member, acting reasonably, binding upon the Chargee, to the effect
that:
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7.2.7.1 The
Chargee shall not enter into possession or institute any proceedings for
foreclosure or partition of the encumbering Member’s Ownership Interest and that
such Encumbrance shall be subject to the provisions of this
Agreement;
7.2.7.2 The
Chargee’s remedies under the Encumbrance shall be limited to the sale of the
whole (but only of the whole) of the encumbering Member’s Ownership Interest to
the other Member, or, failing such a sale, at a public auction to be held
at
least thirty (30) days after prior notice to the other Member, such sale
to be
subject to the purchaser entering into a written agreement with the other
Member
whereby such purchaser assumes all obligations of the encumbering Member
under
the terms of this Agreement. The price of any preemptive sale to the other
Member shall be the remaining principal amount of the loan plus accrued interest
and related expenses, and such preemptive sale shall occur within sixty (60)
days of the Chargee’s notice to the other Member of its intent to sell the
encumbering Member’s Ownership Interest. Failure of a sale to the other Member
to close by the end of such period, unless failure is caused by the encumbering
Member or by the Chargee, shall permit the Chargee to sell the encumbering
Member’s Ownership Interest at a public sale; and
7.2.7.3 The
charge shall be subordinate to any then-existing debt, including Project
Financing previously approved by the Management Committee, encumbering the
transferring Member’s Ownership Interest.
7.3 Preemptive
Right. Any
Transfer by either Member under Section 7.1 and any Transfer by an
Affiliate in Control of either Member shall be subject to a preemptive right
of
the other Member to the extent provided in Exhibit H. Failure of a
Member’s
Affiliate to comply with this Section and Exhibit H shall be a breach
by
such Member of this Agreement.
8. Management
Committee.
8.1 Organization
and Composition. The
Members establish a Management Committee to determine overall policies,
objectives, procedures, methods and actions under this Agreement. The Management
Committee shall consist of five (3) member(s). So long as WGI is the Manager
during the Earn-in-Period, the Management Committee shall consist of two
(2)
members appointed by WGI and one (1) members appointed by Coolcharm. If WGI
does
not elect to act as Manager or resigns as Manager during the Earn-in-Period,
the
Management Committee shall consist of two (2) members appointed by Coolcharm
and
one (1) members appointed by WGI. On Coolcharm’s completion of its obligations
under the Members’ Agreement and its Initial Contribution, Coolcharm shall have
the right to elect to become the Manager.
8.2 Decisions.
During
Coolcharm’s performance of it Initial Contribution obligation (the “Earn-in
Period”), decisions of the Management Committee shall be determined by the vote
of a majority of the members of the Management Committee. After Coolcharm
has
completed its Initial Contribution, each Member, acting through its appointed
member(s) in attendance at the meeting, shall have the votes on the Management
Committee in proportion to its Ownership Interest. Except as otherwise provided
in this Agreement, the vote of the Member with an Ownership Interest over
fifty
(50%) shall determine the decisions of the Management Committee.
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8.3 Meetings.
8.3.1 After
Coolcharm has completed its Initial Contribution, the Management Committee
shall
hold regular meetings at least quarterly in Reno, Nevada, or at other agreed
places. The Manager shall give fifteen (15) days notice to the Members of
such
meetings. Additionally, either Member may call a special meeting upon seven
(7)
days notice to the other Member. In case of an emergency, reasonable notice
of a
special meeting shall suffice. There shall be a quorum if at least one member
of
the Management Committee representing each Member is present; provided, however,
that if a Member fails to attend two consecutive properly called meetings,
then
a quorum shall exist at the second meeting if the other Member is represented
by
at least one appointed member, and a vote of such Member shall be considered
the
vote required for the purposes of the conduct of all business properly noticed
even if such vote would otherwise require unanimity.
8.3.2 If
business cannot be conducted at a regular or special meeting due to the lack
of
a quorum, either Member may call the next meeting upon five (5) days notice
to
the other Member.
8.3.3 Each
notice of a meeting shall include an itemized agenda prepared by the Manager
in
the case of a regular meeting or by the Member calling the meeting in the
case
of a special meeting, but any matters may be considered if either Member
adds
the matter to the agenda at least five (5) days before the meeting or with
the
consent of the other Member. The Manager shall prepare minutes of all meetings
and shall distribute copies of such minutes to the other Member within five
(5)
days after the meeting. Either Member may electronically record the proceedings
of a meeting with the consent of the other Member. The other Member shall
sign
and return or object to the minutes prepared by the Manager within thirty
(30)
days after receipt, and failure to do either shall be deemed acceptance of
the
minutes as prepared by the Manager. The minutes, when signed or deemed accepted
by both Members, shall be the official record of the decisions made by the
Management Committee. Decisions made at a Management Committee meeting shall
be
implemented in accordance with adopted Programs and Budgets. If a Member
timely
objects to minutes proposed by the Manager, the members of the Management
Committee shall seek, for a period not to exceed thirty (30) days from receipt
by the Manager of notice of the objections, to agree upon minutes acceptable
to
both Members. If the Management Committee does not reach agreement on the
minutes of the meeting within such thirty (30) day period, the minutes of
the
meeting as prepared by the Manager together with the other Member=s
proposed changes shall collectively constitute the record of the meeting.
If
personnel employed in Operations are required to attend a Management Committee
meeting, reasonable costs incurred in connection with such attendance shall
be
charged to the Business Account. All other costs shall be paid by the Members
individually.
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8.4 Action
Without Meeting in Person. In
lieu
of meetings in person, the Management Committee may conduct meetings by
telephone or video conference, so long as minutes of such meetings are prepared
in accordance with Section 8.3.3. The Management Committee may also take
actions
in writing signed by all members of the Management Committee.
8.5 Matters
Requiring Approval.
Except
as provided in Section 3.1.3 and as otherwise delegated to the Manager in
Section 9.2, the Management Committee shall have exclusive authority to
determine all matters related to overall policies, objectives, procedures,
methods and actions under this Agreement.
9. Manager.
9.1 Appointment.
The
Members appoint WGI as the Manager with overall management responsibility
for
Operations. WGI agrees to serve until it resigns as provided in Section 9.4
or
until Coolcharm completes its Initial Contribution at which time Coolcharm
may
elect to act as Manager.
9.2 Powers
and Duties of Manager. Subject
to the terms and provisions of this Agreement, the Manager shall have the
following powers and duties, which shall be discharged in accordance with
adopted Programs and Budgets.
9.2.1 The
Manager shall manage, direct and control Operations, and shall prepare and
present to the Management Committee proposed Programs and Budgets as provided
in
Section 10. The parties acknowledge their intent that the Company
will
conduct its Operations in a prudent and reasonable manner with the goal of
exploring for and identifying minerals on the Properties which support
preparation of a pre-Feasibility Study and Feasibility Study, and that the
Manager will act in a reasonably diligent manner in its conduct of Operations
consistent with the Company’s purpose and goal.
9.2.2 The
Manager shall implement the decisions of the Management Committee, shall
make
all expenditures necessary to carry out adopted Programs, and shall promptly
advise the Management Committee if it lacks sufficient funds to carry out
its
responsibilities under this Agreement.
9.2.3 The
Manager shall use reasonable efforts to: (1) purchase or otherwise
acquire
all material, supplies, equipment, water, utility and transportation services
required for Operations, such purchases and acquisitions to be made to the
extent reasonably possible on the best terms available, taking into account
all
of the circumstances; (2) obtain such customary warranties and guarantees
as are available in connection with such purchases and acquisitions; and
(3) keep the Assets free and clear of all Encumbrances, except any
such
Encumbrances listed in Section 1.1 of Exhibit A and those existing at the
time
of, or created concurrent with, the acquisition of such Assets, or mechanic’s or
materialmen’s liens (which shall be contested, released or discharged in a
diligent matter) or Encumbrances specifically approved by the Management
Committee.
9.2.4 The
Manager shall conduct such title examinations of the Properties and cure
such
title defects pertaining to the Properties as may be advisable in its reasonable
judgment.
12
9.2.5 The
Manager shall: (1) make or arrange for all payments required by leases,
licenses, permits, contracts and other agreements related to the Assets;
(2) pay all taxes, assessments and like charges on Operations and
Assets
except taxes determined or measured by a Member’s sales revenue or net income
and taxes, including production taxes, attributable to a Member’s share of
Products, and shall otherwise promptly pay and discharge expenses incurred
in
Operations; provided, however, that if authorized by the Management Committee,
the Manager shall have the right to contest (in the courts or otherwise)
the
validity or amount of any taxes, assessments or charges if the Manager deems
them to be unlawful, unjust, unequal or excessive, or to undertake such other
steps or proceedings as the Manager may deem reasonably necessary to secure
a
cancellation, reduction, readjustment or equalization thereof before the
Manager
shall be required to pay them, but in no event shall the Manager permit or
allow
title to the Assets to be lost as the result of the nonpayment of any taxes,
assessments or like charges; and (3) do all other acts reasonably
necessary
to maintain the Assets.
9.2.6 The
Manager shall: (1) apply for all necessary permits, licenses and approvals;
(2) comply with all Laws; (3) notify promptly the Management
Committee
of any allegations of substantial violation thereof; and (4) prepare
and
file all reports or notices required for or as a result of Operations. The
Manager shall not be in breach of this provision if a violation has occurred
in
spite of the Manager’s good faith efforts to comply consistent with its standard
of care under Section 9.3. In the event of any such violation, the
Manager
shall timely cure or dispose of such violation on behalf of both Members
through
performance, payment of fines and penalties, or both, and the cost thereof
shall
be charged to the Business Account.
9.2.7 The
Manager shall prosecute and defend, but shall not initiate without consent
of
the Management Committee, all litigation or administrative proceedings arising
out of Operations. The non-managing Member shall have the right to participate,
at its own expense, in such litigation or administrative proceedings. The
non-managing Member shall approve in advance any settlement involving payments,
commitments or obliga-tions in excess of Fifty Thousand Dollars ($50,000.00)
in
cash or value.
9.2.8 The
Manager shall obtain insurance for the benefit of the Company as provided
in
Exhibit F or as may otherwise be determined from time to time by the Management
Committee.
9.2.9 The
Manager may dispose of Assets, whether by abandonment, surrender, or Transfer
in
the ordinary course of business, except that Properties may be abandoned
or
surrendered only as provided in Section 12.2. Without prior authorization
from the Management Committee, however, the Manager shall not: (1) dispose
of Assets in any one transaction (or in any series of related transactions)
having a value in excess of Fifty Thousand Dollars ($50,000.00); (2) enter
into any sales contracts or commitments for Product, except as permitted
in
Section 5.10; (3) begin a liquidation of the Company; or (4) dispose
of all or a substantial part of the Assets necessary to achieve the purposes
of
the Company.
9.2.10 The
Manager shall have the right to carry out its responsibilities hereunder
through
agents, Affiliates or independent contractors.
13
9.2.11 The
Manager shall perform or cause to be performed all assessment and other work,
and shall pay all Governmental Fees, required by Law in order to maintain
the
unpatented mining claims, mill sites and tunnel sites included within the
Properties. The Manager shall have the right to perform the assessment work
required hereunder pursuant to a common plan of exploration and continued
actual
occupancy of such claims and sites shall not be required. The Manager shall
not
be liable on account of any determination by any court or governmental agency
that the work performed by the Manager does not constitute the required annual
assessment work or occupancy for the purposes of preserving or maintaining
ownership of the claims, provided that the work done is pursuant to an adopted
Program and Budget and is performed in accordance with the Manager’s standard of
care under Section 9.3. The Manager shall timely record with the appropriate
county and file with the appropriate United States agency any required
affidavits, notices of intent to hold and other documents in proper form
attesting to the payment of Governmental Fees, the performance of assessment
work or intent to hold the claims and sites, in each case in sufficient detail
to reflect compliance with the requirements applicable to each claim and
site.
The Manager shall not be liable on account of any determination by any court
or
governmental agency that any such document submitted by the Manager does
not
comply with applicable requirements, provided that such document is prepared
and
recorded or filed in accordance with the Manager’s standard of care under
Section 9.3.
9.2.12 If
authorized by the Management Committee, the Manager may: (1) locate,
amend
or relocate any unpatented mining claim or mill site or tunnel site,
(2) locate any fractions resulting from such amendment or relocation,
(3) apply for patents or mining leases or other forms of mineral tenure
for
any such unpatented claims or sites, (4) abandon any unpatented mining
claims for the purpose of locating mill sites or otherwise acquiring from
the
United States rights to the ground covered thereby, (5) abandon any
unpatented mill sites for the purpose of locating mining claims or otherwise
acquiring from the United States rights to the ground covered thereby,
(6) exchange with or convey to the United States any of the Properties
for
the purpose of acquiring rights to the ground covered thereby or other adjacent
ground, and (7) convert any unpatented claims or mill sites into one
or
more leases or other forms of mineral tenure pursuant to any Law hereafter
enacted.
9.2.13 The
Manager shall keep and maintain all required accounting and financial records
pursuant to the procedures described in Exhibit B and in accordance
with
customary cost accounting practices in the mining industry, and shall ensure
appropriate separation of accounts unless otherwise agreed by the
Members.
9.2.14 The
Manager shall keep and maintain all required records, make elections, and
prepare and file all federal and state tax returns or other required tax
forms,
and perform the other duties described in Exhibit C.
9.2.15 The
Manager shall maintain Equity Accounts for each Member. Each Member=s
Equity
Account shall be credited with the value of such Member’s contributions under
Sections 3.1.1 and 3.1.2 and shall be credited with any additional amounts
contributed by such Member to the Company. Each Member’s Equity Account shall be
charged with the cash and the fair market value of property distributed to
such
Member (net of liabilities assumed by such Member and liabilities to which
such
distributed property is subject). Contributions and distributions shall include
all cash contributions or distributions plus the agreed value (expressed
in
dollars) of all in-kind contributions or distributions. Solely for purposes
of
determining the Equity Account balances of the Members, the Manager shall
reasonably estimate the fair market value of all Products distributed to
the
Members, and such estimated value shall be used regardless of the actual
amount
received by each Member upon disposition of such Products.
14
9.2.16 Subject
to Section 3.1.3, the Manager shall keep the Management Committee advised
of all
Operations by submitting in writing to the members of the Management Committee:
(1) monthly progress reports that include statements of expenditures
and
comparisons of such expenditures to the adopted Budget; (2) periodic
summaries of data acquired; (3) copies of reports concerning Operations;
(4) a detailed final report within thirty (30) days after completion
of
each Program and Budget, which shall include comparisons between actual and
budgeted expenditures and comparisons between the objectives and results
of
Programs; and (5) such other reports as any member of the Management
Committee may reasonably request. Subject to Section 13, at all reasonable
times the Manager shall provide the Management Committee, or other
representative of a Member upon the request of such Member’s member of the
Management Committee, access to, and the right to inspect and, at such Member’s
cost and expense, copy the Existing Data and all maps, drill logs and other
drilling data, core, pulps, reports, surveys, assays, analyses, production
reports, operations, technical, accounting and financial records, and other
Business Information, to the extent preserved or kept by the Manager. In
addition, the Manager shall allow the non-managing Member, at the latter’s sole
risk, cost and expense, and subject to reasonable safety regulations, to
inspect
the Assets and Operations at all reasonable times, so long as the non-managing
Member does not unreasonably interfere with Operations.
9.2.17 The
Manager shall prepare an Environmental Compliance plan for all Operations
consistent with the requirements of any applicable Laws or contractual
obligations and shall include in each Program and Budget sufficient funding
to
implement the Environmental Compliance plan and to satisfy the financial
assurance requirements of any applicable Law or contractual obligation
pertaining to Environmental Compliance. To the extent practical, the
Environmental Compliance plan shall incorporate concurrent reclamation of
Properties disturbed by Operations.
9.2.18 The
Manager shall undertake to perform Continuing Obligations when and as economic
and appropriate, whether before or after termination of the Company. The
Manager
shall have the right to delegate performance of Continuing Obligations to
persons having demonstrated skill and experience in relevant disciplines.
As
part of each Program and Budget submittal, the Manager shall specify in such
Program and Budget the measures to be taken for performance of Continuing
Obligations and the cost of such measures. The Manager shall keep the other
Member reasonably informed about the Manager’s efforts to discharge Continuing
Obligations. Authorized representatives of each Member shall have the right
from
time to time to enter the Properties to inspect work directed toward
satisfaction of Continuing Obligations and audit books, records, and related
accounts.
15
9.2.19 The
funds
that are to be deposited into the Environmental Compliance Fund shall be
maintained by the Manager in a separate, interest bearing cash management
account, which may include, but is not limited to, money market investments
and
money market funds, and/or in longer term investments if approved by the
Management Committee. Such funds shall be used solely for Environmental
Compliance and Continuing Obligations, including the committing of such funds,
interests in property, insurance or bond policies, or other security to satisfy
Laws regarding financial assurance for the reclamation or restoration of
the
Properties, and for other Environmental Compliance requirements.
9.2.20 If
Ownership Interests are adjusted in accordance with this Agreement the Manager
shall modify the Schedule of Members to properly reflect such adjustment
and
shall propose from time to time one or more methods for fairly allocating
costs
for Continuing Obligations.
9.2.21 The
Manager shall undertake all other activities reasonably necessary to fulfill
the
foregoing, and to implement the policies, objectives, procedures, methods
and
actions determined by the Management Committee pursuant to Section
8.1.
9.3 Standard
of Care. The
Manager shall discharge its duties under Section 9.2 and conduct all
Operations in a good, workmanlike and efficient manner, in accordance with
sound
mining and other applicable industry standards and practices, and in accordance
with Laws and with the terms and provisions of leases, licenses, permits,
contracts and other agreements pertaining to the Assets. The Manager shall
not
be liable to the other Member for any act or omission resulting in damage
or
loss except to the extent caused by or attributable to the Manager’s willful
misconduct or gross negligence. The Manager shall not be in default of any
of
its duties under Section 9.2 if its inability or failure to perform results
from
the failure of the other Member to perform acts or to contribute amounts
required of it by this Agreement.
9.4 Resignation;
Deemed Offer to Resign. The
Manager may resign upon not less than two (2) months prior notice to the
other
Member, in which case the other Member may elect to become the new Manager
by
notice to the resigning Member within ten (10) days after the notice of
resignation. Subject to the provisions of Section 9.1, if any of the following
shall occur, the Manager shall be deemed to have resigned upon the occurrence
of
the event described in each of the following Sections, with the successor
Manager to be appointed by the other Member at a subsequently called meeting
of
the Management Committee, at which the Manager shall not be entitled to vote.
The other Member, or if there are more than two (2) Members, the Member having
the greatest aggregate Ownership Interest, may appoint itself or a third
party
as the Manager.
9.4.1 The
aggregate Ownership Interest of the Manager and its Affiliates becomes less
than
fifty (50%), or, if there are more than two (2) Members, the aggregate Ownership
Interest of the Manager and its Affiliates becomes less than the aggregate
Ownership Interest of any other Member and its Affiliates;
16
9.4.2 The
Manager fails to perform a material obligation imposed upon it under this
Agreement and such failure continues for a period of sixty (60) days after
notice from the other Member demanding performance;
9.4.3 The
Manager fails to pay or contest in good faith Company bills and Company debts
as
such obligations become due;
9.4.4 A
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for a substantial part of its assets is appointed and such appointment
is neither made ineffective nor discharged within sixty (60) days after the
making thereof, or such appointment is consented to, requested by, or acquiesced
to by the Manager;
9.4.5 The
Manager commences a voluntary case under any applicable bankruptcy, insolvency
or similar law now or hereafter in effect; or consents to the entry of an
order
for relief in an involuntary case under any such law or to the appointment
of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar official of any substantial part of its assets;
or
makes a general assignment for the benefit of creditors; or takes corporate
or
other action in furtherance of any of the foregoing; or
9.4.6 Entry
is
made against the Manager of a judgment, decree or order for relief affecting
its
ability to serve as Manager or a substantial part of its Ownership Interest
or
its other assets by a court of competent jurisdiction in an involuntary case
commenced under any applicable bankruptcy, insolvency or other similar law
of
any jurisdiction now or hereafter in effect.
Under
Sections 9.4.4, 9.4.5 or 9.4.6 above, the appointment of a successor
Manager shall be deemed to pre-date the event causing a deemed
resignation.
9.5 Payments
To Manager.
The
Manager shall be compensated for its services and reimbursed for its costs
hereunder in accordance with Exhibit B.
9.6 Transactions
With Affiliates. If
the
Manager engages Affiliates to provide services, it shall do so on terms no
less
favorable than would be the case in arm’s-length, competitively priced
transactions with unrelated parties.
9.7 Activities
During Deadlock. If
the
Management Committee for any reason fails to adopt an Exploration,
Pre-Feasibility Study, Feasibility Study or Development Program and Budget,
the
Manager shall continue Operations at levels sufficient to maintain the
Properties. If the Management Committee for any reason fails to adopt an
initial
Mining Program and Budget or any Expansion or Modification Programs and Budgets,
the Manager shall continue Operations at levels sufficient to maintain the
then
current Operations and Properties. If the Management Committee for any reason
fails to adopt Mining Programs and Budgets subsequent to the initial Mining
Program and Budget, subject to the contrary direction of the Management
Committee and receipt of necessary funds, the Manager shall continue Operations
at levels comparable with the last adopted Mining Program and Budget. All
of the
foregoing shall be subject to the contrary direction of the Management Committee
and the receipt of necessary funds.
17
10. Programs
And Budgets.
10.1 Initial
Program and Budget. The
Initial Program and Budget to which both Members have agreed is adopted and
is
attached as Exhibit G.
10.2 Operations
Pursuant to Programs and Budgets. Except
as
otherwise provided in Section 3.1.3 and Section 10.12, Operations shall be
conducted, expenses shall be incurred, and Assets shall be acquired only
pursuant to adopted Programs and Budgets. Every Program and Budget adopted
pursuant to this Agreement shall provide for expenditures of Qualifying Expenses
in an amount sufficient for Coolcharm to satisfy its Initial Contribution
obligations and for accrual of reasonably anticipated Environmental Compliance
expenses for all Operations contemplated under the Program and
Budget.
10.3 Presentation
of Programs and Budgets. Proposed
Programs and Budgets shall be prepared by the Manager for a period of one
(1)
year or any other period as approved by the Management Committee, and shall
be
submitted to the Management Committee for review and consideration. All proposed
Programs and Budgets may include Exploration, Pre-Feasibility Studies,
Feasibility Study, Development, Mining and Expansion or Modification Operations
components, or any combination thereof, and shall be reviewed and adopted
upon a
vote of the Management Committee in accordance with Sections 8.2 and 10.4.
Each
Program and Budget adopted by the Management Committee, regardless of length,
shall be reviewed at least once a year at a meeting of the Management Committee.
During the period encompassed by any Program and Budget, and at least two
(2)
months prior to its expiration, a proposed Program and Budget for the succeeding
period shall be prepared by the Manager and submitted to the Management
Committee for review and consideration.
10.4 Review
and Adoption of Proposed Programs and Budgets. Within
thirty (30) days after submission of a proposed Program and Budget, each
Member
shall submit in writing to the Management Committee:
10.4.1 Notice
that the Member approves any or all of the components of the proposed Program
and Budget; or
10.4.2 Modifications
proposed by the Member to the components of the proposed Program and Budget;
or
10.4.3 Notice
that the Member rejects any or all of the components of the proposed Program
and
Budget.
If
a
Member fails to give any of the foregoing responses within the allotted time,
the failure shall be deemed to be a vote by the Member for adoption of the
Manager’s proposed Program and Budget. If a Member makes a timely submission to
the Management Committee pursuant to Sections 10.4.1, 10.4.2, or 10.4.3,
then
the Manager working with the other Member shall seek for a period of time
not to
exceed twenty (20) days to develop a complete Program and Budget acceptable
to
both Members. The Manager shall then call a Management Committee meeting
in
accordance with Section 8.3 for purposes of reviewing and voting upon the
proposed Program and Budget.
18
10.5 Election
to Participate.
10.5.1 By
notice
to the Management Committee within twenty (20) calendar days after the final
vote adopting a Program and Budget, and notwithstanding its vote concerning
adoption of a Program and Budget, a Member may elect to participate in the
approved Program and Budget: (1) in proportion to its respective Ownership
Interest, (2) in some lesser amount than its respective Ownership
Interest,
or (3) not at all. In case of an election under Section 10.5.1(2)
or
10.5.1(3), its Ownership Interest shall be recalculated as provided in
Section 10.5.2 below, with dilution effective as of the first day
of the
Program Period for the adopted Program and Budget. If a Member fails to so
notify the Management Committee of the extent to which it elects to participate,
the Member shall be deemed to have elected to contribute to such Program
and
Budget in proportion to its respective Ownership Interest as of the beginning
of
the Program Period.
10.5.2 If
a
Member elects to contribute to an adopted Program and Budget some lesser
amount
than in proportion to its respective Ownership Interest, or not at all, and
the
other Member elects to fund all or any portion of the deficiency, the Ownership
Interest of the Reduced Member shall be provisionally recalculated as
follows:
10.5.2.1 For
an
election made before Payout, by dividing: (1) the sum of (a) the
amount credited to the Reduced Member’s Equity Account with respect to its
Initial Contribution under Section 3.1, (b) the total of all
of the
Reduced Member’s contributions to the Company under Section 10.5.1 or
otherwise pursuant to this Agreement, and (c) the amount, if any,
the
Reduced Member elects to contribute to the adopted current Program and Budget;
by (2) the sum of (a), (b) and (c) above for both Members; and then
multiplying the result by one hundred; or
10.5.2.2 For
an
election made after Payout, by reducing its Ownership Interest in an amount
equal to two (2) times the amount by which it would have been reduced under
Section 10.5.2.1 if such election were made before Payout.
The
Ownership Interest of the other Member shall be increased by the amount of
the
reduction in the Ownership Interest of the Reduced Member, and if the other
Member elects not to fund the entire deficiency, the Manager shall adjust
the
Program and Budget to reflect the funds available.
10.5.3 Whenever
the Ownership Interests are recalculated pursuant to this Section, (1) the
Equity Accounts of both Members shall be revised to bear the same ratio to
each
other as their recalculated Ownership Interests; (2) the Schedule
of
Members shall be amended to reflect the recalculated Ownership Interests;
and
(3) the portion of Capital Account attributable to the reduced Ownership
Interest of the Reduced Member shall be transferred to the other
Member.
19
10.6 Recalculation
or Restoration of Reduced Interest Based on Actual
Expenditures.
10.6.1 If
a
Member makes an election under Section 10.5.1(2) or 10.5.1(3), then
within
thirty (30) days after the conclusion of such Program and Budget, the Manager
shall report the total amount of money expended plus the total obligations
incurred by the Manager for such Budget.
10.6.2 If
the
Manager expended or incurred obligations that were more or less than the
adopted
Budget, the Ownership Interests shall be recalculated pursuant to
Section 10.5.2 by substituting each Member’s actual contribution to the
adopted Budget for that Member’s estimated contribution at the time of the
Reduced Member’s election under Section 10.5.1.
10.6.3 If
the
Manager expended or incurred obligations of less than eighty percent (80%)
of
the adopted Budget, within thirty (30) days of receiving the Manager’s report on
expenditures, the Reduced Member may notify the other Member of its election
to
reimburse the other Member for the difference between any amount contributed
by
the Reduced Member to such adopted Program and Budget and the Reduced Member’s
proportionate share (at the Reduced Member’s former Ownership Interest) of the
actual amount expended or incurred for the Program, plus interest on the
difference accruing at the rate described in Section 11.3 plus two (2)
percentage points. The Reduced Member shall deliver the appropriate amount
(including interest) to the other Member with such notice. Failure of the
Reduced Member to so notify and tender such amount shall result in dilution
occurring in accordance with this Section 10 and shall bar the Reduced Member
from its rights under this Section 10.6.3 concerning the relevant adopted
Program and Budget.
10.6.4 All
recalculations under this Section shall be effective as of the first day
of the
Program Period for the Program and Budget. The Manager, on behalf of both
Members, shall make such reimbursements, reallocations of Products,
contributions and other adjustments as are necessary so that, to the extent
possible, each Member will be placed in the position it would have been in
had
its Ownership Interests as recalculated under this Section been in effect
throughout the Program Period for such Program and Budget.
10.6.5 Whenever
the Ownership Interests are recalculated pursuant to this Section, (1) the
Members Equity Accounts shall be revised to bear the same ratio to each other
as
their Recalculated Ownership Interests; (2) the Schedule of Members
shall
be amended to reflect the recalculated Ownership Interests; and (3) the Capital
Accounts of the Members shall be determined without regard to
Section 10.5.3, provided, that the portion of Capital Account attributable
to the reduced Ownership Interest of the Reduced Member, if any, after taking
into account the adjustments required by this Section 10.6 shall be
transferred to the other Member.
10.7 Pre-Feasibility
Study Program and Budgets.
10.7.1 At
such
time as either Member is of the good faith and reasonable opinion that
economically viable Mining Operations may be possible on the Properties,
the
Member may propose to the Management Committee that a Pre-Feasibility Study
Program and Budget, or a Program and Budget that includes Pre-Feasibility
Studies, be prepared. Such proposal shall be made in writing to the other
Member, shall reference the data upon which the proposing Member bases its
opinion, and shall call a meeting of the Management Committee pursuant to
Section 8.3. If such proposal is adopted by the Management Committee,
the
Manager shall prepare or have prepared a Pre-Feasibility Study Program and
Budget as approved by the Management Committee and shall submit the same
to the
Management Committee within thirty (30) days following adoption of the
proposal.
20
10.7.2 Pre-Feasibility
Studies may be conducted by the Manager, Feasibility Contractors, or both,
or
may be conducted by the Manager and audited by Feasibility Contractors, as
the
Management Committee determines. A Pre-Feasibility Study Program shall include
the work necessary to prepare and complete the Pre-Feasibility Study approved
in
the proposal adopted by the Management Committee, which may include some
or all
of the following:
10.7.2.1 Analyses
of various alternatives for mining, processing and beneficiation of
Products;
10.7.2.2 Analyses
of alternative mining, milling, and production rates;
10.7.2.3 Analyses
of alternative sites for placement of facilities (i.e.,
water
supply facilities, transport facilities, reagent storage, offices, shops,
warehouses, stock yards, explosives storage, handling facilities, housing,
public facilities);
10.7.2.4 Analyses
of alternatives for waste treatment and handling (including a description
of
each alternative of the method of tailings disposal and the location of the
proposed disposal site);
10.7.2.5 Estimates
of recoverable proven and probable reserves of Products and of related
substances, in terms of technical and economic constraints (extraction and
treatment of Products), including the effect of grade, losses, and impurities,
and the estimated mineral composition and content thereof, and review of
mining
rates commensurate with such reserves;
10.7.2.6 Analyses
of environmental impacts of the various alternatives, including an analysis
of
the permitting, environmental liability and other Environmental Law implications
of each alternative, and costs of Environmental Compliance for each
alternative;
10.7.2.7 Conduct
of appropriate metallurgical tests to determine the efficiency of alternative
extraction, recovery and processing techniques, including an estimate of
water,
power, and reagent consumption requirements;
10.7.2.8 Conduct
of hydrology and other studies related to any required dewatering;
and
10.7.2.9 Conduct
of other studies and analyses approved by the Management Committee.
21
10.7.3 The
Manager shall have the discretion to base its and any Feasibility Contractors’
Pre-Feasibility Study on the cumulative results of each discipline studied,
so
that if a particular portion of the work would result in the conclusion that
further work based on these results would be unwarranted for a particular
alternative, the Manager shall have no obligation to continue expenditures
on
other Pre-Feasibility Studies related solely to such alternative.
10.8 Completion
of Pre-Feasibility Studies and Selection of Approved
Alternatives.
As soon
as reasonably practical following completion of all Pre-Feasibility Studies
required to evaluate fully the alternatives studied pursuant to Pre-Feasibility
Programs, the Manager shall prepare a report summarizing all Pre-Feasibility
Studies and shall submit the same to the Management Committee. Such report
shall
incorporate the following:
10.8.1 The
results of the analyses of the alternatives and other matters evaluated in
the
conduct of the Pre-Feasibility Programs;
10.8.2 Reasonable
estimates of capital costs for the Development and start-up of the mine,
mill
and other processing and ancillary facilities required by the Development
and
Mining alternatives evaluated (based on flow sheets, piping and instrumentation
diagrams, and other major engineering diagrams), which cost estimates shall
include reasonable estimates of:
10.8.2.1 Capitalized
pre-stripping expenditures, if an open pit or surface mine is
proposed;
10.8.2.2 Expenditures
required to purchase, construct and install all machinery, equipment and
other
facilities and infrastructure (including contingencies) required to bring
a mine
into commercial production, including an analysis of costs of equipment or
supply contracts in lieu of Development costs for each Development and Mining
alternative evaluated;
10.8.2.3 Expenditures
required to perform all other related work required to commence commercial
production of Products and, if applicable, process Products (including
reasonable estimates of working capital requirements); and
10.8.2.4 All
other
direct and indirect costs and general and administrative expenses that may
be
required for a proper evaluation of the Development and Mining alternatives
and
annual production levels evaluated. The capital cost estimates shall include
a
schedule of the timing of the estimated capital requirements for each
alternative;
10.8.3 A
reasonable estimate of the annual expenditures required for the first year
of
Operations after completion of the capital program described in
Section 10.8.2 for each Development alternative evaluated, and for
subsequent years of Operations, including estimates of annual production,
processing, administrative, operating and maintenance expenditures, taxes
(other
than income taxes), working capital requirements, royalty and purchase
obligations, equipment leasing or supply contract expenditures, work
commitments, Environmental Compliance costs, post-Operations Environmental
Compliance and Continuing Obligations funding requirements and all other
anticipated costs of such Operations. This analysis shall also include an
estimate of the number of employees required to conduct such Operations for
each
alternative;
22
10.8.4 A
review
of the nature, extent and rated capacity of the mine, machinery, equipment
and
other facilities preliminarily estimated to be required for the purpose of
producing and marketing Products under each Development and Mining alternative
analyzed;
10.8.5 An
analysis (and sensitivity analyses reasonably requested by either Member),
based
on various target rates of return and price assumptions requested by either
Member, of whether it is technically, environmentally, and economically feasible
to place a prospective ore body or deposit within the Properties into commercial
production for each of the Development and Mining alternatives analyzed
(including a discounted cash flow rate of return investment analysis for
each
alternative and net present value estimate using various discount rates
requested by either Member); and
10.8.6 Such
other information as the Management Committee deems appropriate.
Within
thirty (30) days after delivery of the Pre-Feasibility Study summary to the
Members, a Management Committee meeting shall be convened for the purposes
of
reviewing the Pre-Feasibility Study summary and selecting one or more Approved
Alternatives, if any.
10.9 Programs
and Budgets for Feasibility Study. Within
thirty (30) days following the selection of an Approved Alternative, the
Manager
shall submit to the Management Committee a Program and a Budget, which shall
include necessary Operations, for the preparation of a Feasibility Study.
A
Feasibility Study may be prepared by the Manager, Feasibility Contractors,
or
both, or may be prepared by the Manager and audited by Feasibility Contractors,
as the Management Committee determines.
10.10 Development
Programs and Budgets; Project Financing.
10.10.1 Unless
otherwise determined by the Management Committee, the Manager shall not submit
to the Management Committee a Program and Budget including Development of
the
mine described in a completed Feasibility Study until thirty (30) days following
the receipt by Manager of the Feasibility Study. The Program and Budget,
which
includes Development of the mine described in the completed Feasibility Study,
shall be based on the estimated cost of Development described in the Feasibility
Study for the Approved Alternative, unless otherwise directed by the Management
Committee.
10.10.2 Promptly
following adoption of the Program and Budget, which includes Development
as
described in a completed Feasibility Study, but in no event more than sixty
(60)
days thereafter, the Manager shall submit to the Management Committee a report
on material bids received for Development work (“Bid Report”). If bids described
in the Bid Report result in the aggregate cost of Development work exceeding
twenty percent (20%) of the Development cost estimates that formed the basis
of
the Development component of the adopted Program and Budget, the Program
and
Budget, which includes relevant Development, shall be deemed to have been
re-submitted to the Management Committee based on the aggregate costs as
described in the Bid Report on the date of receipt of the Bid Report and
shall
be reviewed and adopted in accordance with Sections 8.2 and
10.4.
23
10.10.3 If
the
Management Committee approves the Development of the mine described in a
Feasibility Study and also decides to seek Project Financing for such mine,
each
Member shall, at its own cost, cooperate in seeking to obtain Project Financing
for such mine; provided, however, that all fees, charges and costs (including
attorneys and technical consultants fees) paid to the Project Financing lenders
shall be borne by the Members in proportion to their Ownership Interests,
unless
such fees are capitalized as a part of the Project Financing.
10.11 Expansion
or Modification Programs and Budgets. Any
Program and Budget proposed by the Manager involving Expansion or Modification
shall be based on a Feasibility Study prepared by the Manager, Feasibility
Contractors, or both, or prepared by the Manager and audited by Feasibility
Contractors, as the Management Committee determines. The Program and Budget,
which include Expansion or Modification, shall be submitted for review and
approval by the Management Committee within thirty (30) days following receipt
by the Manager of such Feasibility Study.
10.12 Budget
Overruns; Program Changes. For
Programs and Budgets adopted after completion of Coolcharm’s Initial
Contribution, the Manager shall immediately notify the Management Committee
of
any material departure from an adopted Program and Budget. If the Manager
exceeds an adopted Budget by more than ten percent (10%) in the aggregate,
then
the excess over ten percent (10%), unless authorized or ratified by the
Management Committee, shall be for the sole account of the Manager and such
excess shall not be included in the calculations of the Ownership Interests
nor
deemed a contribution under this Agreement. Budget overruns of ten percent
(10%)
or less in the aggregate shall be borne by the Members in proportion to their
respec-tive Ownership Interests.
10.13 Supplemental
Business Arrangement. At
any
time during the term of this Agreement, the Management Committee may determine
by unanimous vote of both Members after Coolcharm’s Initial Contribution
obligations have been fully satisfied that it is appropriate to segregate
the
Area of Interest into areas subject to separate Programs and Budgets for
purposes of conducting further Exploration, Pre-Feasibility or Feasibility
Studies, Development, or Mining. At such time, the Management Committee shall
designate which portion of the Properties will comprise an area of interest
under a separate business arrangement (“Supplemental Business Arrangement”) for
the purpose of further exploring, analyzing, developing, and mining such
portion
of the Properties. The Supplemental Business Arrangement shall substantially
reflect the same terms as this Agreement, with rights and interests of the
Members in the Supplemental Business Arrangement identical to the rights
and
interests of the Members in the Company at the time of the designation, unless
otherwise agreed to by the Members, and with the Members agreeing to new
Capital
and Equity Accounts and other terms necessary for the Supplemental Business
Arrangement to comply with the nature and purpose of the designation. Following
the effectuation of the Supplemental Business Arrangement, this Agreement
shall
terminate insofar as it affects the Properties covered by the Supplemental
Business Arrangement.
24
11. Accounts
and Settlements.
11.1 Monthly
Statements. After
completion of Coolcharm’s Initial Contribution, the Manager shall promptly
submit to the Management Committee monthly statements of account reflecting
in
reasonable detail the charges and credits to the Business Account during
the
preceding month.
11.2 Cash
Calls. On
the
basis of each adopted Program and Budget, the Manager shall submit prior
to the
last day of each month a billing for estimated cash requirements for the
next
month. Within ten (10) days after receipt of each billing, each Member shall
advance its proportionate share of such cash requirements. The Manager shall
record all funds received in the Business Account. The Manager shall at all
times maintain a cash balance approximately equal to the rate of disbursement
for up to thirty (30) days. All funds in excess of immediate cash requirements
shall be invested by the Manager for the benefit of the Company in cash
management accounts and investments selected at the discretion of the Manager,
which accounts may include, but are not limited to, money market investments
and
money market funds.
11.3 Failure
to Meet Cash Calls. A
Member
that fails to meet cash calls in the amount and at the times specified in
Section 11.2 shall be in default, and the amounts of the defaulted cash call
shall bear interest from the date due at an annual rate equal to two (2)
percentage points over the Prime Rate, but in no event shall the rate of
interest exceed the maximum permitted by Law. Such interest shall accrue
to the
benefit of and be payable to the non-defaulting Member, but shall not be
deemed
as amounts contributed by the defaulting Member in the event dilution occurs
in
accordance with Section 4.2.3. In addition to any other rights and
remedies
available to it by Law, the non-defaulting Member shall have those other
rights,
remedies, and elections specified in Sections 11.4 and 11.5.
11.4 Cover
Payment. If
a
Member defaults in making a contribution or cash call required by an adopted
Program and Budget, the non-defaulting Member may, but shall not be obligated
to, advance some portion or all of the amount in default on behalf of the
defaulting Member (a “Cover Payment”). Each and every Cover Payment shall
constitute a demand loan bearing interest from the date of the advance at
the
rate provided in Section 11.3. If more than one Cover Payment is made, the
Cover
Payments shall be aggregated and the rights and remedies pertaining to an
individual Cover Payment shall apply to the aggregated Cover Payments. The
failure to repay such loan upon demand shall be a default.
11.5 Remedies.
The
Members acknowledge that if either Member defaults in making a contribution
required by Section 3 or a cash call, or in repaying a loan, as required
under
Sections 11.2, 11.3 or 11.4, whether or not a Cover Payment is made, it will
be
difficult to measure the damages resulting from such default (it being
understood and agreed that the Members have attempted to determine such damages
in advance and determined that the calculation of such damages cannot be
ascertained with reasonable certainty). Both Members acknowledge and recognize
that the damage to the non-defaulting Member could be significant. In the
event
of such default, as reasonable liquidated damages, the non-defaulting Member
may, with respect to any such default not cured within thirty (30) days after
notice to the defaulting Member of such default, elect any of the following
remedies by giving notice to the defaulting Member. Such election may be
made
with respect to each failure to meet a cash call relating to a Program and
Budget, regardless of the frequency of such cash calls, provided such cash
calls
are made in accordance with Section 11.2.
25
11.5.1 The
defaulting Member grants to the non-defaulting Member a power of sale as
to all
or any portion of its Ownership Interest or of its interest in any Assets,
upon
a default under Sections 11.3 or 11.4. Such power shall be exercised in the
manner provided by applicable Law or otherwise in a commercially reasonable
manner and upon reasonable notice. If the non-defaulting Member elects to
enforce the lien or security interest pursuant to the terms of this Section,
the
defaulting Member shall be deemed to have waived any available right of
redemption, any required valuation or appraisal of the secured property prior
to
sale, any available right to stay execution or to require a marshaling of
assets, and any required bond in the event a receiver is appointed, and the
defaulting Member shall be liable for any deficiency.
11.5.2 The
non-defaulting Member may elect to have the defaulting Member’s Ownership
Interest diluted or eliminated as follows:
11.5.2.1 For
a
default occurring before Payout relating to a Program and Budget covering
in
whole or in part Exploration, Pre-Feasibility Study or Feasibility Study
Operations, the Reduced Member’s Ownership Interest shall be recalculated by
dividing: (X) the sum of (1) the value of the Reduced Member’s Initial
Contribution under Section 3.1, (2) the total of all of the
Reduced
Member’s contributions to the Company under Section 10.5.1 or otherwise
pursuant to this Agreement and (3) the amount, if any, the Reduced
Member
contributed to the adopted current Program and Budget with respect to which
the
default occurred; by (Y) the sum of (1), (2) and (3) above for both
Members; and then multiplying the result by one hundred. For such a default
occurring after Payout, the Reduced Member’s Ownership Interest shall be reduced
in an amount equal to two (2) times the amount by which it would have been
reduced if such default had occurred before Payout. For such a default, whether
occurring before or after Payout, the Recalculated Ownership Interest shall
then
be further reduced:
11.5.2.1.1 For
a
default relating exclusively to an Exploration Program and Budget, by
multiplying the Recalculated Ownership Interest by the following percentage:
90%; or
11.5.2.1.2 For
a
default relating to a Program and Budget covering in whole or in part
Pre-Feasibility Study and/or Feasibility Study Operations, by multiplying
Recalculated Ownership Interest by the following percentage: 80%.
The
Ownership Interest of the other Member shall be increased by the amount of
the
reduction in the Ownership Interest of the Reduced Member, including the
further
reduction under Sections 10.5.2.1.1 or 10.5.2.1.1.
11.5.2.2 For
a
default relating to a Program and Budget covering in whole or in part
Development or Mining, at the non-defaulting Member’s election, the defaulting
Member shall be deemed to have withdrawn and to have automatically relinquished
its interest in the Assets to the non-defaulting Member; provided, however,
the
defaulting Member shall have the right to receive only from five percent
(5%) of
Net Proceeds, if any, and not from any other source, an amount equal to 50
percent (50%) of the defaulting Member’s Equity Account balance at the time of
such default. Upon receipt of such amount the defaulting Member shall thereafter
have no further right, title or interest in the Assets.
26
11.5.2.3 Dilution
under this Section 11.5.2 shall be effective as of the date of the original
default, and Section 10.6 shall not apply. The amount of any Cover
Payment
under Section 11.4 and interest, or any interest accrued in accordance with
Section 11.3, shall be deemed to be amounts contributed by the non-defaulting
Member, and not as amounts contributed by the defaulting Member.
11.5.2.4 Whenever
the Ownership Interests are recalculated pursuant to this Section 11.5.2,
(1)
the Equity Accounts of both Members shall be adjusted to bear the same ratio
to
each other as their recalculated Ownership Interests; and (2) the portion
of
Capital Account attributable to the reduced Ownership Interest of the Reduced
Member shall be transferred to the other Member.
11.5.3 If
a
Member has defaulted in meeting a cash call or repaying a loan, and if the
non-defaulting Member has made a Cover Payment, then, in addition to a reduction
in the defaulting Member’s Ownership Interest effected pursuant to
Section 11.5.2, the non-defaulting Member shall have the right, if
the
indebtedness arising from a default or Cover Payment is not discharged within
fifteen (15) days of the default and upon not less than thirty (30) days
advance
notice to the defaulting Member, to elect to purchase all the right, title,
and
interest, whenever acquired or arising, of the defaulting Member in the Company
and Assets, including but not limited to its Ownership Interest or interest
in
Net Proceeds, together with all proceeds from and accessions of the foregoing
(collectively the “Defaulting Member’s Entire Interest”) at a purchase price
equal to 50 percent (50%) of the fair market value thereof as determined
by a
qualified independent appraiser appointed by the non-defaulting Member. If
the
defaulting Member conveys notice of objection to the person so appointed
within
ten (10) days after receiving notice thereof, then an independent and qualified
appraiser shall be appointed by the joint action of the appraiser appointed
by
the non-defaulting Member and a qualified independent appraiser appointed
by the
defaulting Member; provided, however, that if the defaulting Member fails
to
designate a qualified independent appraiser for such purpose within ten (10)
days after giving notice of such objection, then the person originally
designated by the non-defaulting Member shall serve as the appraiser; provided
further, that if the appraisers appointed by each of the Members fail to
appoint
a third qualified independent appraiser within five (5) days after the
appointment of the last of them, then an appraiser shall be appointed by
a judge
of a court of competent jurisdiction in the state in which the Assets are
situated upon the application of either Member. There shall be withheld from
the
purchase price payable, upon transfer of the Defaulting Member’s Entire
Interest, the amount of any Cover Payment under Section 11.4 and unpaid interest
thereon to the date of such transfer, or any unpaid interest accrued in
accordance with Section 11.3 to the date of such transfer. Upon payment of
such
purchase price, the defaulting Member shall be deemed to have relinquished
all
of the Defaulting Member’s Entire Interest to the non-defaulting
Member.
27
11.6 Audits.
11.6.1 After
completion of Coolcharm’s Initial Contribution, within sixty (60) days after the
end of each calendar year, at the request of a Member, an audit shall be
completed by certified public accountants selected by, and independent of,
the
Manager. The audit shall be conducted in accordance with generally accepted
auditing standards and shall cover all books and records maintained by the
Manager pursuant to this Agreement, all Assets and Encumbrances, and all
transactions and Operations conducted during such calendar year, including
production and inventory records and all costs for which the Manager sought
reimbursement under this Agreement, together with all other matters customarily
included in such audits. All written exceptions to and claims upon the Manager
for discrepancies disclosed by such audit shall be made not more than three
(3)
months after receipt of the audit report, unless either Member elects to
conduct
an independent audit pursuant to Section 11.6.2 which is ongoing at
the end
of such three (3) month period, in which case such exceptions and claims
may be
made within the period provided in Section 11.6.2. Failure to make any such
exception or claim within such period shall mean the audit is deemed to be
correct and binding upon the Members. The cost of all audits under this Section
shall be charged to the Business Account.
11.6.2 Notwithstanding
the annual audit conducted by certified public accountants selected by the
Manager, each Member shall have the right to have an independent audit of
all
Company books, records and accounts, including all charges to the Business
Account. This audit shall review all issues raised by the requesting Member,
with all costs borne by the requesting Member. The requesting Member shall
give
the other Member thirty (30) days prior notice of such audit. Any audit
conducted on behalf of either Member shall be made during the Manager’s normal
business hours and shall not interfere with Operations. Neither Member shall
have the right to audit records and accounts of the Company relating to
transactions or Operations more than twenty-four (24) months after the calendar
year during which such transactions, or transactions related to such Operations,
were charged to the Business Account. All written exceptions to and claims
upon
the Manager for discrepancies disclosed by such audit shall be made not more
than three (3) months after completion and delivery of such audit, or they
shall
be deemed waived.
12. Properties.
12.1 Royalties,
Production Taxes and Other Payments Based on Production.
All
required payments of production royalties, taxes based on production of
Products, and other payments out of production to private parties and
governmental entities, shall be determined and made by the Company in a timely
manner and otherwise in accordance with applicable laws and agreements. The
Manager shall furnish to the Members evidence of timely payment for all such
required payments. In the event the Company fails to make any such required
payment, any Member shall have the right to make such payment and shall thereby
become subrogated to the rights of such third party; provided, however, that
the
making of any such payment on behalf of the Company shall not constitute
acceptance by the paying Member of any liability to such third party for
the
underlying obligation.
28
12.2 Abandonment
and Surrender. Either
Member may request the Management Committee to authorize the Manager to
surrender or abandon part or all of the Properties. At the option of the
other
Member, the Company shall assign to the objecting Member or such other Person
as
the objecting Member specifies, by special warranty deed and without cost
to the
objecting Member, all of the Company’s interest in the Properties sought to be
abandoned or surrendered, free and clear of all Encumbrances created by,
through
or under the Company other than those to which both Members have agreed.
Upon
the assignment, such properties shall cease to be part of the
Properties.
13. Confidentiality,
Ownership, Use and Disclosure of Information.
13.1 Business
Information. All
Business Information shall be owned jointly by the Members as their Ownership
Interests are determined pursuant to this Agreement. Both before and after
the
termination of the Company, all Business Information may be used by either
Member for any purpose, whether or not competitive with the Business, without
consulting with, or obligation to, the other Member. Except as provided in
Sections 13.3 and 13.4, or with the prior written consent of the other Member,
each Member shall keep confidential and not disclose to any third party or
the
public any portion of the Business Information that constitutes Confidential
Information.
13.2 Member
Information. In
performing its obligations under this Agreement, neither Member shall be
obligated to disclose any Member Information. If a Member elects to disclose
Member Information in performing its obligations under this Agreement, such
Member Information, together with all improvements, enhancements, refinements
and incremental additions to such Member Information that are developed,
conceived, originated or obtained by either Member in performing its obligation
under this Agreement (“Enhancements”), shall be owned exclusively by the Member
that originally developed, conceived, originated or obtained such Member
Information. Each Member may use and enjoy the benefits of such Member
Information and Enhancements in the conduct of the Business hereunder, but
the
Member that did not originally develop, conceive, originate or obtain such
Member Information may not use such Member Information and Enhancements for
any
other purpose. Except as provided in Section 13.4, or with the prior written
consent of the other Member, which consent may be withheld in such Member’s sole
discretion, each Member shall keep confidential and not disclose to any third
party or the public any portion of Member Information and Enhancements owned
by
the other Member that constitutes Confidential Information.
13.3 Permitted
Disclosure of Confidential Business Information. Either
Member may disclose Business Information that is Confidential Information:
(1) to a Member’s officers, directors, partners, members, employees,
Affiliates, shareholders, agents, attorneys, accountants, consultants,
contractors, subcontractors or advisors, for the sole purpose of such Member’s
performance of its obligations under this Agreement; (2) to any party
to
whom the disclosing Member contemplates a Transfer of all or any part of
its
Ownership Interest, for the sole purpose of evaluating the proposed Transfer;
(3) to any actual or potential lender, underwriter or investor for
the sole
purpose of evaluating whether to make a loan to or investment in the disclosing
Member; or (4) to a third party with whom the disclosing Member
contemplates any independent business activity or operation.
29
The
Member disclosing Confidential Information pursuant to this Section 13.3,
shall
disclose such Confidential Information to only those parties that have a
bona
fide need to have access to such Confidential Information for the purpose
for
which disclosure to such parties is permitted under this Section 13.3 and
that
have agreed in writing supplied to, and enforceable by, the other Member
to
protect the Confidential Information from further disclosure, to use such
Confidential Information solely for such purpose and to otherwise be bound
by
the provisions of this Section 13. Such writing shall not preclude
parties
described in Section 13.3.2 from discussing and completing a Transfer
with
the other Member. The Member disclosing Confidential Information shall be
responsible and liable for any use or disclosure of the Confidential Information
by such parties in violation of this Agreement and such other
writing.
13.4 Disclosure
Required By Law. Notwithstanding
anything contained in this Section, a Member may disclose any Confidential
Information if, in the opinion of the disclosing Member’s legal counsel:
(1) such disclosure is legally required to be made in a judicial,
administrative or governmental proceeding pursuant to a valid subpoena or
other
applicable order; or (2) such disclosure is legally required to be
made
pursuant to the rules or regulations of a stock exchange or similar trading
market applicable to the disclosing Member.
Prior
to
any disclosure of Confidential Information under this Section 13.4, the
disclosing Member shall give the other Member at least ten (10) days prior
written notice (unless less time is permitted by such rules, regulations
or
proceeding) and, in making such disclosure, the disclosing Member shall disclose
only that portion of Confidential Information required to be disclosed and
shall
take all reasonable efforts to preserve the confidentiality thereof, including,
without limitation, obtaining protective orders and supporting the other
Member
in intervention in any such proceeding.
13.5 Public
Announcements. Prior
to
making or issuing any press release or other public announcement or disclosure
of Business Information that is not Confidential Information, a Member shall
first consult with the other Member as to the content and timing of such
announcement or disclosure, unless in the good faith judgment of such Member,
there is not sufficient time to consult with the other Member before such
announcement or disclosure must be made under applicable Laws; but in such
event, the disclosing Member shall notify the other Member, as soon as possible,
of the pendency of such announcement or disclosure, and it shall notify the
other Member before such announcement or disclosure is made if at all reasonably
possible. Any press release or other public announcement or disclosure to
be
issued by either Member relating to this Business shall also identify the
other
Member.
14. Resignation
and Dissolution.
14.1 Events
of Dissolution. The
Company shall be dissolved upon the occurrence of any of the
following:
14.1.1 Upon
expiration of term of this Agreement in accordance with
Section 2.5;
14.1.2 Upon
the
unanimous written agreement of the Members;
30
14.1.3 At
the
election of either Member upon sixty (60) days notice of termination to the
other Member, if the Management Committee fails to adopt a Program and Budget
for six (6) months after the expiration of the latest adopted Program and
Budget;
14.1.4 Upon
the
resignation of a Member pursuant to Section 14.2 or upon the bankruptcy,
insolvency, dissolution or assignment for the benefit of creditors of a Member;
or
14.1.5 As
otherwise provided by the Act.
14.2 Resignation.
A
Member
may elect to resign from the Company by (1) in the case of Coolcharm,
failing to complete its Initial Contributions as required by Section 3.1.2,
or (2) giving notice to the other Member of the effective date of
resignation, which shall be the later of the end of the then current Program
Period or thirty (30) days after the date of the notice. Upon resignation
by a Member, the resigning Member shall be deemed to have transferred to
the
remaining Member all of its Ownership Interest, including all of its interest
in
the Assets and its Capital Account, without cost and free and clear of all
Encumbrances arising by, through or under such resigning Member, except those
described in Section 1.1 of Exhibit A and those to which both
Members
have agreed. The resigning Member shall execute and deliver all instruments
as
may be necessary in the reasonable judgment of the other Member to effect
the
transfer of its interests in the Company and the Assets to the other Member.
A
resigning Member shall have no right to receive the fair value of his Ownership
Interest pursuant to the Act. If within a sixty (60) day period both
Members elect to withdraw, then the Company shall instead be deemed to have
been
terminated by the written agreement of the Members pursuant to
Section 14.1.2.
14.3 Disposition
of Assets on Dissolution. Promptly
after dissolution under Section 14.1, the Manager shall take all action
necessary to wind up the activities of the Company, in accordance with Exhibit
C. All costs and expenses incurred in connection with the dissolution of
the
Company shall be expenses chargeable to the Business Account.
14.4 Filing
of Certificate of Cancellation. Upon
completion of the winding up of the affairs of the Company, the Manager shall
promptly file a Certificate of Cancellation with the Office of the Secretary
of
State of the State of Nevada. If the Manager has caused the dissolution of
the
Company, whether voluntarily or involuntarily, then a person selected by
a
majority vote of the Members to wind up the affairs of the Company shall
file
the Certificate of Cancellation.
14.5 Right
to Data After Dissolution. After
dissolution of the Company pursuant to Sections 14.1.1, 14.1.2, 14.1.3, or
14.1.5, each Member shall be entitled to make copies of all applicable
information acquired hereunder before the effective date of termination not
previously furnished to it, but a bankrupt or resigning Member causing a
dissolution of the Company pursuant to Section 14.1.4 shall not be
entitled
to any such copies.
14.6 Continuing
Authority. On
dissolution of the Company under Section 14.1, or the deemed resignation
of
either Member pursuant to Sections 3.2 or 11.5, the Member that was
the
Manager prior to such dissolution (or the other Member in the event of a
resignation by the Manager) shall have the power and authority to do all
things
on behalf of both Members that are reasonably necessary or convenient to:
(1) wind up Operations and (2) complete any transaction and
satisfy
any obligation, unfinished or unsatisfied, at the time of such termination
or
resignation, if the transaction or obligation arises out of Operations prior
to
such termination or resignation. The Manager shall have the power and authority
to grant or receive extensions of time or change the method of payment of
an
already existing liability or obligation, prosecute and defend actions on
behalf
of the Company and either or both Members, encumber Assets, and take any
other
reasonable action in any matter with respect to which the former Members
continue to have, or appear or are alleged to have, a common interest or
a
common liability.
31
15. Disputes.
15.1 Governing
Law. Except
for matters of title to the Properties or their Transfer, which shall be
governed by the law of their situs, this Agreement shall be governed by and
interpreted in accordance with the laws of the State of Nevada, without regard
for any conflict of laws or choice of laws principles that would permit or
require the application of the laws of any other jurisdiction.
15.2 Forum
Selection.
Any
action or proceeding concerning the construction, enforcement or interpretation
of the terms of this Agreement or any claim or dispute between the parties
shall
be commenced and heard in the Second Judicial District Court of the State
of
Nevada, in and for the County of Washoe, Reno, Nevada. Each Member agrees
and
submits to the jurisdiction of and venue in the Second Judicial District
Court.
32
15.3 Dispute
Resolution. All
disputes arising under or in connection with this Agreement which cannot
be
resolved by agreement between the Members shall be resolved in accordance
with
applicable Law. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of
this
Agreement, the successful or substantially prevailing Member shall be entitled
to recover reasonable attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled.
16. General
Provisions.
16.1 Notices.
All
notices, payments and other required or permitted communications (ANotices@)
to
either Member shall be in writing, and shall be addressed respectively as
follows:
| If to WGI: | Western Goldfields, Inc. | ||
| 000 Xxxxxx Xxxx, Xxxxx 000 | |||
| Xxxx, Xxxxxx 00000 | |||
| xxxxxxxx@xxxxxxxxxxxxxxxxx.xxx | |||
| Fax: 000-000-0000 | |||
| If to Coolcharm: | Coolcharm Gold Mining Company Ltd. | ||
| 000 Xxxxx Xxxxxx | |||
| Xxxxxx XX 0X0XX | |||
| Xxxxxx Xxxxxxx | |||
| xxxxxx.xxxxxxxx@xxxxxxxxx.xxx | |||
| Fax: 000-00-00-0000-0000 |
33
All
Notices shall be given (1) by personal delivery to the Member, (2) by electronic
communication, capable of producing a printed transmission, (3) by registered
or
certified mail return receipt requested, or (4) by overnight or other express
courier service. All Notices shall be effective and shall be deemed given
on the
date of receipt at the principal address if received during normal business
hours, and, if not received during normal business hours, on the next business
day following receipt, or if by electronic communication, on the date of
such
communication. Either Member may change its address by Notice to the other
Member.
16.2 Gender.
The
singular shall include the plural, and the plural the singular wherever the
context so requires, and the masculine, the feminine, and the neuter genders
shall be mutually inclusive.
16.3 Currency.
All
references to “dollars” or “$” shall mean lawful currency of the United States
of America.
16.4 Headings.
The
subject headings of the Sections and Sections of this Agreement and Exhibits
to
this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
16.5 Waiver.
The
failure of either Member to insist on the strict performance of any provision
of
this Agreement or to exercise any right, power or remedy upon a breach hereof
shall not constitute a waiver of any provision of this Agreement or limit
such
Member=s
right
thereafter to enforce any provision or exercise any right.
16.6 Modification.
No
modification of this Agreement shall be valid unless made in writing and
duly
executed by both Members.
16.7 Force
Majeure. Except
for the obligation to make payments when due hereunder, the obligations of
a
Member shall be suspended to the extent and for the period that performance
is
prevented by any cause, whether foreseeable or unforeseeable, beyond its
reasonable control, including, without limitation, labor disputes (however
arising and whether or not employee demands are reasonable or within the
power
of the Member to grant); acts of God; Laws, instructions or requests of any
government or governmental entity; judgments or orders of any court; inability
to obtain on reasonably acceptable terms any public or private license, permit
or other authorization; curtailment or suspension of activities to remedy
or
avoid an actual or alleged, present or prospective violation of Environmental
Laws; action or inaction by any federal, state or local agency that delays
or
prevents the issuance or granting of any approval or authorization required
to
conduct Operations beyond the reasonable expectations of the Member seeking
the
approval or authorization (including, without limitation, a failure to complete
any review and analysis required by the National Environ-mental Policy Act
or
any similar state law within six (6) months of initiation of that process);
acts
of war or conditions arising out of or attributable to war, whether declared
or
undeclared; riot, civil strife, insurrection or rebellion; fire, explosion,
earthquake, storm, flood, sink holes, drought or other adverse weather
condition; delay or failure by suppliers or transporters of materials, parts,
supplies, services or equipment or by contractors=
or
subcontractors=
shortage
of, or inability to obtain, labor, transportation, materials, machinery,
equipment, supplies, utilities or services; accidents; breakdown of equipment,
machinery or facilities; actions by native rights groups, environmental groups,
or other similar special interest groups; or any other cause whether similar
or
dissimilar to the foregoing. The affected Member shall promptly give notice
to
the other Member of the suspension of performance, stating therein the nature
of
the suspension, the reasons therefore, and the expected duration thereof.
The
affected Member shall resume performance as soon as reasonably possible.
During
the period of suspension the obligations of both Members to advance funds
pursuant to Section 11.2 shall be reduced to levels consistent with then
current
Operations.
34
16.8 Rule
Against Perpetuities. The
Members do not intend that there shall be any violation of the Rule Against
Perpetuities, the Rule Against Unreasonable Restraints on the Alienation
of
Property, or any similar rule. Accordingly, if any right or option to acquire
any interest in the Properties, in an Ownership Interest, in the Assets,
or in
any real property exists under this Agreement, such right or option must
be
exercised, if at all, so as to vest such interest within time periods permitted
by applicable rules. If, however, any such violation should inadvertently
occur,
the Members agree that a court shall reform that provision in such a way
as to
approximate most closely the intent of the Members within the limits permissible
under such rules.
16.9 Further
Assurances.
Each of
the Members shall take, from time to time and without additional consideration,
such further actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent
and
purpose of this Agreement or as may be reasonably required by lenders in
connection with Project Financing.
16.10 Entire
Agreement; Successors and Assigns. This
Agreement contains the entire understanding of the Members and supersedes
all
prior agreements and understandings between the Members relating to the subject
matter hereof. This Agreement shall be binding upon and inure to the benefit
of
the respective successors and permitted assigns of the Members.
16.11 Counterparts.
This
Agreement may be executed in any number of counterparts, and it shall not
be
necessary that the signatures of both Members be contained on any counterpart.
Each counterpart shall be deemed an original, but all counterparts together
shall constitute one and the same instrument.
The
parties have executed this Agreement as of the Effective Date.
| Western Goldfields, Inc. | ||
| |
|
|
| By | ||
| Title: | ||
| Coolcharm Gold Mining Company, LTD | ||
|
|
||
| By | ||
| Title: | ||
35
Exhibit
A
Lincoln
Hill LLC
Members’
Agreement
Assets
and Area of InterestAssets and Area of Interest
1.1
Properties
and Title Exceptions.
a. Patented
Mining Claims.
Claim
Name Mineral
Survey No.
Xxx
Xxxxxxx 4601
b. Unpatented
Mining Claims.
|
Claim
Name
|
BLM
NMC Nos.
|
||
|
ALH
10 - ALH 11
|
824678-824679
|
||
|
ALH
31
|
824699
|
||
|
ALH
33
|
824701
|
||
|
ALH
35
|
824703
|
||
|
ALH
37
|
824705
|
||
|
ALH
39
|
824707
|
||
|
ALH
47 - ALH 49
|
824715-824717
|
||
|
ALH
58 - ALH 59
|
824726-824727
|
||
|
ALH
71 - ALH 72
|
827947-827948
|
||
|
ALH
74
|
828295
|
||
|
King
Tut
|
520443
|
||
|
King
Tut #1 to King Tut #3
|
520444-520446
|
||
|
Kings
Xxxxxx
|
520341
|
||
|
Kings
Xxxxxx #1
|
520342
|
||
|
LHL
#3 to LHL #9
|
804472-804477
|
||
|
WMC-1
to WMC-6
|
790663-790668
|
c. Agreements.
Coolcharm
agrees to assume all underlying Agreements on the Property.
Letter
of
Intent between Xxxxx and Mountain Gold Exploration, Inc. dated
effective
January 18, 1999.
1
Exploration
and Mining Lease Agreement between Mountain Gold Exploration
Inc.
and
Lane X. Xxxxxxx and Western Goldfields, Inc. dated effective December
23,
2002
1.2 Personal
Property.
All
engineering, geochemical, geological, geophysical, metallurgical and title
data,
information and reports concerning the Properties.
1.3 Area
of Interest.
All
lands
within one (1) mile beyond the exterior boundaries of the Properties as of
the
Effective Date of the Agreement and more specifically described as
follow:
T28N
R33E
Sec. 1 S ½ , 2 SE ¼ , 11 E ½ , 12, 13, 14 E ½ , 23, NE ¼ , 00 X x ,
X00X
X00X
Sec. 5 SW ½ , 6 S ½, 7, 8 W ½ , 17 W ½ , 18, 19 N ½ , 20 NW ¼
2
Exhibit
B
Lincoln
Hill LLC
Accounting
Procedures
The
financing and accounting procedures to be followed by the Manager and the
Members under the Agreement are stated below. All capitalized terms in these
Accounting Procedures shall have the definition attributed to them in the
Agreement, unless defined otherwise.
The
purpose of these Accounting Procedures is to establish equitable methods
for
determining charges and credits applicable to Operations. It is the intent
of
the Members that no Member shall lose or profit by reason of the designation
of
one of them to exercise the duties and responsibilities of the Manager. The
Members shall meet and in good faith endeavor to agree upon changes deemed
necessary to correct any unfairness or inequity. In the event of a conflict
between the provisions of these Accounting Procedures and those of the
Agreement, the provisions of the Agreement shall control.
A. General
Provisions.
1. General
Accounting Records.
The
Manager shall maintain detailed and comprehensive cost accounting records
in
accordance with these Accounting Procedures, including general ledgers,
supporting and subsidiary journals, invoices, checks and other customary
documentation, sufficient to provide a record of revenues and expenditures
and
periodic statements of financial position and the results of Operations for
managerial, tax, regulatory or other financial, regulatory, or legal reporting
purposes related to the Company. Such records shall be retained for the duration
of the period allowed the Members for audit or the period necessary to comply
with tax or other regulatory requirements. The records shall reflect all
obligations, advances and credits of the Members.
2. Cash
Management Accounts. The
Manager shall maintain one or more separate cash management accounts for
the
payment of all expenses and the deposit of all cash receipts for the
Company.
3. Statements
and Xxxxxxxx. The
Manager shall prepare statements and xxxx the Members as provided in Section
11
of the Agreement. Payment of any such xxxxxxxx by a Member, including the
Manager, shall not prejudice such Member’s right to protest or question the
billing’s correctness thereof for a period not to exceed twenty-four (24) months
following the calendar year during which such xxxxxxxx were received by such
Member. All written exceptions to and claims upon the Manager for incorrect
charges, xxxxxxxx or statements shall be made upon the Manager within such
twenty-four (24) month period. The time period permitted for adjustments
shall
not apply to adjustments resulting from periodic inventories as provided
in
Sections E.1 and E.2.
3
B. Charges
to Business Account. Subject
to the limitations stated below, the Manager shall charge the Business Account
with the following:
1. Property
Acquisition Costs, Rentals, Royalties and Other Payments. All
property acquisition and holding costs, including Governmental Fees, filing
fees, license fees, costs of permits and assessment work, delay rentals,
production royalties, including any required advances, and all other payments
made by the Manager which are necessary to acquire or maintain title to the
Assets.
2. Labor
and Employee Benefits.
a. Salaries
and wages of
the Manager’s employees directly engaged in Operations, including salaries or
wages of employees who are temporarily assigned to and directly employed
by
same.
b. The
Manager’s cost of holiday, vacation, sickness and disability benefits, and other
customary allowances applicable to the salaries and wages chargeable under
Section B.2a and Section B.12. Such costs may be charged on a “when and as paid
basis” or by “percentage assessment” on the amount of salaries and wages. If
percentage assessment is used, the rate shall be applied to wages or salaries
excluding overtime and bonuses. Such rate shall be based on the Manager’s cost
experience and it shall be periodically adjusted at least annually to ensure
that the total of such charges does not exceed the actual cost thereof to
the
Manager.
c. The
Manager’s actual cost of established plans for employees’ group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus (except
production or incentive bonus plans under a union contract based on actual
rates
of production, cost savings and other production factors, and similar non-union
bonus plans customary in the industry or necessary to attract competent
employees, which bonus payments shall be considered salaries and wages under
Section B.2.a or Section B.12 rather than employees’ benefit plans) and other
benefit plans of a like nature applicable to salaries and wages chargeable
under
Sections 2.2.1 or Section 2.12, provided that the plans are limited to the
extent feasible to those customary in the industry.
d. Cost
of
assessments imposed by governmental authority that are applicable to salaries
and wages chargeable under Section B.2.a and Section B.12, including all
penalties except those resulting from the willful misconduct or gross negligence
of the Manager.
3. Materials,
Equipment and Supplies. The
cost
of materials, equipment and supplies (collectively “Material”) purchased from
unaffiliated third parties or furnished by a Member as provided in Section
C.2.
The Manager shall purchase or furnish only so much Material as may be required
for immediate use in efficient and economical Operations. The Manager shall
also
maintain inventory levels of Material at reasonable levels to avoid unnecessary
accumulation of surplus stock.
4
4. Equipment
and Facilities Furnished by Manager. The
cost
of machinery, equipment and facilities owned by the Manager and used in
Operations or used to provide support or utility services to Operations charged
at rates commensurate with the actual costs of ownership and operation of
such
machinery, equipment and facilities. Such rates shall include costs of
maintenance, repairs, other operating expenses, insurance, taxes, depreciation
and interest at a rate not to exceed Prime Rate plus three percent (3%) per
annum. Such rates shall not exceed the average commercial rates currently
prevailing in the vicinity of the Operations.
5. Transportation.
Reasonable
transportation costs incurred in connection with the transportation of employees
and material necessary for Operations.
6. Contract
Services and Utilities. The
cost
of contract services and utilities procured from outside sources, other than
services described in Sections B.9 and B.13. If contract services are performed
by the Manager or a Manager’s Affiliate, the cost charged to the Business
Account shall not be greater than that for which comparable services and
utilities are available in the open market within the vicinity of Operations.
The cost of professional consultant services procured from outside sources
in
excess of Twenty-Five Thousand Dollars ($25,000.00) per annum per contract
shall
not be charged to the Business Account unless approved by the Management
Committee.
7. Insurance
Premiums. Net
premiums paid for insurance required to be carried for Operations for the
protection of the Members. When Operations are conducted in an area where
the
Manager may self-insure for Workers’ Compensation and/or Employer’s Liability
under state law, the Manager may elect to include such risks in its
self-insurance program and shall charge its costs of self-insuring such risks
to
the Business Account provided that such charges shall not exceed published
manual rates.
8. Damages
and Losses. All
costs
in excess of insurance proceeds necessary to repair or replace damage or
losses
to any Assets resulting from any cause other than the willful misconduct
or
gross negligence of the Manager. The Manager shall furnish the Management
Committee with written notice of damages or losses as soon as practicable
after
a report thereof has been received by the Manager.
9. Legal
and Regulatory Expense. Except
as
otherwise provided in Section B.13, all legal and regulatory costs and expenses
incurred in or resulting from Operations or necessary to protect or recover
the
Assets of the Company, including costs of title investigation and title curative
services. All attorney’s fees and other legal costs to handle, investigate and
settle litigation or claims, and amounts paid in settlement of such litigation
or claims in excess of Fifty Thousand Dollars ($50,000.00) per annum shall
not
be charged to the Business Account unless approved by the Management
Committee.
10. Audit.
Cost
of
annual audits under Section 11.6.1 of the Agreement.
11. Taxes.
All
taxes, assessments and like charges on Operations and Assets which have been
paid by the Manager for the benefit of the Members. Each Member is separately
responsible for taxes determined or measured by a Member’s sales revenue or net
income.
5
12. District
and Camp Expense (Field Supervision and Camp Expenses). A
pro
rata portion of: (1) the salaries and expenses of the Manager’s superintendent
and other employees serving Operations whose time is not allocated directly
to
such Operations, and (2) the costs of maintaining and operating an office
and
any necessary suboffice and (3) all necessary camps, including housing
facilities for employees, used for Operations. The expense of those facilities,
less any facilities revenue, shall include depreciation or a fair monthly
rental
in lieu of depreciation of the investment. The total of such charges for
all
Properties served by the Manager’s employees and facilities shall be apportioned
to the Business Account on the basis of a ratio to be approved by the Management
Committee.
13. Administrative
Charge.
a. Each
month, the Manager shall charge
the Business Account a sum for each phase of Operations as provided below,
which
shall be a liquidated amount to reimburse the Manager for its home office
overhead and general and administrative expenses to conduct each phase of
Operations, and which shall be in lieu of any management fee and for taxes
based
on production of Products:
(1) Exploration
Phase.
Eight
percent (8%) of Allowable Costs.
(2) Development
Phase. Three
percent (3%) of Allowable Costs.
(3) Major
Construction Phase.
Three
percent (3%) of Allowable Costs.
(4) Mining
Phase . Three
percent (3%) of Allowable Costs.
b. The
term
“Allowable Costs” as used in this Section for a particular phase of Operations
shall mean all charges to the Business Account excluding: (1) the administrative
charge referred to in this Section B.13; (2) depreciation, depletion or
amortization of tangible or intangible Assets; (3) amounts charged in accordance
with Sections B.1 and B.9; and (4) marketing costs. The Manager shall attribute
such Allowable Costs to a particular phase of Operations by applying the
following guidelines:
(1) The
Exploration Phase shall cover those Operations conducted to ascertain the
existence, location, extent or quantity of any deposit of ore or
mineral.
(2)
The
Development Phase shall cover those Operations, including Pre-Feasibility
and
Feasibility Study Operations, conducted to assess a commercially feasible
ore
body or to extend production of an existing ore body, and to construct or
install related fixed Assets.
(3)
The
Major
Construction Phase shall include all Operations involved in the construction
of
a mill, smelter or other ore processing facilities.
(4)
The
Mining Phase shall include all other Operations activities not otherwise
covered
above, including activities conducted after Mining Operations have
ceased.
6
c. Various
phases of Operations may be conducted concurrently, in which event the
administrative charge shall be calculated separately for Allowable Costs
attributable to each phase.
d. The
monthly administration charge determined for each phase of Operations shall
be a
liquidated amount to reimburse Manager for its home office overhead and general
and administrative expenses for its conduct of Operations, and shall be
equitably apportioned among all of the properties served during such monthly
period on the basis of a ratio approved by the Management
Committee.
e. The
following is a representative list of items that constitute the Manager’s
principal business office expenses that are expressly covered by the
administrative charge provided in this Section, except to the extent that
such
items are directly chargeable to the Business Account under other provisions
of
this Section B:
(1)
Administrative
supervision, which includes all services rendered by managers, department
supervisors, officers and directors of the Manager for Operations;
(2)
Accounting,
data processing, personnel administration, billing and record keeping in
accordance with governmental regulations and the provisions of the Agreement,
and preparation of reports;
(3)
The
services of tax counsel and tax administration employees for all tax matters,
including any protests, except any outside professional fees which the
Management Committee may approve as a direct charge to the Business
Account;
(4)
Routine
legal services rendered by outside sources and the Manager’s legal staff not
otherwise charged to the Business Account under Section B.9, including property
acquisition, attorney management and oversight, and support services provided
by
Manager’s legal staff concerning any litigation; and
(5)
Rentals
and other charges for office and records storage space, telephone service,
office equipment and supplies.
f. The
Management Committee shall annually review the administrative charges and
shall
amend the methodology or rates used to determine such charges if they are
found
to be insufficient or excessive based on the principles that the Manager
shall
not make a profit or suffer a loss and that it should be fairly and adequately
compensated for its costs and expenses.
7
14. Environmental
Compliance Fund. Costs
of
reasonably anticipated Environmental Compliance which, on a Program basis,
shall
be determined by the Management Committee and shall be based on proportionate
contributions in an amount sufficient to establish a fund, which through
successive proportionate contributions during the life of the Company, will
pay
for ongoing Environmental Compliance conducted during Operations and which
will
aggregate the reasonably anticipated costs of mine closure, post-Operations
Environmental Compliance and Continuing Obligations. The Manager shall invest
such amounts on behalf of the Members as provided in Section 9.2.19 of the
Agreement.
15. Other
Expenditures. Any
reasonable direct expenditure, other than expenditures which are covered
by the
foregoing provisions, incurred by the Manager for the necessary and proper
conduct of Operations.
C. Basis
of Charges to Business Account.
1. Purchases.
Material
purchased and services procured from third parties shall be charged to the
Business Account by the Manager at invoiced cost, including applicable transfer
taxes, less all discounts taken. If any Material is determined to be defective
or is returned to a vendor for any other reason, the Manager shall credit
the
Business Account when an adjustment is received from the vendor.
2. Material
Furnished by a Member for Use in the Business. Any
Material furnished by a Member for use in the Business or distributed to
a
Member by the Manager shall be priced on the following basis:
a. New
Material.
New
Material furnished by a Member shall be priced F.O.B. the nearest reputable
supply store or railway receiving point, where like Material is available,
at
the current replacement cost of the same kind of Material, exclusive of any
available cash discounts, at the time it is furnished (the “New
Price”).
b. Used
Material.
(1) Used
Material in sound and serviceable condition and suitable for reuse without
reconditioning shall be priced as follows:
(a) Used
Material furnished by a Member shall be priced at seventy-five percent (75%)
of
the New Price;
(b)
Used
Material distributed to a Member shall be priced (1) at seventy-five percent
(75%) of the New Price if such Material was originally charged to the Business
Account as new Material, or (2) at sixty-five percent (65%) of the New Price
if
such Material was originally charged to the Business Account as good used
Material at seventy-five percent (75%) of the New Price.
(2) Other
used Material that, after reconditioning, will be further serviceable for
original function as good secondhand Material, or that is serviceable for
original function but not substantially suitable for reconditioning, shall
be
priced at fifty percent (50%) of New Price. The cost of any reconditioning
shall
be borne by the transferee.
8
(3) Bad-Order
Material which is no longer usable for its original purpose without excessive
repair cost but further usable for some other purpose shall be priced on
a basis
comparable with items normally used for that purpose.
(4) All
other
Material, including junk, shall be priced at a value commensurate with its
use
or at prevailing prices.
c. Obsolete
Material. Any
Material that is serviceable and usable for its original function, but its
condition is not equivalent to that which would justify a price as provided
above, shall be priced by the Management Committee. Such price shall be set
at a
level that will result in a charge to the Business Account equal to the value
of
the service to be rendered by such Material.
3. Premium
Prices. Whenever
Material is not readily obtainable at published or listed prices because
of
national emergencies, strikes or other unusual circumstances over which the
Manager has no control, the Manager may charge the Business Account for the
required Material on the basis of the Manager’s direct cost and expenses
incurred in procuring such Material and making it suitable for use. The Manager
shall give written notice of the proposed charge to the Members before the
time
when such charge is to be billed, whereupon a Member shall have the right,
by
notifying the Manager within ten days of the delivery of the notice from
the
Manager, to furnish at the usual receiving point all or part of its share
of
Material suitable for use and acceptable to the Manager.
4. Warranty
of Material Furnished by the Manager or Members. Na
Member
warrants any Material furnished beyond any dealer’s or manufacturer’s warranty
and no credits shall be made to the Business Account for defective Material
until adjustments are received by the Manager from the dealer, manufacturer
or
their respective agents.
D. Disposal
of Material.
1. Disposition
Generally. The
Manager shall have no obligation to purchase a Member’s interest in Material.
The Management Committee shall determine the disposition of major items of
surplus Material, provided the Manager shall have the right to dispose of
normal
accumulations of junk and scrap Material either by sale or by transfer to
the
Members as provided in Section C.2.b.4.
2. Distribution
to Members. Any
Material to be distributed to the Members shall be made in proportion to
their
respective Participating Interests, and corresponding credits shall be made
to
the Business Account on the basis provided in Section B.
3. Sales.
Sales
of
Material to third parties shall be credited to the Business Account at the
net
amount received. Any damages or claims by the Purchaser shall be charged
back to
the Business Account if and when paid.
9
E. Inventories.
1. Periodic
Inventories, Notice and Representations. At
reasonable intervals, inventories shall be taken by the Manager, which shall
include all such Material as is ordinarily considered controllable by operators
of mining properties and the expense of conducting such periodic inventories
shall be charged to the Business Account. The Manager shall give written
notice
to the Members of its intent to take any inventory at least thirty (30) days
before such inventory is scheduled to take place. A Member shall be deemed
to
have accepted the results of any inventory taken by the Manager if the Member
fails to be represented at such inventory.
2. Reconciliation
and Adjustment of Inventories. Reconciliation
of inventory with charges to the Business Account shall be made, and a list
of
overages and shortages shall be furnished to the Management Committee within
six
(6) months after the inventory is taken. Inventory adjustments shall be made
by
the Manager to the Business Account for overages and shortages, but the Manager
shall be held accountable to the Company only for shortages due to lack of
reasonable diligence.
10
Exhibit
C
Lincoln
Hill LLC
Tax
Matters
A. Effect
of This Exhibit. This
Exhibit shall govern the relationship of the Members and the Company with
respect to tax matters and the other matters which this Exhibit addresses.
Except as otherwise indicated, capitalized terms used in this Exhibit shall
have
the meanings given to them in the Agreement. In the event of a conflict between
this Exhibit and the other provisions of the Agreement, the terms of this
Exhibit shall control.
B. Tax
Matters Partner
1. Designation
of Tax Matters Partner. The
Manager is designated the tax matters partner (the “TMP”) as defined in Section
6231(a)(7) of the Internal Revenue Code of 1986 (“the Code”) and shall be
responsible for, make elections for, and prepare and file any federal and
state
tax returns or other required tax forms following approval of the Management
Committee. In the event of any change in Manager, the Member serving as Manager
at the end of a taxable year shall continue as TMP with respect to all matters
concerning such year unless the TMP for that year is required to be changed
pursuant to applicable Treasury Regulations. The TMP and each other Member
shall
use reasonable best efforts to comply with the responsibilities outlined
in this
Section 2 and in Sections 6221 through 6233 of the Code (including any Treasury
regulations promulgated thereunder) and in doing so shall incur no liability
to
any other party.
2. Notice.
Each
Member shall furnish the TMP with such information (including information
specified in Section 6230(e) of the Code) as it may reasonably request to
permit
it to provide the Internal Revenue Service with sufficient information to
allow
proper notice to the Members in accordance with Section 6223 of the Code.
The
TMP shall keep each Member informed of all administrative and judicial
proceedings for the adjustment at the partnership level of partnership items
in
accordance with Section 6223(g) of the Code.
3. Inconsistent
Treatment of Tax Item. If
an
administrative proceeding contemplated under Section 6223 of the Code has
begun,
and the TMP so requests, each Member shall notify the TMP of its treatment
of
any partnership item on its federal income tax return that is inconsistent
with
the treatment of that item on the partnership return.
4. Extensions
of Limitation Periods. The
TMP
shall not enter into any extension of the period of limitations as provided
under Section 6229 of the Code without first giving reasonable advance notice
to
each other Member of such intended action.
5. Requests
for Administrative Adjustments. No
Member
shall file, pursuant to Section 6227 of the Code, a request for an
administrative adjustment of partnership items for any taxable year of the
Company without first notifying each other Member. If each other Member agrees
with the requested adjustment, the TMP shall file the request for administrative
adjustment on behalf of the Company. If consent is not obtained within thirty
(30) days after notice from the proposing Member, or within the period required
to timely file the request for administrative adjustment, if shorter, a Member,
including the TMP, may file that request for administrative adjustment on
its
own behalf.
11
6. Judicial
Proceedings. A
Member
intending to file a petition under Section 6226, 6228 or other sections of
the
Code with respect to any partnership item, or other tax matters involving
the
Company, shall notify each other Member of such intention and the nature
of the
contemplated proceeding. If the TMP is the Member intending to file such
petition, such notice shall be given within a reasonable time to allow each
other Member to participate in the choosing of the forum in which such petition
will be filed. If all Members do not agree on the appropriate forum, then
the
appropriate forum shall be decided in accordance with Section 8.2 of the
Agreement. If a deadlock results, the TMP shall choose the forum. If a Member
intends to seek review of any court decision rendered as a result of a
proceeding instituted under the preceding part of this Section, each such
Member
shall notify each other Member of such intended action.
7. Settlements.
The
TMP
shall not bind any other Member to a settlement agreement without first
obtaining the written consent of any such Member. A Member who enters into
a
settlement agreement for its own account with respect to any partnership
items,
as defined by Section 6231(a)(3) of the Code, shall notify each other Member
of
such settlement agreement and its terms within ninety (90) days from the
date of
settlement.
8. Fees
and Expenses. The
TMP
shall not engage legal counsel, certified public accountants, or others without
the prior consent of the Management Committee. A Member may engage legal
counsel, certified public accountants, or others in its own behalf and at
its
sole cost and expense. Any reasonable item of expense, including but not
limited
to fees and expenses for legal counsel, certified public accountants, and
others
which the TMP incurs (after proper consent by the Management Committee as
provided above) in connection with any audit, assessment, litigation, or
other
proceeding regarding any partnership item, shall constitute proper charges
to
the Business Account and shall be borne by the Members as any other item
which
constitutes a direct charge to the Business Account pursuant to the
Agreement.
9. Survival.
The
provisions of the foregoing Sections, including but not limited to the
obligation to pay fees and expenses contained in Section B.8, shall survive
the
termination of the Company or the termination of a Member’s interest in the
Company and shall remain binding on the Members for a period of time necessary
to resolve with the Internal Revenue Service or the Department of the Treasury
any and all matters regarding the federal income taxation of the Company
for the
applicable tax year(s).
C. Tax
Elections and Allocations.
1. Company
Election. It
is
understood and agreed that the Members intend to create a partnership for
United
States federal and state income tax purposes, and, unless otherwise agreed
to
hereafter by all Members, no Member shall take any action to change the status
of the Company as a partnership under Treas. Reg. § 1.7701-3 or similar
provision of state law. It is understood and agreed that the Members intend
to
create a partnership for federal and state income tax purposes only. The
Manager
shall file with the appropriate office of the Internal Revenue Service a
partnership income tax return covering the Operations. The Members recognize
that the Agreement may be subject to state income tax statutes. The Manager
shall file with the appropriate offices of the state agencies any required
partnership state income tax returns. Each Member agrees to furnish to the
Manager any information it may have relating to Operations as shall be required
for proper preparation of such returns. The Manager shall furnish to each
other
Member for its review a copy of each proposed income tax return at least
two
weeks prior to the date the return is filed.
12
2. Tax
Elections. The
Company shall make the following elections for purposes of all partnership
income tax returns:
a. To
use
the accrual method of accounting.
b. Pursuant
to the provisions at Section 706(b)(1) of the Code, to use as its taxable
year
the year ended December 31. In this connection, WGI represents that its taxable
year is the year ending December 31 and Coolcharm represents its taxable
year is
the year ending December 31.
c. To
deduct
currently all development expenses to the extent possible under Section 616
of
the Code.
d. Unless
the Members unanimously agree otherwise, to compute the allowance for
depreciation in respect of all depreciable Assets using the maximum accelerated
tax depreciation method and the shortest life permissible or, at the election
of
the Manager, using the units of production method of depreciation.
e. To
treat
advance royalties as deductions from gross income for the year paid or accrued
to the extent permitted by law.
f. To
adjust
the basis of property of the Company under Section 754 of the Code at the
request of a Member;
g. To
amortize over the shortest permissible period all organizational expenditures
and business start-up expenses under Sections 195 and 709 of the
Code;
Any
other
election required or permitted to be made by the Company under the Code or
any
state tax law shall be made as determined by the Management
Committee.
Each
Member shall elect under Section 617(a) of the Code to deduct currently all
exploration expenses. Each Member reserves the right to capitalize its share
of
development and/or exploration expenses of the Company in accordance with
Section 59(e) of the Code, provided that a Member’s election to capitalize all
or any portion of such expenses shall not affect the Member’s Capital
Account.
13
3. Allocations
to Members.
Allocations for Capital Account purposes shall be in accordance with the
following:
a. Exploration
expenses and development cost deductions shall be allocated among the Members
in
accordance with their respective contributions to such expenses and
costs.
b. Depreciation
and amortization deductions with respect to a depreciable Asset shall be
allocated among the Members in accordance with their respective contributions
to
the adjusted basis of the Asset which gives rise to the depreciation,
amortization or loss deduction.
c. Production
and operating cost deductions shall be allocated among the Members in accordance
with their respective contributions to such costs.
d. Deductions
for depletion (to the extent of the amount of such deductions that would
have
been determined for Capital Account purposes if only cost depletion were
allowable for federal income tax purposes) shall be allocated to the Members
in
accordance with their respective contributions to the adjusted basis of the
depletable property. Any remaining depletion deductions shall be allocated
to
the Members so that, to the extent possible, the Members receive the same
total
amounts of percentage depletion as they would have received if percentage
depletion were allocated to the Members in proportion to their respective
shares
of the gross income used as the basis for calculating the federal income
tax
deduction for percentage depletion.
e. Subject
to Section C.3.g. below, gross income on the sale of production shall be
allocated in accordance with the Members’ rights to share in the proceeds of
such sale.
f. Except
as
provided in Section C.3.g., below, gain or loss on the sale of a depreciable
or
depletable asset shall be allocated so that, to the extent possible, the
net
amount reflected in the Members’ Capital Account with respect to such property
(taking into account the cost of such property, depreciation, amortization,
depletion or other cost recovery deductions and gain or loss) most closely
reflects the Members’ Ownership Interests.
g. Gains
and
losses on the sale of all or substantially all the Assets of the Company
shall
be allocated so that, to the extent possible, the Members’ resulting Capital
Account balances are in the same ratio as their Ownership Interests at the
time
of such sale.
h. The
Members acknowledge that expenses and deductions allocable under the preceding
provisions of this Section may be required to be capitalized into production
under Section 263A of the Code. With respect to such capitalized expenses
or
deductions, the allocation of gross income on the sale of production shall
be
adjusted, in any reasonable manner consistently applied by the Manager, so
that
the same net amount (subject possibly to timing differences) is reflected
in the
Capital Accounts as if such expenses or deductions were instead deductible
and
allocated pursuant to the preceding provisions of this Section.
14
i. All
deductions and losses that are not otherwise allocated in this Section shall
be
allocated among the Members in accordance with their respective contributions
to
the costs producing each such deduction or to the adjusted basis of the Asset
producing each such loss.
j. Any
recapture of exploration expenses under Section 617(b)(1)(A) of the Code,
and
any disallowance of depletion under Section 617(b)(1)(B) of the Code, shall
be
borne by the Members in the same manner as the related exploration expenses
were
allocated to, or claimed by, them.
k. All
other
items of income and gain shall be allocated to the Members in accordance
with
their Ownership Interests.
l. If
a
reduced Ownership Interest is restored pursuant to Section 10.6 of the
Agreement, the Manager shall endeavor to allocate items of income, gain,
loss,
and deduction (in the same year as the restoration of such Ownership Interest
or, if necessary, in subsequent years) so as to cause the Capital Account
balances of the Members to be the same as they would have been if the restored
Ownership Interest had never been reduced.
m. If
the
Members’ Ownership Interests change during any taxable year of the Company, the
distributive share of items of income, gain, loss and deduction of each Member
shall be determined in any manner (1) permitted by Section 706 of the Code,
and
(2) agreed by all Members. If the Members cannot agree on a method, the method
shall be determined by the Manager in consultation with the Company’s tax
advisers, with preference given to the interim closing-of-the-books method
except where application of that method would result in undue administrative
expense in relationship to the amount of the items to be allocated.
n. For
purposes of this Section C.3, items financed through indebtedness of, or
from
revenues of, the Company shall be treated as funded from contributions made
by
the Members to the Company in accordance with their Ownership Interests.
“Nonrecourse deductions,” as defined by Treas. Reg. § 1.704-2(b)(1) shall be
allocated among the Members in proportion to their Ownership
Interests.
4. Regulatory
Allocations.
Notwithstanding the provisions of Section C.3 to the contrary, the following
special allocations shall be given effect for purposes of maintaining the
Members’ Capital Accounts.
a. If
a
Member unexpectedly receives any adjustments, allocations, or distributions
described in Treas. Reg. § 1.704-1(b)(2)(ii)(d)(4), § 1.704-1(b)(2)(ii)(d)(5) or
§ 1.704-1(b)(2)(ii)(d)(6), which result in a deficit Capital Account balance,
items of income and gain shall be specially allocated to each such Member
in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Capital Account deficit of such Member as quickly
as
possible. For the purposes of this Section C.4.a, each Member’s Capital Account
balance shall be increased by the sum of (1) the amount such Member is obligated
to restore pursuant to any provision of the Agreement, and (2) the amount
such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences of Treas. Reg. §§ 1.704-2(g)(1) and 1.704-2(i)(5).
15
b. If
there
is a net decrease in partnership minimum gain for a taxable year of the Company,
each Member shall be allocated items of income and gain for that year equal
to
that Member’s share of the net decrease in partnership minimum gain, all in
accordance with Treas. Reg. § 1.704-2(f). If, during a taxable year of the
Company, there is a net decrease in partner nonrecourse debt minimum gain,
any
Member with a share of that partner nonrecourse debt minimum gain as of the
beginning of the year shall be allocated items of income and gain for the
year
(and, if necessary, for succeeding years) equal to that partner’s share of the
net decrease in partner nonrecourse debt minimum gain, all in accordance
with
Treas. Reg. § 1.704-2(i)(4). Pursuant to Treas. Reg. § 1.704-2(i)(1), deductions
attributable to “partner nonrecourse liability” shall be allocated to the Member
that bears the economic risk of loss for such liability (or is treated as
bearing such risk).
c. If
the
allocation of deductions to a Member would cause such Member to have a deficit
Capital Account balance at the end of any taxable year of the Company (after
all
other allocations provided for in this Section C.4 have been made and after
giving effect to the adjustments described in Section C.4.a), such deductions
shall instead be allocated to each other Member.
5. Curative
Allocations. The
allocations stated in Section C.4 (the “Regulatory Allocations”) are intended to
comply with certain requirements of the Treasury Regulations. It is the intent
of the Members that, to the extent possible, all Regulatory Allocations shall
be
offset either with other Regulatory Allocations or with special allocations
of
other items of income, gain, loss or deduction pursuant to this Section.
Therefore, notwithstanding any other provisions of this Section 3 (other
than
the Regulatory Allocations), the Manager shall make such offsetting special
allocations of income, gain, loss or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Member’s
Capital Account balance is, to the extent possible, equal to the Capital
Account
balance such Member would have had if the Regulatory Allocations were not
part
of the Agreement and all items were allocated pursuant to Section C.3 without
regard to Section C.4.
6. Tax
Allocations. Except
as
otherwise provided in this Section C.6, items of taxable income, deduction,
gain
and loss shall be allocated in the same manner as the corresponding item
is
allocated for book purposes under Sections C.3, C.4 and C.5 of the corresponding
item determined for Capital Account purposes.
a. Recapture
of tax deductions arising out of a disposition of property shall, to the
extent
consistent with the allocations for tax purposes of the gain or amount realized
giving rise to such recapture, be allocated to the Members in the same
proportions as the recaptured deductions were originally allocated or
claimed.
16
b. To
the
extent required by Section 704(c) of the Code, income, gain, loss, and deduction
with respect to property contributed to the Company by a Member shall be
shared
among the Members so as to take account of the variation between the basis
of
the property to the Company and its fair market value at the time of
contribution. The Members intend that Section 704(c) shall effect no allocations
of tax items that are different from the allocations under Sections C.3,
C.4 and
C.5 of the corresponding items for Capital Account purposes; provided that
gain
or loss on the sale of property contributed to the Company shall be allocated
to
the contributing member to the extent of built-in gain or loss, respectively,
as
determined under Treas. Reg. § 1.704-3(a). However, to the extent that
allocations of other tax items are required pursuant to Section 704(c) of
the
Code to be made other than in accordance with the allocations under Sections
C.3, C.4 and C.5 of the corresponding items for Capital Account purposes,
Section 704(c) shall be applied in accordance with the method available under
Treas. Reg. § 1.704-3 which most closely approximates the allocations stated in
Sections C.3, C.4 and C.5.
c. Depletion
deductions with respect to contributed property shall be determined without
regard to any portion of the property’s basis that is attributable to
precontribution expenditures by WGI that were capitalized under Code Sections
616(b), 59(e) and 291(b). Deductions attributable to precontribution
expenditures by WGI shall be calculated under such Code Sections as if WGI
continued to own the depletable property to which such deductions are
attributable, and such deductions shall be reported by the Company and shall
be
allocated solely to WGI.
d. The
Members understand the allocations of tax items stated in this Section C.6,
and
agree to report consistently with such allocations for federal and state
tax
purposes.
D. Capital
Accounts; Liquidation
1. Capital
Accounts.
a. A
separate Capital Account shall be established and maintained by the TMP for
each
Member. Such Capital Account shall be increased by (1) the amount of money
contributed by the Member to the Company, (2) the fair market value of property
contributed by the Member to the Company (net of liabilities secured by such
contributed property that the Company is considered to assume or take subject
to
under Code Section 752) and (3) allocations to the Member under Sections
C.3,
C.4 and C.5 of Company income and gain (or items thereof), including income
and
gain exempt from tax; and shall be decreased by (4) the amount of money
distributed to the Member by the Company, (5) the fair market value of property
distributed to the Member by the Company (net of liabilities secured by such
distributed property and that the Member is considered to assume or take
subject
to under Code Section 752), (6) allocations to the Member under Sections
C.3,
C.4 and C.5 of expenditures of the Company not deductible in computing its
taxable income and not properly chargeable to a Capital Account, and (7)
allocations of Company loss and deduction (or items thereof), excluding items
described in (8) above and percentage depletion to the extent it exceeds
the
adjusted tax basis of the depletable property to which it is attributable.
The
Members agree that the net fair market value of the property contributed
by WGI
to the Company pursuant to Section 3.1.1 of the Agreement is 6.6
million.
b. In
the
event that the Capital Accounts of the Members are computed with reference
to
the book value of any Asset which differs from the adjusted tax basis of
such
Asset, then the Capital Accounts shall be adjusted for depreciation, depletion,
amortization and gain or loss as computed for book purposes with respect
to such
Asset in accordance with Treas. Reg. § 1.704-1(b) (2)(iv)(g).
17
c. In
the
event any interest in the Company is transferred in accordance with the terms
of
the Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred interest, except as
provided in Treas. Reg. § 1.704-1(b)(2)(iv)(1).
d. In
the
event property, other than money, is distributed to a Member, the Capital
Accounts of the Members shall be adjusted to reflect the manner in which
the
unrealized income, gain, loss and deduction inherent in such property (that
has
not been reflected in the Capital Accounts previously) would be allocated
among
the Members if there was a taxable disposition of such property for the fair
market value of such property (taking Section 7701(g) of the Code into account)
on the date of distribution. For this purpose the fair market value of the
property shall be determined as stated in Section D.2.a below.
e. In
the
event the Management Committee designates a Supplemental Business Arrangement
area within the Area of Interest as described in Section 10.13 of the Agreement,
the Management Committee shall appropriately segregate Capital Accounts to
reflect that designation and shall make such other modifications to the
Agreement as are appropriate to reflect the manner of administering Capital
Accounts in accordance with the terms of this Exhibit C.
f. WGI
is
contributing to the Agreement certain depletable properties with respect
to
which WGI currently has an adjusted tax basis which may consist in part of
depletable expenditures and in part of expenditures capitalized under Code
Sections 616(b), 291(b) and/or 59(e). For purposes of maintaining the Capital
Accounts, the Company’s deductions with respect to contributed property in each
year for (1) depletion, (2) deferred development expenditures under Section
616(b) attributable to pre-contribution expenditures, (3) amortization under
Section 291(b) attributable to pre-contribution expenditures, and (4)
amortization under Section 59(e) attributable to pre-contribution expenditures
shall be the amount of the corresponding item determined for tax purposes
pursuant to Section C.6.c multiplied by the ratio of (1) the book value at
which
the contributed property is recorded in the Capital Accounts to (2) the adjusted
tax basis of the contributed property (including basis resulting from
capitalization of pre-contribution development expenditures under Sections
616(b), 291(b), and 59(e)).
g. The
foregoing provisions, and the other provisions of the Agreement relating
to the
maintenance of Capital Accounts and the allocations of income, gain, loss,
deduction and credit, are intended to comply with Treasury Regulations Section
1.704-1(b), and shall be interpreted and applied in a manner consistent with
such Regulations. In the event the Management Committee shall determine that
it
is prudent to modify the manner in which the Capital Accounts, or any debits
or
credits thereto, are computed in order to comply with such Regulations, the
Management Committee may make such modification, provided that it is not
likely
to have a material effect on the amount distributable to a Member upon
liquidation of the Company pursuant to Section D.2.
h. If
the
Members so agree, upon the occurrence of an event described in Treas. Reg.
§
1.704-1(b)(2)(iv)(5), the Capital Accounts shall be restated in accordance
with
Treas. Reg. § 1.704-1(b)(2)(iv)(f) to reflect the manner in which unrealized
income, gain, loss or deduction inherent in the assets of the Company (that
has
not been reflected in the Capital Accounts previously) would be allocated
among
the Members if there were a taxable disposition of such assets for their
fair
market values, as determined in accordance with Section D.2.a. For purposes
of
Section C.3, a Member shall be treated as contributing the portion of the
book
value of any property that is credited to the Member’s Capital Account pursuant
to the preceding sentence. Following a revaluation pursuant to this Section
D.1.h, the Members’ shares of depreciation, depletion, amortization and gain or
loss, as computed for tax purposes, with respect to property that has been
revalued pursuant to this Section D.1.h shall be determined in accordance
with
the principles of Code Section 704(c) as applied pursuant to the final sentence
of Section C.6.b.
18
2. Liquidation.
In the
event the Company is dissolved pursuant to Section 14.1 of the Agreement
then,
notwithstanding any other provision of the Agreement to the contrary, the
following steps shall be taken (after taking into account any transfers of
Capital Accounts pursuant to Sections 3.2.1, 4.4.1 or 14.2 of the
Agreement):
a. The
Capital Accounts of the Members shall be adjusted to reflect any gain or
loss
which would be realized by the Company and allocated to the Members pursuant
to
the provisions of Section C of this Exhibit C if the Assets had been sold
at
their fair market value at the time of liquidation. The fair market value
of the
Assets shall be determined by agreement of all Members provided, however,
that
in the event that the Members fail to agree on the fair market value of any
Asset, its fair market value shall be determined by a nationally recognized
independent engineering firm or other qualified independent party approved
by
all Members.
b. After
making the foregoing adjustments and/or contributions, all remaining Assets
shall be distributed to the Members in accordance with the balances in their
Capital Accounts (after taking into account all allocations under Section
C,
including Section C.3.g). Unless otherwise expressly agreed by the Members,
each
Member shall receive an undivided interest in each and every Asset determined
by
the ratio of the amount in each Member’s Capital Account to the total of both of
the Members’ Capital Accounts. Assets distributed to the Members shall be deemed
to have a fair market value equal to the value assigned to them pursuant
to
Section D.2.a above.
c. All
distributions to the Members in respect of their Capital Accounts shall be
made
in accordance with the time requirements of Treas. Reg. §§
1.704-1(b)(2)(ii)(b)(2) and (3).
3. Deemed
Terminations. Notwithstanding
the provisions of Section D.2, if the “liquidation” of the Company results from
a deemed termination under Section 708(b)(1)(B) of the Code, then (1) Sections
D.2.a and D.2.b shall not apply, (2) the Company shall be deemed to have
contributed its assets to a new partnership in exchange for an interest therein,
and immediately thereafter, distributing interests to the purchasing party
and
the non-transferring Members in proportion to their interests in the Company’s
liquidation, (3) the new partnership shall continue pursuant to the terms
of the
Agreement and this Exhibit.
E. Sale
or Assignment.
The
Members agree that if either one of them makes a sale or assignment of its
Ownership Interest under the Agreement, and such sale or assignment causes
a
termination under Section 708(b)(1)(B) of the Code, the terminating Member
shall
indemnify the non-terminating Member and save it harmless on an after-tax
basis
for any increase in taxes to the non-terminating Member caused by the
termination of the Company.
19
Exhibit D
Lincoln
Hill LLC
Definitions
“Act”
means Chapter 86 of the Nevada Revised Statutes.
“Affiliate”
means any person, partnership, limited liability company, joint venture,
corporation, or other form of enterprise which Controls, is Controlled by,
or is
under common Control with a Member.
“Agreement”
means this Exploration, Development and Mining Limited Liability Company
Operating Agreement, including all amendments and modifications, and all
schedules and exhibits, all of which are incorporated by this
reference.
“Approved
Alternative” means a Development and Mining alternative selected by the
Management Committee from various Development and Mining alternatives analyzed
in the Pre-Feasibility Studies.
“Area
of
Interest” means the area described in Section 1.3 of Exhibit A.
“Assets”
means the Properties, Products, Business Information, and all other real
and
personal property, tangible and intangible, including existing or after-acquired
properties and all contract rights held for the benefit of the
Members.
“Budget”
means a detailed estimate of all costs to be incurred and a schedule of cash
advances to be made by the Members with respect to a Program.
“Business”
means the conduct of the business of the Company in furtherance of the purposes
stated in Section 2.3 and in accordance with this Agreement.
“Business
Account” means the account maintained by the Manager for the Business in
accordance with Exhibit B.
“Business
Information” means the terms of this Agreement, and any other agreement relating
to the Business, the Existing Data, and all information, data, knowledge
and
know-how, in whatever form and however communicated (including, without
limitation, Confidential Information), developed, conceived, originated or
obtained by either Member in performing its obligations under this Agreement.
The term “Business Information” shall not include any improvements,
enhancements, refinements or incremental additions to Member Information
that
are developed, conceived, originated or obtained by either Member in performing
its obligations under this Agreement.
20
“Capital
Account” means the account maintained for each Member in accordance with Exhibit
C.
“Company”
means Lincoln Hill LLC, a Nevada limited liability company formed in accordance
with, and governed by, this Agreement.
“Confidential
Information” means all information, data, knowledge and know-how (including, but
not limited to, formulas, patterns, compilations, programs, devices, methods,
techniques and processes) that derives independent economic value, actual
or
potential, as a result of not being generally known to, or readily ascertainable
by, third parties and which is the subject of efforts that are reasonable
under
the circumstances to maintain its secrecy, including without limitation all
analyses, interpretations, compilations, studies and evaluations of such
information, data, knowledge and know-how generated or prepared by or on
behalf
of either Member.
“Continuing
Obligations” mean obligations or responsibilities that are reasonably expected
to continue or arise after Operations on a particular area of the Properties
have ceased or are suspended, such as future monitoring, stabilization, or
Environmental Compliance.
“Control”
used as a verb means, when used with respect to an entity, the ability, directly
or indirectly through one or more intermediaries, to direct or cause the
direction of the management and policies of such entity through (i) the legal
or
beneficial ownership of voting securities or membership interests; (ii) the
right to appoint managers, directors or corporate management; (iii) contract;
(iv) operating agreement; (v) voting trust; or otherwise; and, when used
with
respect to a person, means the actual or legal ability to control the actions
of
another, through family relationship, agency, contract or otherwise; and
“Control” used as a noun means an interest which gives the holder the ability to
exercise any of the foregoing powers.
“Cover
Payment” shall have the meaning as stated in Section 11.4 of the
Agreement.
“Development”
means all preparation (other than Exploration) for the removal and recovery
of
Products, including construction and installation of a mill or any other
improvements to be used for the mining, handling, milling, processing, or
other
beneficiation of Products, and all related Environmental
Compliance.
“Effective
Date” means the date stated in the preamble to this Agreement.
“Encumbrance”
or “Encumbrances” means mortgages, deeds of trust, security interests, pledges,
liens, net profits interests, royalties or overriding royalty interests,
other
payments out of production, or other burdens of any nature.
“Environmental
Compliance” means actions performed during or after Operations to comply with
the requirements of all Environmental Laws or contractual commitments related
to
reclamation of the Properties or other compliance with Environmental
Laws.
21
“Environmental
Compliance Fund” means the account established pursuant to Section 2.14 of
Exhibit B.
“Environmental
Laws” means Laws aimed at reclamation or restoration of the Properties;
abatement of pollution; protection of the environment; protection of wildlife,
including endangered species; ensuring public safety from environmental hazards;
protection of cultural or historic resources; management, storage or control
of
hazardous materials and substances; releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
as wastes into the environment, including without limitation, ambient air,
surface water and groundwater; and all other Laws relating to the manufacturing,
processing, distribution, use, treatment, storage, disposal, handling or
transport of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes.
“Environmental
Liabilities” means any and all claims, actions, causes of action, damages,
losses, liabilities, obligations, penalties, judgments, amounts paid in
settlement, assessments, costs, disbursements, or expenses (including, without
limitation, attorneys’ fees and costs, experts’ fees and costs, and consultants’
fees and costs) of any kind or of any nature whatsoever that are asserted
against a Member, by any person or entity other than the other Members, alleging
liability (including, without limitation, liability for studies, testing
or
investigatory costs, cleanup costs, response costs, removal costs, remediation
costs, containment costs, restoration costs, corrective action costs, closure
costs, reclamation costs, natural resource damages, property damages, business
losses, personal injuries, penalties or fines) arising out of, based on or
resulting from (1) the presence, release, threatened release, discharge or
emission into the environment of any hazardous materials or substances existing
or arising on, beneath or above the Properties and/or emanating or migrating
and/or threatening to emanate or migrate from the Properties to off-site
properties; (2) physical disturbance of the environment; or (3) the violation
or
alleged violation of any Environmental Laws.
“Equity
Account” means the account maintained for each Member by the Manager in
accordance with Section 9.2.15 of the Agreement.
“Existing
Data” means maps, drill logs and other drilling data, core, pulps, reports,
surveys, assays, analyses, production reports, operations, technical, accounting
and financial records, and other material information developed in operations
on
the Properties before the Effective Date.
“Expansion”
or “Modification” means (1) a material increase in mining or production
capacity; (2) a material change in the recovery process; or (3) a material
change in waste or tailings disposal methods. An increase or change shall
be
deemed “material” if it is anticipated to cost more than 25% of original capital
costs attributable to the Development of the mining or production capacity,
recovery process or waste or tailings disposal facility to be expanded or
modified.
“Exploration”
means all activities directed toward ascertaining the existence, location,
quantity, quality or commercial value of deposits of Products, including
but not
limited to additional drilling required after discovery of potentially
commercial precious metal mineralization, and including related Environmental
Compliance.
22
“Feasibility
Contractors” means one or more engineering firms approved by the Management
Committee for purposes of preparing or auditing any Pre-Feasibility Study
or
Feasibility Study.
“Feasibility
Study” means a report to be prepared following selection by the Management
Committee of one or more Approved Alternatives. The Feasibility Study shall
include a review of information presented in any Pre-Feasibility Studies
concerning the Approved Alternative(s). The Feasibility Study shall be in
a form
and of a scope generally acceptable to reputable financial institutions that
provide financing to the mining industry.
“Governmental
Fees” means all location fees, mining claim rental fees, mining claim
maintenance payments and similar payments required by Law to locate and hold
unpatented mining claims.
“Initial
Capital Contribution” means that contribution each Member has made or agrees to
make pursuant to Section 3.1 of the Agreement.
“Law”
or
“Laws” means all applicable federal, state and local laws (statutory or common),
rules, ordinances, regulations, grants, concessions, franchises, licenses,
orders, directives, judgments, decrees, and other governmental restrictions,
including permits and other similar requirements, whether legislative,
municipal, administrative or judicial in nature.
“Management
Committee” means the committee established under Section 8 of the
Agreement.
“Manager”
means the Member appointed under Section 9 of the Agreement to manage
Operations, or any successor Manager.
“Member”
means Western Goldfields, Inc. or Coolcharm Ltd., any permitted successor
or
assign of Western Goldfields, Inc. or Coolcharm Ltd., or any other person
admitted as a Member of the Company under this Agreement.
“Member
Information” means all information, data, knowledge and know-how, in whatever
form and however communicated (including, without limitation, Confidential
Information but excluding the Existing Data), which, as shown by written
records, was developed, conceived, originated or obtained by a Member: (1)
before entering into this Agreement, or (2) independent of its performance
under
the terms of this Agreement.
"Minerals"
means gold, silver, platinum, antimony, mercury, copper, lead, zinc, and
all
other precious metal mineral elements and precious metal mineral compounds,
and
geothermal resources, which are contemplated to exist on the Properties or
which
are after the Effective Date discovered on the Properties and which can be
extracted, mined or processed by any method presently known or developed
or
invented after the Effective Date.
“Mining”
means the mining, extracting, producing, beneficiating, handling, milling
or
other processing of Products.
23
“Net
Proceeds” means certain amounts calculated as provided in Exhibit E, which may
be payable to a Member under Sections 4.4.2 or 11.5.2.2 of the
Agreement.
“Net
Smelter Returns” means certain amounts calculated as provided in Exhibit E,
which may be payable to a Member under Section 4.4.2 of the
Agreement.
“Operations”
means the activities carried out by the Company under this
Agreement.
“Ownership
Interest” means the percentage interest representing the ownership interest of a
Member in the Company, and all other rights and obligations arising under
this
Agreement, as such interest may from time to time be adjusted hereunder.
Ownership Interests shall be calculated to three decimal places and rounded
to
two decimal places as follows: Decimals of .005 or more shall be rounded
up
(e.g.,
1.519%
rounded to 1.52%); decimals of less than .005 shall be rounded down
(e.g.,
1.514%
rounded to 1.51%). The initial Ownership Interests of the Members are stated
in
Section 4.1 of the Agreement.
“Payout”
means the date on which the Equity Account balance of each of the Members
has
become zero or a negative number, regardless of whether the Equity Account
balance of either or both Members subsequently becomes a positive number.
If one
Member’s Equity Account balance becomes zero or a negative number before the
other Member’s, “Payout” shall not occur until the date that the other Member’s
Equity Account balance first becomes zero or a negative number.
“Pre-Feasibility
Studies” means one or more studies prepared to analyze whether economically
viable Mining Operations may be possible on the Properties, as described
in
Sections 10.7 and 10.8 of the Agreement.
“Prime
Rate” means the interest rate quoted and published as “Prime” as published in
The
Wall Street Journal,
under
the heading “Money Rate,” as the rate may change from day to day.
“Products”
means all precious metal ores, precious metal minerals and precious metal
mineral resources produced from the Properties. Products dose not include
any
industrial minerals, ores, stone products, aggregate, sands, gravel or
industrial mineral resources produced from the Properties.
“Program”
means a description in reasonable detail of Operations to be conducted and
objectives to be accomplished by the Manager for a period determined by the
Management Committee.
“Program
Period” means the time period covered by an adopted Program and
Budget.
“Project
Financing” means any financing approved by the Management Committee and obtained
by the Members for the purpose of placing a mineral deposit situated on the
Properties into commercial production, but shall not include any such financing
obtained individually by either Member to finance payment or performance
of its
obligations under the Agreement.
24
“Properties”
means those interests in real property described in Section 1.1 of Exhibit
A and
all other interests in real property within the Area of Interest that are
acquired and held subject to this Agreement.
“Recalculated
Ownership Interest” means the reduced Ownership Interest of a Member as
recalculated under Section 10.5, 10.6 or 11.5 of the Agreement.
“Reduced
Member” means a Member whose Ownership Interest is reduced under Section 10.5,
10.6 or 11.5 of the Agreement.
“Transfer”
means, when used as a verb, to sell, grant, assign or create an Encumbrance,
pledge or otherwise convey, or dispose of or commit to do any of the foregoing,
or to arrange for substitute performance by an Affiliate or third party (except
as permitted under Section 9.2.10 and Section 9.6 of the Agreement), either
directly or indirectly; and, when used as a noun, means such a sale, grant,
assignment, Encumbrance, pledge or other conveyance or disposition, or such
an
arrangement.
25
Xxxxxxx
X
Xxxxxxx
Xxxx XLC
Net
Proceeds Calculations
All
capitalized words and terms used herein have the same meaning as in the
Agreement.
Net
Proceeds Calculation
A. Income
and Expenses. Net
Proceeds shall be calculated by deducting from the Gross Revenue (as defined
below) realized (or deemed to be realized), such costs and expenses attributable
to Exploration, Development, Mining, the marketing of Products and other
Operations as would be deductible under generally accepted accounting principles
and practices consistently applied, including without limitation:
1. All
costs
and expenses of replacing, expanding, modifying, altering or changing from
time
to time the Mining facilities. Costs and expenses of improvements (such as
haulage ways or mill facilities) that are also used in connection with workings
other than the Properties shall be charged to the Properties only in the
proportion that their use in connection with the Properties bears to their
total
use;
2. Ad
valorem real Properties and unsecured personal Properties taxes, and all
taxes,
other than income taxes, applicable to Mining of the Properties, including
without limitation all state mining taxes, sales taxes, severance taxes,
license
fees and governmental levies of a similar nature;
3. Allowance
for overhead in accordance with Section B.13 of Exhibit B;
4. All
expenses incurred relative to the sale of Products, including an allowance
for
commissions at rates which are normal and customary in the
industry;
5. All
amounts payable to the remaining Member during Mining pursuant to any applicable
operating or similar agreement in force with respect thereto;
6. The
actual cost of investment under the Agreement but before beginning of Mining,
which shall include all expenditures for Exploration and Development of the
Properties incurred by the non-withdrawing Member both before and after the
withdrawing Member acquiring a Net Proceeds interest;
7. Interest
on monies borrowed or advanced for costs and expenses, but in no event in
excess
of the maximum permitted by law;
8. An
allowance for reasonable working capital and inventory;
26
9. Costs
of
funding the Environmental Compliance Fund as provided in Section B.14 of
Exhibit
B;
10. Actual
costs of Operations; and
11. Rental,
royalty, production, and purchase payments.
The
term
“Gross Revenue” shall mean the sum of (1) gross receipts from sale of Products,
less any charges for sampling, assaying, or penalties; (2) gross receipts
from
the sale or other disposition of Assets; (3) insurance proceeds; (4)
compensation for expropriation of Assets; and (5) judgment proceeds. Gross
receipts for sale of Products shall be determined by multiplying spot prices
for
Products as quoted by the Wall Street Journal on
the
date of a sale of Products and if the Wall Street Journal does not provide
a
spot price quote for the commodity, by Metals Week or another publication
recognized in the mining industry as a publisher of accurate commodities
spot
prices.
It
is
intended that the remaining Member shall recoup from Gross Revenue all of
its
on-going contributions for Exploration, Development, Mining, Expansion and
Modification and marketing Products before any Net Proceeds are distributed
to
any person holding a Net Proceeds interest. No deduction shall be made for
income taxes, depreciation, amortization or depletion. If in any year after
the
beginning of Mining of the Properties an operating loss is incurred, the
operating loss amount shall be considered as and be included with outstanding
costs and expenses and carried forward in determining Net Proceeds for
subsequent periods. If Products are processed by the remaining Member, or
are
sold to an Affiliate of the remaining Member, then, for purposes of calculating
Net Proceeds, such Products shall be deemed conclusively to have been sold
at a
price equal to fair market value to arm’s length purchaser FOB the concentrator
for the Properties, and the resulting Net Proceeds shall be calculated without
reference to any profits or losses attributable to smelting or
refining.
B. Payment
of Net Proceeds. Payments
of Net Proceeds shall commence in the calendar year following the calendar
year
in which Net Proceeds are first realized, and shall be made forty-five (45)
days
following the end of each calendar quarter during which Net Proceeds are
realized, and shall be subject to adjustment, if required, at the end of
each
calendar year. The recipient of such Net Proceeds payments shall have the
right
to audit such payments following receipt of each payment by giving notice
to the
remaining Member and by conducting such audit in accordance with Section
11.6 of
the Agreement. Costs of such an audit shall be borne by the holder of the
Net
Proceeds interest.
Smelter
Returns Calculation
A. Definitions.
The
following definitions shall apply.
1. "Gold
Production" means the quantity of refined gold outturned to The remaining
Member's account by an independent third party refinery for gold produced
from
the Properties during the month on either a provisional or final settlement
basis.
27
2. "Gross
Value" shall be determined on a month basis and have the following meanings
with
respect to the following Minerals:
a. Gold
(a) If
The
remaining Member sells gold concentrates, dore or ore, then Gross Value shall
be
the value of the gold contained in the gold concentrates, dore and ore
determined by utilizing: (1) the mine weights and assays for such gold
concentrates, dore and ore; (2) a reasonable recovery rate for the refined
gold
recoverable from such gold concentrates, dore and ore (which shall be adjusted
annually to reflect the actual recovery rate of refined metal from such gold
concentrates, dore and ore); and (3) the Monthly Average Gold Price for the
month in which the gold concentrates, dore and ore were sold.
(b) If
The
remaining Member produces refined gold (meeting the specifications of the
London
Bullion Market Association, and if the London Bullion Market Association
no
longer prescribes specifications, the specifications of such other association
generally accepted and recognized in the mining industry) from Minerals,
and if
Section 1.2.1(a) above is not applicable, then for purposes of determining
Gross
Value, the refined gold shall be deemed to have been sold at the Monthly
Average
Gold Price for the month in which it was refined. The Gross Value shall be
determined by multiplying Gold Production during the month by the Monthly
Average Gold Price.
b. Silver.
(a) If
the
remaining Member sells silver concentrates, dore or ore, then Gross Value
shall
be the value of the silver contained in the silver concentrates, dore and
ore
determined by utilizing: (1) the mine weights and assays for such silver
concentrates, dore and ore; (2) a reasonable recovery rate for the refined
silver recoverable from such silver concentrates, dore and ore (which shall
be
adjusted annually to reflect the actual recovery rate of refined metal from
such
silver concentrates, dore and ore); and (3) the Monthly Average Silver Price
for
the month in which the silver concentrates, dore and ore were sold.
(b) If
the
remaining Member produces refined silver (meeting the specifications for
refined
silver subject to the New York Silver Price published by Handy & Xxxxxx, and
if Handy & Xxxxxx no longer publishes such specifications, the
specifications of such other association or entity generally accepted and
recognized in the mining industry) from Minerals, and if Section 1.2.2(a)
above
is not applicable, the refined silver shall be deemed to have been sold at
the
Monthly Average Silver Price for the month in which it was refined. The Gross
Value shall be determined by multiplying Silver Production during the month
by
the Monthly Average Silver Price.
c. All
Other
Minerals.
(a) If
the
remaining Member sells any concentrates, dore or ore of Minerals other than
gold
or silver, then Gross Value shall be the value of such Minerals determined
by
utilizing: (1) the mine weights and assays for such Minerals; (2) a reasonable
recovery rate for the Minerals (which shall be adjusted annually to reflect
the
actual recovery rate of recovered or refined metal or product from such
Minerals); and (3) the monthly average price for the Minerals or product
of the
Minerals for the month in which the concentrates, dore or ore was sold. The
monthly average price shall be determined by reference to the market for
such
Minerals or product which is recognized in the mining industry as authoritative
and reflective of the market for such Minerals or product.
28
(b) If
the
remaining Member produces refined or processed metals from Minerals other
than
refined gold or refined silver, and if Section 1.2.3(a) above is not applicable,
then Gross Value shall be equal to the amount of the proceeds received by
The
remaining Member during the month from the sale of such refined or processed
metals. The remaining Member shall have the right to sell such refined or
processed metals to an affiliated party, provided that such sales shall be
considered, solely for purposes of determining Gross Value, to have been
sold at
prices and on terms no less favorable than those that would be obtained from
an
unaffiliated third party in similar quantities and under similar
circumstances.
3. "Minerals"
means gold, silver, platinum, antimony, mercury, copper, lead, zinc, and
all
other precious metal mineral elements and precious metal mineral compounds,
and
geothermal resources, which are contemplated to exist on the Properties or
which
are after the Effective Date discovered on the Properties and which can be
extracted, mined or processed by any method presently known or developed
or
invented after the Effective Date.
4. "Monthly
Average Gold Price" means the average London Bullion Market Association
Afternoon Gold Fix, calculated by dividing the sum of all such prices reported
for the month by the number of days for which such prices were reported during
that month. If the London Bullion Market Association Afternoon Gold Fix ceases
to be published, all such references shall be replaced with references to
prices
of gold for immediate sale in another established marked selected by the
remaining Member, as such prices are published in Metals Week magazine, and
if
Metals Week magazine no longer publishes such prices, the prices of such
other
association or entity generally accepted and recognized in the mining
industry.
5. "Monthly
Average Silver Price" means the average New York Silver Price as published
daily
by Handy & Xxxxxx, calculated by dividing the sum of all such prices
reported for the month by the number of days in such month for which such
prices
were reported. If the Handy & Xxxxxx quotations cease to be published, all
such references shall be replaced with references to prices of silver for
immediate sale in another established market selected by The remaining Member
as
published in Metals Week magazine, and if Metals Week magazine no longer
publishes such prices, the prices of such other association or entity generally
accepted and recognized in the mining industry.
6. "Net
Smelter Returns" means the Gross Value of all Minerals, less the following
costs, charges and expenses paid or incurred by the remaining Member with
respect to the refining and smelting of such Minerals:
a. Charges
for smelting and refining (including sampling, assaying and penalty charges),
but not any charges or costs of agglomeration, beneficiation, crushing,
extraction, milling, mining or other processing; and
b. Actual
costs of transportation (including freight, insurance, security, transaction
taxes, handling, port, demurrage, delay and forwarding expenses incurred
by
reason of or in the course of such transportation) of concentrates or dore
metal
from the Properties to the smelter or refinery, but not any charges or costs
of
transportation of Minerals or ores from any mine on the Properties to an
autoclave, concentrator, crusher, heap or other xxxxx process, mill or plant
which is not a smelter or refinery.
7. "Properties"
means the real Properties described in the instrument to which these Net
Smelter
Returns provisions are attached and made a part.
8. "Silver
Production" means the quantity of refined silver outturned to the remaining
Member's account by an independent third-party refinery for silver produced
from
the Properties during the month on either a provisional or final settlement
basis.
28
C. Payment
Procedures.
1. Accrual
of Obligation.
The
remaining Member's obligation to pay the royalty shall accrue and become
due and
payable upon the sale or shipment from the Properties of unrefined metals,
dore
metal, concentrates, ores or other Minerals or Minerals products or, if refined
metals are produced, upon the outturn of refined metals meeting the requirements
of the specified published price to the remaining Member's account.
2. Futures
or Forward Sales, Etc..
Except
as provided in Sections 1.2.1(a), 1.2.2(a) and 1.2.3 (a) (regarding sales
of
unprocessed gold and silver and sales of Minerals other than gold and silver),
Gross Value shall be determined irrespective of any actual arrangements for
the
sale or other disposition of Minerals by the remaining Member, specifically
including but not limited to forward sales, futures trading or commodities
options trading, and any other price hedging, price protection, and speculative
arrangements that may involve the possible delivery of gold, silver or other
metals produced from Minerals.
3. Monthly
Calculations and Payments. Net
Smelter Returns royalties shall be determined on a monthly basis. The remaining
Member shall pay the remaining Member each monthly royalty payment on or
before
the last business day of the month immediately following the month in which
the
royalty payment obligation accrued. The remaining Member acknowledges that
late
payment by the remaining Member to Recipient of royalty payments will cause
Recipient to incur costs, the exact amount of which will be difficult to
ascertain. Accordingly, if any amount due and payable by the remaining Member
is
not received by Recipient within ten (10) days after such amount is due,
then
the remaining Member shall pay to Recipient a late charge equal to ten percent
(10%) of such overdue amount. Recipient’s acceptance of such late charge shall
not constitute a waiver of the remaining Member’ default with respect to such
overdue amount, nor prevent Recipient from exercising any of Recipient’s other
rights and remedies. If any amount payable by the remaining Member remains
delinquent for a period in excess of thirty (30) days, The remaining Member
shall pay to Recipient, in addition to the late payment, interest from and
after
the due date at the statutory interest rate.
4. Statements.
At the
time of payment of the royalty, the remaining Member shall accompany such
payment with a statement which shows in detail the quantities and grades
of
refined gold, silver or other metals or dore, concentrates or ores produced
and
sold or deemed sold by The remaining Member in the preceding month; the Monthly
Average Gold Price and Monthly Average Silver Price, as applicable; costs
and
other deductions, and other pertinent information in detail to explain the
calculation of the payment with respect to such month. Payment shall be made
to
the address provided in the agreement or instrument to which this Exhibit
is
attached for purposes of notices or by wire transfer to an account which
Recipient designates.
5. Inventories
and Stockpiles.
The
remaining Member shall include in all monthly statements a description of
the
quantity and quality of any gold or silver dore that has been retained as
inventory for more than ninety (90) days. Recipient shall have thirty (30)
days
after receipt of the statement to either: (a) elect that the dore be deemed
sold, with Gross Value to be determined as provided in Sections 1.2.1 (b),
with
respect to gold, and 1.2.2(b), with respect to silver, as of such thirtieth
(30th) day utilizing the mine weights and assays for such dore and utilizing
a
reasonable recovery rate for refined metal and reasonable deemed charges
for all
deductions which the remaining Member is authorized to take, or (b) elect
to
wait until such time as the royalty payment otherwise would become payable
pursuant to Sections 1.2.1(b) and 1.2.2(b). The remaining Member’s failure to
respond within such time shall be deemed to be an election to use the methods
described in Sections 1.2.1(b) and 1.2.2(b).
29
6. Audit.
Upon
reasonable notice and at a reasonable time, the Recipient shall have the
right
to audit and examine the remaining Member’s accounts and records relating to the
calculation of the Net Smelter Returns royalty payments. If such audit
determines that there has been a deficiency or an excess in the payment made
to
Recipient, such deficiency or excess shall be resolved by adjusting the next
monthly royalty payment due Recipient. Recipient shall pay all costs of such
audit unless a deficiency of three percent (3%) or more of the royalty payment
due for the calendar month in question is determined to exist. All books
and
records used by the remaining Member to calculate the royalty payments shall
be
kept in accordance with generally accepted accounting principles applicable
to
the mining industry.
C.
Sampling
and Commingling. The
remaining Member shall have the right to commingle Minerals and ores from
the
Properties and materials from other properties, provided, that the remaining
Member first informs Recipient, in writing, of the remaining Member’s intention
to commingle and delivers to Recipient a detailed written description of
the
remaining Member’s commingling plan. Recipient shall have ninety (90) days
during which to review and comment on the remaining Member’s proposed
commingling plan. In any and all events, all Minerals and ores shall be
measured
and sampled by the remaining Member in accordance with sound mining and
metallurgical practices for metal and mineral content before commingling
of any
such Minerals or ores with materials from any other Properties. Representative
samples of materials from the Properties intended to be commingled shall
be
retained by the remaining Member, and assays of these samples shall be
made
before commingling to determine the metal content of each ore. Accurate
records
shall be kept by Recipient showing measurements, assays of metal content
and
gross metal content of the materials from the Properties are
commingled.
30
Xxxxxxx
X
Xxxxxxx
Xxxx XLC
Insurance
The
Manager shall, at all times while conducting Operations, comply fully with
the
applicable workers’ compensation laws and purchase, or provide protection for
the Company comparable to that provided under standard form insurance policies
for the following risk categories: (1) comprehensive public liability and
property damage with combined limits of not less than One Million Dollars
($1,000,000.00) for bodily injury and property damage during conduct of
Exploration and of not less than Five Million Dollars ($5,000,000.00) for
bodily
injury and property damage during Development or Mining; (2) automobile
insurance with combined limits of not less than One Million Dollars
($1,000,000.00) during Exploration and of not less than Five Million Dollars
($5,000,000.00) during Development or Mining; and (3) adequate and reasonable
insurance against risk of fire and other risks ordinarily insured against
in
similar operations. If the Manager elects to self-insure, it shall charge
to the
Business Account an amount equal to the premium it would have paid had it
secured and maintained a policy or policies of insurance on a competitive
bid
basis in the amount of such coverage. Each Member shall self-insure or purchase
for its own account such additional insurance as it deems
necessary.
31
Exhibit
G
Lincoln
Hill LLC
LINCOLN
HILL PROJECT
Pershing
County, Nevada
By:
X. Xxxxxxxxxx 4-18-05
EXPLORATION
AND DEVEOLPMENT BUDGET
JULY
1, 2005 thru JUNE 30, 2010.
Exploration
Plans and Schedule - The
exploration program for the Lincoln Hill Project has been divided into
three-phases which will be conducted over a five-year period beginning in
July
1, 2005 and ending June 1, 2010. The primary goal of this phased program
is to
explore and develop an economic gold-silver deposit and completing a Feasibility
Study with a minimum of 150,000-ounce reserve. This exploration and Development
Program is designed to discover and test several recognized targets through
field work and exploration and development drilling.
PHASE
I - EXPLORATION PROGRAM BUDGET - 2005-2006 YEAR
This
phase of exploration activities would consist of general surface and underground
exploration activities including geologic mapping, rock chip and soil sampling,
geophysical surveying, permitting and exploration drilling. The breakdown
for
this first phase of the exploration evaluation will occur as
follows:
Phase
I-A - Mapping and Sampling Activities - 3rd
and 4th
Quarter 2005
|
·
|
Data
compilation of all current geological and geochemical data (1
month)
|
$10,000
|
|||
|
·
|
Surface
mapping and sampling by two geologist (1 month)
|
$20,000
|
|||
|
·
|
Underground
mapping and sampling by two geologists. (two weeks)
|
$10,000
|
|||
|
·
|
Rock
chip geochemistry:
|
|
|||
|
|
· Surface
sampling (200 samples @ 25.00 ea.
|
$5,000 | |||
|
|
· Underground
sampling (100 samples @ 25.00 ea.)
|
$2,500
|
|||
|
|
· Re-logging
and interpretation of previous drilling
|
$12,500
|
|||
|
· Petrographic
studies (25 samples)
|
$5,000
|
||||
|
·
|
Geophysical
Surveys:
|
||||
|
· Ground
magnetic survey
|
$15,000
|
||||
|
· Gravity
survey
|
$15,000
|
||||
|
· Other
potential geophysical surveys
|
$30,000
|
||||
|
Total
|
$125,000
|
||||
Phase
I-B - Exploration Drilling Activities - 1st
and 2nd
Quarter 2006
|
·
|
Permitting
and road building
|
$30,000
|
|||
|
·
|
Drilling:
15 RC holes w/ ave. of 1,000 ft. @ $12/ft.
|
$180,000
|
|||
|
·
|
Assaying
of drill footage: 15,000 ft. each 5’ interval (3,000 samples @
$20/ea)
|
$60,000
|
|||
|
·
|
Drilling:
5 core holes w/ ave. of 500 ft. each @ $30/ft.
|
$75,000
|
|||
|
Assaying
of core drill footage: 2,500 ft. each 5’ interval (500 samples @ $20/ea)
|
$10,000 | ||||
| Drill supervision and compilation: | $40,000 | ||||
|
|
Total | $395,000 | |||
32
Total
Budget for the Phase I Exploration Program -Total -
$520,000
PHASE
II - DEVELOPMENT DRILLING ACTIVITIES - 2006 Thru 2009
YEAR
This
phase of exploration activities would be contingent upon encouraging drill
results obtained in Phase I. This phase would consist of additional permitting,
reverse circulation drilling, selective core drilling, metallurgical testing,
geotechnical investigations and initiation of scoping and possibly feasibility
studies. The breakdown for this first phase of the exploration evaluation
will
occur as follows:
Phase
II-A - Exploration and Development Drilling Activities
- Year 2006-2007
|
·
|
Permitting
and road building
|
$30,000
|
|||
|
·
|
Drilling:
25 RC holes w/ ave. of 1,000 ft. @ $12/ft.
|
$300,000
|
|||
|
·
|
Assaying
of drill footage: 30,000 ft. each 5’ interval (3,000 samples @
$20/ea)
|
$120,000
|
|||
|
·
|
Drill supervision and data compilation: | $50,000 | |||
|
·
|
Preliminary
metallurgical studies $20,000
|
$20,000 | |||
|
|
Total
|
$520,000 | |||
Phase
II-B - Development Drilling Activities -
Year 2007-2008
|
·
|
Permitting
and road building
|
$60,000
|
|||
|
·
|
Drilling:
40 RC holes w/ ave. of 1,000 ft. @ $12/ft.
|
$480,000
|
|||
|
·
|
Assaying
of drill footage: 40,000 ft. each 5’ interval (3,000 samples @
$20/ea)
|
$160,000
|
|||
|
·
|
Drilling:
5 core holes w/ ave. of 1,000 ft. each @ $30/ft.
|
$150,000
|
|||
|
·
|
Assaying
of core drill footage: 5,000 ft. each 5’ interval (1,000 samples @
$20/ea)
|
$20,000 | |||
|
·
|
Drill
supervision and data compilation:
|
$75,000 | |||
|
·
|
Metallurgical
studies
|
$20,000 | |||
|
·
|
Geotechnical studies | $20,000 | |||
|
Total
|
$985,000 | ||||
Phase
II-C- Development Drilling Activities - Year 2008-2009
|
·
|
Permitting
and road building
|
$50,000
|
|||
|
·
|
Drilling:
20 RC holes w/ ave. of 1,000 ft. @ $10/ft.
|
$200,000
|
|||
|
·
|
Assaying
of drill footage: 20,000 ft. each 5’ foot interval (4,000 samples @
$20/ea)
|
$80,000
|
|||
|
·
|
Drilling:
15 core holes w/ ave. of 1,000 ft. @ $30/ft.
|
$450,000
|
|||
|
·
|
Assaying
of core drill footage: 15,000 ft. each 5’ interval (3,000 samples @
$20/ea)
|
$60,000 | |||
|
·
|
Drill
supervision and data compilation
|
$60,000 | |||
|
·
|
Metallurgical
studies
|
$50,000 | |||
|
·
|
Geotechnical studies | $25,000 | |||
|
Total
|
$975,000 | ||||
| Total Budget for Phase II Exploration Program |
Total
-
$2,480,000
|
||||
33
PHASE
III - FEASIBILITY STUDIES -
2009-2010 YEAR
This
phase of development
activities including additional drilling and completing a feasibility study
would be contingent upon encouraging drill results obtained in Phase I and
II.
Phase
III-A Development Drilling Activities - Year 2009
-2010
| · | Additional development RC and core drilling | $250,000 |
| Phase III-B Feasibility Study- Year 2009-2010 |
| · |
Feasibility
Study (including additional metallurgic and
geotechnical studies, scoping-pre-feasibility studies, cross-sections
of
ore polygons and mine modeling.
|
$750,000 | |
| Total Budget for Phase III Development and feasdibility Studies | Total - $1,000,000 | ||
SUMMARY
OF BUDGET EXPENDITURES
Total
Budget for the Phase I Exploration Program (Year 2005-2006) -Total -
$520,000
Total
Budget for the Phase II Exploration and Development Program (Year 2006 thru
2009) -Total - $2,480,000
Total
Budget for the Phase III Development and Feasibility Program (Year 2009-2010)
-Total - $1,000,000
Total
Budget for all 3 Phases - Total $4,000,000
34
Exhibit
H
Lincoln
Hill LLC
Operating
Agreement
Preemptive
Rights
1. Preemptive
Rights.
If a
Member intends to Transfer all or any part of its Ownership Interest, or
an
Affiliate of a Member intends to Transfer Control of such Member (“Transferring
Entity”), such Member shall promptly notify each other Member of such
intentions. The notice shall state the price and all other pertinent terms
and
conditions of the intended Transfer, and shall be accompanied by a copy of
the
offer or the contract for sale. If the consideration for the intended transfer
is, in whole or in part, other than monetary, the notice shall describe such
consideration and its monetary equivalent (based upon the fair market value
of
the nonmonetary consideration and stated in terms of cash or currency). The
other Member or Members, as applicable, shall have thirty (30) days from
the
date such notice is delivered to notify the Transferring Entity (and the
Member
if its Affiliate is the Transferring Entity) whether it elects to acquire
the
offered interest at the same price (or its monetary equivalent in cash or
currency) and on the same terms and conditions as stated in the notice. If
there
are more than two (2) Members, the non-Transferring Entity Members shall
have
the right to acquire the offered interest pro rata, and if a non-Transferring
Entity Member elects not to acquire its proportionate share of the offered
interest, the other non-Transferring Entity Members shall have the right
to do
so. If the non-Transferring Entity Members elect to acquire the offered
interest, their acquisition of the offered interest shall be consummated
promptly.
1.1 If
the
non-Transferring Entity Member or Members, as applicable, fail to so elect
within the period provided for above, the Transferring Entity shall have
one
hundred twenty (120) days following the expiration of such period to consummate
the Transfer to a third party at a price and on terms no less favorable to
the
Transferring Entity than those offered by the Transferring Entity to the
non-Transferring Entity Member or Members, as applicable, in the aforementioned
notice.
1.2 If
the
Transferring Entity fails to consummate the Transfer to a third party within
the
period stated above, the preemptive right and the correlative obligation
of the
Transferring Entity in respect of such offered interest shall be deemed to
be
revived. Any subsequent proposal to Transfer such interest shall be conducted
in
accordance with all of the procedures stated in this Section.
2. Exceptions
to Preemptive Right. Section
1.1 above shall not apply to the following:
2.1 Transfer
by a Member of all or any part of its Ownership Interest to an
Affiliate;
2.2 Incorporation
of a Member, or corporate consolidation or reorganization of a Member by
which
the surviving entity shall possess substantially all of the stock or all
of the
property rights and interests, and be subject to substantially all of the
liabilities and obligations of that Member;
35
2.3 Corporate
merger or amalgamation involving a Member by which the surviving entity or
amalgamated company shall possess all of the stock or all of the property
rights
and interests, and be subject to substantially all of the liabilities and
obligations of that Member; provided, however, that the value of the merging
or
amalgamating Member’s interest in the Company, evidenced by its Capital Account
balance (as described in Exhibit C), does not exceed fifty (50%) percent
of the
Net Worth of the surviving entity or amalgamated company;
2.4 The
transfer of Control of a Member by an Affiliate to such Member or to another
Affiliate;
2.5 Subject
to Subsection 7.2.7 of the Agreement, the grant by a Member of a security
interest in its Ownership Interest by Encumbrance;
2.6 The
creation by any Affiliate of a Member of an Encumbrance affecting its Control
of
such Member; or
2.7 A
transfer by an Affiliate of a Member of Control of such Member to a third
party,
provided the value of such Member’s Capital Account balance does not exceed
fifty percent (50%) of the Net Worth of the transferring Affiliate, or does
not
exceed fifty percent (50%) of the Net Worth of Transferee.
The
term
“Net Worth” shall mean the remainder after total liabilities are deducted from
total assets. In the case of a corporation, Net Worth includes both capital
stock and surplus. In the case of a limited liability company, Net Worth
includes member contributions. In the case of a partnership or sole
proprietorship, Net Worth includes the original investment plus accumulated
and
re-invested profits.
36
