EXPLORATION OPTION
AND OPERATING JOINT VENTURE AGREEMENT
MADE AS OF THE 16th DAY OF DECEMBER, 0000
XXXXXXX
XXXXXX XXXXX XXXXXXXXXXX XX XXXXXX, LIMITED (Optionor)
and
URANIUM POWER CORPORATION (Optionee)
ATHABASCA BASIN, SASKATCHEWAN
PROPERTIES
TABLE OF CONTENTS
PAGE NO.
ARTICLE I
DEFINITIONS.............................................................. 1
ARTICLE II
PRINCIPLES OF INTERPRETATION
2.1 Principles of Interpretation........................................ 5
2.2 Schedules .......................................................... 5
2.3 Operation of Parts.................................................. 5
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Capacity............................................................ 6
3.2 Liens and Encumbrances.............................................. 6
3.3 Representations, Warranties and Covenants of PDC.................... 6
3.4 Representations, Warranties and Covenants of UPC.................... 7
3.5 Materiality of Representations and Covenants ....................... 8
3.6 Disclosures ........................................................ 8
3.7 Survival ........................................................... 9
3.8 Indemnities/Limitation of Liability ................................ 9
PART I - THE OPTION PERIOD AND THE EARN BACK OPTION PERIOD
ARTICLE IV
SCOPE AND MAINTENANCE OF OPTION
4.1 Grant of Options and Rights ........................................ 9
4.2 Commitments of Optionee ............................................10
4.3 Requirements to Maintain and Exercise the Option ...................10
4.4 Exercise of the Option .............................................12
4.5 Abandonment of All Rights and Options ..............................12
4.6 Notice of Default ..................................................12
4.7 Conduct of Optionee ................................................13
4.8 Transfer of Title ..................................................13
4.9 Royalty ............................................................13
ARTICLE V
SCOPE AND MAINTENANCE OF EARN BACK OPTION
5.1 Grant of Options and Rights ........................................13
5.2 Commitments of PDC .................................................14
5.3 Requirements to Maintain and Exercise the Earn Back Option .........15
5.4 Exercise of the Earn Back Option ...................................16
5.5 Abandonment of All Rights and Options ..............................16
5.6 Notice of Default ..................................................16
5.7 Conduct of PDC .....................................................17
5.8 Transfer of Title ..................................................17
5.9 Royalty Suspended ..................................................17
PART II - THE JOINT VENTURE
ARTICLE VI
NATURE OF RELATIONSHIP
6.1 Formation of Joint Venture and Appointment of Operator .............17
6.2 Purposes ...........................................................17
6.3 Limitation .........................................................18
6.4 Effective Date and Term ............................................18
ARTICLE VII
CONTRIBUTIONS BY PARTIES
7.1 Deemed Initial Contributions .......................................18
7.2 Disregard of Other Expenses ........................................18
7.3 Additional Cash Contributions ......................................18
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ARTICLE VIII
INTERESTS OF PARTIES
8.1 Initial Participating Interests ....................................18
8.2 Changes in Participating Interests .................................18
8.3 Voluntary Non-Participation ........................................19
8.4 Default in Making Contributions ....................................20
8.5 Elimination of Minority Interest ...................................21
8.6 Continuing Liabilities Upon Adjustments of Participating Interests..22
8.7 Recording of Participating Interests and Changes ...................22
ARTICLE IX
MANAGEMENT COMMITTEE
9.1 Organization and Composition .......................................22
9.2 Decisions ..........................................................22
9.3 Meetings ...........................................................23
9.4 Action By Telephone Meeting ........................................24
ARTICLE X
OPERATOR
10.1 Appointment .......................................................24
10.2 Powers and Duties of Operator .....................................24
10.3 Standard of Care ..................................................26
10.4 Resignation and Deemed Offer to Resign ............................27
10.5 Payments to Operator ..............................................27
10.6 Transactions With Affiliates ......................................27
10.7 Activities During Deadlock ........................................27
ARTICLE XI
PROGRAMS AND BUDGETS
11.1 Operations Pursuant to Programs and Budgets .......................28
11.2 Types of Programs .................................................28
11.3 Preparation, Presentation and Content of Programs and Budgets .....28
11.4 Submittal and Approval of Proposed Programs and Budgets ...........29
11.5 Election to Participate ...........................................30
11.6 Participation in Subsequent Programs ..............................31
11.7 Budget Overruns and Program Changes ...............................31
11.8 Emergency or Unexpected Expenditures ..............................31
ARTICLE XII
ACCOUNTS AND SETTLEMENTS
12.1 Monthly Statements ................................................31
12.2 Cash Calls ........................................................31
12.3 Failure to Meet Cash Calls ........................................31
12.4 Audits ............................................................32
ARTICLE XIII
DISPOSITION OF PRODUCTION
13.1 Taking in Kind ....................................................32
13.2 Failure to Take in Kind ...........................................32
13.3 Hedging ...........................................................32
ARTICLE XIV
WITHDRAWAL AND TERMINATION
14.1 Termination by Expiration or Agreement ............................32
14.2 Withdrawal and Other Events of Termination ........................32
14.3 Continuing Obligations ............................................33
14.4 Disposition of Assets on Termination ..............................34
14.5 Right to Data After Termination ...................................34
14.6 Continuing Authority ..............................................34
ARTICLE XV
ABANDONMENT AND SURRENDER OF PROPERTIES
15.1 Surrender or Abandonment of Property ..............................34
15.2 Reacquisition .....................................................35
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PART III - PROVISIONS APPLICABLE TO PARTS I AND II
ARTICLE XVI
TRANSFER OF INTEREST
16.1 Transfers Generally ...............................................35
16.2 Limitations on Free Transferability ...............................35
16.3 Preemptive Right ..................................................36
16.4 Exceptions to Preemptive Right ....................................37
16.5 Compulsory Acquisition Option on Bankruptcy .......................37
16.6 Buy-Out Right on Royalty ..........................................38
16.7 Registration ......................................................38
ARTICLE XVII
CONFIDENTIALITY
17.1 General ...........................................................38
17.2 Exceptions ........................................................38
17.3 Duration of Confidentiality .......................................39
17.4 Internal Proprietary Information ..................................39
17.5 Public Announcements ..............................................39
17.6 Parties' Information ..............................................39
ARTICLE XVIII
TAX DEDUCTIONS AND CERTIFICATES
18.1 Deductions ........................................................40
18.2 Certificates ......................................................40
18.3 GST Election ......................................................40
ARTICLE XIX
GENERAL PROVISIONS
19.1 Notices ...........................................................40
19.2 Waiver ............................................................41
19.3 Modification ......................................................41
19.4 Force Majeure .....................................................41
19.5 Governing Law .....................................................42
19.6 Further Assurances ................................................42
19.7 Survival of Terms and Conditions ..................................42
19.8 Entire Agreement ..................................................42
19.9 Successors and Assigns ............................................42
19.10 Severability ......................................................42
19.11 No Partnership ....................................................42
19.12 Further Ground Within Area of Interest and Other Business
Opportunities .....................................................43
19.13 Waiver of Rights of Partition and Sale ............................44
19.14 Transfer or Termination of Rights to Properties ...................44
19.15 Implied Covenants .................................................44
19.16 Employees .........................................................44
19.17 Expense and Commissions ...........................................44
19.18 Counterparts ......................................................44
19.19 Rule Against Perpetuities .........................................44
19.20 Payment of Royalties ..............................................45
19.21 Arbitration of Disputes ...........................................45
SCHEDULES
Schedule A - Part 1 Property List - Saskatchewan Properties
Schedule A - Part 2 Location Map
Schedule B - Initial Program and Expenditures
Schedule C - Accounting Procedure
Schedule D - Definition, Calculation and Payment of Royalty
Schedule E - Definition of Feasibility Study
Schedule F - Insurance
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EXPLORATION OPTION AND OPERATING JOINT VENTURE
This Agreement is dated to be effective as of December 16, 1998, between
XXXXXX DODGE CORPORATION OF CANADA, LIMITED, a corporation governed by the laws
of Delaware ("PDC" or "Optionor"), and URANIUM POWER CORPORATION, a corporation
governed by the laws of Colorado ("UPC" or "Optionee").
WHEREAS:
A. PDC owns a 100% beneficial interest in the rights to explore and mine
identified in Parts 1 and 2 of Schedule A and defined in Article I as the
"Properties";
B. Subject to the terms and provisions of Article IV of this Agreement, UPC
will fund an initial program of Expenditures (as herein defined) aggregating not
less than $500,000 on the Properties by December 31, 1999 and may thereafter
spend an additional $2,500,000 in exploration on the Properties on or before
December 31, 2002 to earn an undivided 100% participating and ownership interest
in the Properties, subject to a royalty interest;
C. PDC will have an option to earn back a 35% participating and ownership
interest in the Properties by incurring certain expenditures as set out herein
and, subject to the fulfilment of the other requirements of Article V of this
Agreement, PDC and UPC will form an operating joint venture as set forth in Part
II of this Agreement, all on the terms and conditions hereinafter set forth; and
D. PDC desires to dedicate its interest in the Properties to the purposes
of this Agreement.
IN CONSIDERATION OF the mutual promises set forth below, PDC and UPC agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions - As used in this Agreement and any schedules hereto,
unless there is something inconsistent in the subject matter or context, the
following words and terms shall have the meanings set out below:
"Accounting Procedure" means the procedures set forth in Schedule C.
"Additional Rights" means any right to explore or mine or both any part of which
is located within the Area of Interest and which has been offered to or acquired
by a Party and which has been offered by that Party and accepted by the other
Party to continue subject to the terms of this Agreement.
"Affiliate" means any person, partnership, joint venture, corporation or other
form of enterprise which directly or indirectly has a Control Interest, is under
common control with or is controlled by a Party or another Affiliate.
"Agreement" means this Exploration Option and Operating Joint Venture Agreement
and all attached Schedules and all instruments supplemental to or in amendment
or confirmation of this Agreement; and references to Parts, Articles, Sections
or subsections are to the specified Parts, Articles, Sections or subsections of
this Agreement.
"Area of Interest" means the area of land within the configuration on the ground
formed by extending outward the outer boundaries of each of the Properties two
kilometres in perpendicular distance and then extending lengthwise those
extended boundary lines until they first meet the extension of another extended
boundary line. For purposes of this definition "Properties" are the Properties
as they exist as at the Effective Date, and the boundaries of the Area of
Interest shall be unaffected by acquisition or surrenders of parts of the
Properties or Additional Rights during the term of this Agreement.
"Assets" means the Properties, the Surface Rights, Products and all other real
and personal property, tangible and intangible, including, without limitation,
rights under agreements with federal, provincial or local governments relating
to the Properties and the Mine and Plant if Mining occurs, held for the benefit
of the Parties hereunder.
"Atomic Energy Control Act" means the Atomic Energy Control Act (Canada) and all
regulations thereunder, in force on the date this agreement is entered into,
together with all amendments enacted thereto from time to time.
"Budget" means a detailed estimate of all costs to be incurred by the Parties
with respect to a Program and a schedule of cash advances to be made by the
Parties.
"Business Day" means a day, other than a Saturday or Sunday, on which the
principal commercial banks located at Toronto, Ontario are open for business
during normal banking hours.
"Continuing Obligation" means an obligation or responsibility that is reasonably
expected to continue or arise after Operations on a particular area of the
Properties has ceased or is suspended, such as future monitoring, stabilization,
reclamation or restoration requirements under Laws, or under the terms of the
forms of tenure under which the Properties are held.
"Continuing Party" means a party that has a Participating Interest or has
acquired all or any part of the Participating Interest of a Party pursuant to
this Agreement.
"Control Interest" means an interest which allows the holder to direct or cause
the direction of the management and policies of a Party or Affiliate through the
legal or beneficial ownership of voting securities, the right to appoint
directors or management, contract, voting trust, or otherwise.
"Development" means preparation for the removal and recovery of Products,
including definition drilling, test mining, mine feasibility studies, and other
such work.
"Development Program" means that type of Program defined in Section 11.2(b).
"Earn Back Option" has the meaning given to it in Subsection 5.1(c).
"Effective Date" means the date set forth at the beginning of this Agreement.
"Effective Joint Venture Date" has the meaning set forth in Section 6.4.
"Expenditures" for all purposes of this Agreement means all moneys expended in
connection with the Properties by a Party authorized to do so by the terms of
this Agreement (an "Authorized Party") in prospecting, exploration, development,
preproduction, mining and processing work on or in connection with the
Properties or any part of them. Without limiting the generality of the
foregoing, Expenditures shall include all direct and indirect charges as
described in Sections II and III of the Accounting Procedure and shall include
moneys spent by an Authorized Party in acquiring and maintaining Surface Rights,
in constructing, maintaining and operating roads, trails and bridges upon or
across the Properties or other lands for the purpose of having convenient access
to the Properties; and in mining, prospecting, exploring, developing,
de-watering, sampling, examining, diamond drilling, testing and metallurgical
work of all types; for geophysical, geological and other surveys; reasonable
costs and expenses connected with feasibility studies (whether prepared by
persons who are associated with a Party or on an arm's length basis) and for
buildings, equipment, plant and supplies for the Properties including reasonable
supervision, office and travelling expenses, workers' compensation assessments,
unemployment insurance premiums, fire insurance premiums, taxes, rents, license
2
fees and all other payments necessary to keep the Properties in good standing;
and all other expenses ordinarily incurred in exploring, developing and
operating a mining property, including an indirect charge for administration and
overhead in accordance with the Accounting Procedure. The certificate of an
officer of the Authorized Party which has incurred Expenditures in connection
with the Properties shall be accepted as prima facie evidence of the making of
Expenditures. Except as provided in this Agreement, the other Party shall be
given access to the documentation used by the Authorized Party to certify
Expenditures and shall be entitled at its own cost and expense to audit the
amount of Expenditures certified to by the Authorized Party.
"Exploration" means all activities directed toward ascertaining the existence,
location, quantity, quality or commercial value of deposits of Products
including such things as drilling, geophysics and geochemistry.
"Exploration Program" means a Program as defined in Subsection 11.2(a).
"Feasibility Study" means a written report which satisfies the criteria set
forth in Schedule E and a "Favourable Feasibility Study" shall be such a
Feasibility Study that recommends all or part of the Properties be brought into
production.
"Initial Contribution" means the contribution that each Party is deemed to have
made on the formation of the Joint Venture as described in Section 6.1(a).
"Initial Program" means the initial program of Exploration with Expenditures of
not less than $500,000 which is to be completed by not later than December 31,
1999, substantially as set out in Schedule B.
"Joint Account" means the account maintained in accordance with the Accounting
Procedure showing the charges and credits accruing to the Parties after Part II
comes into effect.
"Joint Venture" means the operating joint venture with respect to the Properties
established between Optionor and Optionee under Article VI.
"Law" or "Laws" means all applicable federal, provincial and local laws
(statutory or common), rules, ordinances, regulations, orders, directives,
standards, judgments, and decrees, and agreements with government departments or
agencies thereof, if any, whether legislative, administrative or judicial in
nature, including without limitation, the Mineral Act and the Atomic Energy
Control Act.
"Management Committee" means the committee established under Article IX after
Part II comes into effect.
"Mine and Plant" means the facilities constructed and equipment and supplies
purchased in accordance with the Mining Program and Budget and any approved
expansion or modification Mining Programs and Budgets.
"Mineral Act" means The Crown Minerals Act (Saskatchewan) and The Mineral
Disposition Regulations thereunder in force on the date this Agreement is
entered into, together with all amendments enacted thereto from time to time.
"Mining" means the mining, extracting, producing, handling, milling or other
processing of Products.
"Mining Program" means the type of Program defined in Section 11.2(c).
"Non-Operator" means the Party that is not the Operator.
"Operations" means the activities carried out under this Agreement after Part II
comes into effect.
3
"Operator" means the person or entity appointed under Article X to manage
Operations, or any successor Operator after Part II comes into effect.
"Option" shall have the meaning given to it in Subsection 4.1(c).
"Party" and "Parties" means, initially, PDC and UPC, and thereafter the persons
or entities, that from time to time before Part II comes into effect have the
option rights under Part I, and after Part II comes into effect means only PDC
and UPC or the persons or entities as successors to PDC and UPC who have
Participating Interests acquired pursuant to the provisions of this Agreement.
"Participating Interest" means the percentage interest representing the
ownership interest, as a tenant in common with the other Party, of a Party who
is not a Royalty Holder in the Assets, and all other rights and obligations
arising under this Agreement, as such interest may from time to time be adjusted
hereunder. Participating Interests shall be calculated to three decimal places
and rounded to two (e.g., 1.519% rounded to 1.52%). Decimals of .005 or more
shall be rounded up to .01, decimals of less than .005 shall be rounded down.
The initial Participating Interests of the Parties upon the formation of the
Joint Venture are set forth in Section 8.1.
"Prime Rate" means, at any time, the rate of interest expressed as an annual
rate, established by The Toronto-Dominion Bank at its main office in Toronto,
Ontario as its reference rate of interest to determine the interest rates it
will charge for loans in Canadian dollars to Canadian customers, adjusted
automatically with each quoted or published change in such rate, all without the
necessity of any notice to its borrowers or any other person.
"Products" means all ores, minerals and mineral resources and by-products
thereof produced under this Agreement, including, without limitation,
Uranium-bearing Products, By-Products and Other Mineral Products, as such terms
are defined in Schedule D.
"Program" means a description in reasonable detail of Operations to be conducted
and objectives to be accomplished by the Operator for a year or any longer
period after Part II comes into effect.
"Properties" means the rights and obligations in respect of the rights to
explore and mine the properties identified in Schedule A, which are held subject
to this Agreement, as well as the Mineral Act, the Atomic Energy Control Act, or
other Laws, as applicable, together with any and all successor rights, titles
and interests issued pursuant to such rights.
"Representative" shall have the meaning given to it in Section 9.1.
"Rights and Options" means any or all of the rights and options granted to the
Optionee pursuant to this Agreement and more particularly described in Article
IV.
"Royalty" means the vested royalty on Products produced from the Properties,
which shall comprise an interest in, bind, run with and touch the Properties and
the Products and be defined and payable as provided in Schedule D attached
hereto.
"Royalty Holder" means a Party entitled to receive a Royalty.
"Separate Mining Program" means a Program as defined in Subsection 11.4(e).
"Surface Rights" means any ownership of or rights to enter, use and occupy the
surface area of the lands described by the Properties or other surface areas
useful in connection with activities under this Agreement and held from time to
time hereunder.
4
"Tax Act" means the Income Tax Act (Canada), as amended.
"Transfer" means sell, grant, assign, arrange for substitute performance by an
Affiliate or third party, encumber, pledge or otherwise convey, commit or
dispose of and the word used as a noun shall have a corresponding meaning.
ARTICLE II
PRINCIPLES OF INTERPRETATION
2.1 Principles of Interpretation - In this Agreement and the Schedules:
(a) time is of the essence in the performance of the Parties' respective
obligations; provided, however, that should the Parties set new times for the
performance of any of their obligations time shall again be of the essence in
respect of such new times;
(b) unless otherwise specified, all references to money amounts are to
Canadian currency;
(c) the use of words in the singular or plural, or with a particular
gender, shall not limit the scope or exclude the application of any provision of
this Agreement or a Schedule to such person or persons or circumstances as the
context otherwise permits;
(d) the descriptive headings of Parts, Articles, Sections and subsections
are inserted solely for convenience of reference and are not intended as
complete or accurate descriptions of content and shall not be used to interpret
the provisions of this Agreement;
(e) unless otherwise specified, any time period within or following which
any payment is to be made or act is to be done shall be calculated by excluding
the day on which the period commences and including the day on which the period
ends and by extending the period to the next Business Day following if the last
day of the period is not a Business Day;
(f) whenever any payment is to be made or action to be taken under this
Agreement is required to be made or taken on a day other than a Business Day,
such payment shall be made or action taken on the next Business Day following;
and
(g) whenever the phrase "to the best of its knowledge" is used, such phrase
shall be interpreted to mean to the best of a Party's knowledge after reviewing
all relevant records and making diligent inquiries regarding the relevant
subject matter.
2.2 Schedules - the Schedules annexed to this Agreement, as listed below,
are an integral part of this Agreement:
Title Description
----- -----------
Schedule A - Part 1 Property List - Saskatchewan Properties
Schedule A - Part 2 Location Map
Schedule B - Initial Program and Expenditures
Schedule C - Accounting Procedure
Schedule D - Definition, Calculation and Payment of Royalty
Schedule E - Definition of Feasibility Study
Schedule F - Insurance
2.3 Operation of Parts - On execution and delivery of this Agreement, it is
agreed that Articles I, II, III and IV and Parts I and III shall be operative
and that Part II shall only be operative upon the occurrence of certain events
as stated therein.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Capacity - Each of the Parties represents and warrants to the other as
follows:
(a) that it is a corporation existing and in good standing under the laws
of its governing jurisdiction and that it is qualified to do business and is in
good standing in the Province of Saskatchewan and in all jurisdictions where it
carries on its business;
(b) that it has the capacity to enter into and perform its obligations
under this Agreement, no shareholder actions are required on its part to
authorize the transactions contemplated herein and that all corporate and other
actions required to authorize it to enter into and perform its obligations under
this Agreement have been properly taken;
(c) that it will not breach any other agreement or instrument by entering
into or performing under this Agreement; and
(d) that this Agreement has been duly executed and delivered by it and is
valid, binding and enforceable against it in accordance with its terms, subject
only to the qualifications that enforceability may be limited by: (i)
bankruptcy, insolvency, reorganization, receivership, moratorium, arrangement or
winding-up laws or other similar laws affecting the enforcement of creditors'
rights generally; and (ii) equitable principles, including the principle that
equitable remedies such as specific performance and injunction may only be
granted in the discretion of a court of competent jurisdiction.
3.2 Liens and Encumbrances - Except as specifically provided in Part II of
this Agreement, UPC and PDC each covenants that it will not knowingly cause or
permit any liens or encumbrances to be charged against the Properties.
3.3 Representations, Warranties and Covenants of PDC - PDC represents,
warrants, and covenants to Optionee that:
(a) to the best of its knowledge, the information in Part 1 of Schedule A
hereto relating to the Properties is true, complete and correct and accurately
describes the area covered by the rights subject to this Agreement;
(b) to the best of its knowledge, the Properties have been properly staked
and recorded under the Mineral Act and are currently registered in the name of
Nordland Exploration Ltd. as to a 100% undivided interest. For the portion of
the Properties where the Surface Rights are not held in fee simple by Optionor,
Optionee shall obtain from the appropriate Surface Rights holder or holders all
necessary consents and approvals as to entry, use and occupation of the Surface
Rights for the purpose of its activities hereunder and Optionor agrees to
co-operate with Optionee in obtaining all such consents and approvals;
(c) Optionor is the sole beneficial owner and has exclusive possession of
the Properties and has complete authority to deal with the Properties, and,
other than this Agreement and the letter agreement dated February 21, 1996
between PDC and Nordland Exploration Ltd., there are no other agreements
affecting title to the Properties. Subject to Section 4.8 hereof, Optionor may
at any time cause Nordland Exploration Ltd. to transfer registered title to the
Properties into Optionor's name;
(d) during the currency of this Agreement, without the prior written
consent of Optionee, Optionor will not enter into new agreements or instruments,
encumbering or affecting the Properties or amend or modify any that now exist;
(e) none of the shareholders of Optionor are required to approve the
execution and delivery of this Agreement and no stock exchange or other
regulatory body having jurisdiction over Optionor is required to consent to or
approve the execution and delivery of this Agreement or the performance of any
of its terms;
6
(f) except as noted in Subsection 3.3(b) above, the Properties are free of
all liens, charges, encumbrances and instruments of any kind whatsoever,
registered and unregistered, and Optionee has had access to examine copies of
all title documents, plots and field notes of surveys and all data and
information which Optionor has in its possession or under its control relating
to the Properties, the mineral potential of, and access rights to, the
Properties and Optionor is not aware of any pending or threatened actions or
claims by third parties or government agencies for anything done or not done
with respect to the Properties;
(g) all municipal, provincial, territorial and federal taxes and levies of
any kind whatsoever in respect of the ownership and use of all of the Properties
which were due and payable as of the date of this Agreement or prior to such
date have been paid and satisfied as of such date;
(h) Optionor is a non-resident of Canada for purposes of Section 116 of the
Tax Act;
(i) there are no outstanding or pending, or to the best of the Optionor's
knowledge, threatened, actions, suits or claims against or affecting the
Properties that would have an adverse effect on the Properties;
(j) conditions on and relating to the Properties with respect to all past
and current operations thereon are in compliance with all Laws relating to
environmental matters including, but not limited to, waste disposal and storage,
and no part of the surface of the Properties has been used as a site for the
disposal of any waste or has been contaminated with any toxic or harmful
substance; and
(k) there are no outstanding work orders or actions required to be taken
relating to the rehabilitation, reclamation, abandonment, restoration or
environmental matters in respect of the Properties or any operations thereon,
nor has the Optionor received notice of any such work orders or actions and the
Properties do not have any mine features or hazards, including but not limited
to, openings, shafts, excavations, adits, buildings, structures, machinery,
tailings, waste rock or any disturbances of the ground which create a hazard to
the public safety or environment or any other mine hazards which have not been
rehabilitated or restored in accordance with the Laws.
Optionor agrees with Optionee that each of the foregoing representations,
warranties and covenants are conditions to this Agreement inserted for the sole
benefit of Optionee and that each such condition shall survive the execution and
delivery of this Agreement and all transactions contemplated hereby.
3.4 Representations, Warranties and Covenants of UPC - UPC represents,
warrants and covenants to Optionor that:
(a) during the currency of this Agreement, without the prior written
consent of Optionor, UPC will not enter into new agreements or instruments
encumbering or affecting the Properties or amend or modify any that now exist;
(b) none of the shareholders of UPC and no stock exchange or other
regulatory body having jurisdiction over UPC is required to consent to or
approve the execution and delivery of this Agreement or the performance of any
its terms;
(c) UPC is a non-resident of Canada for purposes of Section 116 of the Tax
Act;
(d) UPC is capable of financing the $500,000 of Expenditures which it has
committed to incur under the Initial Program and to assure PDC of that financial
capability, UPC agrees to deliver to PDC on or before February 28, 1999 an
irrevocable letter of credit from a Canadian chartered bank to the effect that,
7
subject to extension by force majeure, UPC will complete $500,000 in
Expenditures on or before December 31, 1999 and if there is any shortfall in
such Expenditures, such chartered bank will pay PDC the difference in cash;
(e) If Optionor elects to exercise the Earn Back Option, Optionee shall be
deemed to represent, warrant and covenant to and for the benefit of Optionor
that:
(i) Optionee is the sole beneficial and registered owner and has
exclusive possession of the Properties and has complete authority
to deal with the Properties, and, other than this Agreement,
there are no other agreements affecting title to the Properties;
(ii) during the currency of this Agreement, without the prior written
consent of Optionor, Optionee will not enter into new agreements
or instruments, encumbering or affecting the Properties or amend
or modify any that now exist;
(iii)all municipal, provincial, territorial and federal taxes and
levies of any kind whatsoever in respect of the ownership and use
of all of the Properties which were due and payable as of the
date of this Agreement or prior to such date have been paid and
satisfied as of such date;
(iv) there are no outstanding or pending, or to the best of the
Optionor's knowledge, threatened, actions, suits or claims
against or affecting the Properties that would have an adverse
effect on the Properties;
(v) conditions on and relating to the Properties with respect to all
past and current operations thereon are in compliance with all
Laws relating to environmental matters including, but not limited
to, waste disposal and storage, and no part of the surface of the
Properties has been used as a site for the disposal of any waste
or has been contaminated with any toxic or harmful substance; and
(vi) there are no outstanding work orders or actions required to be
taken relating to the rehabilitation, reclamation, abandonment,
restoration or environmental matters in respect of the Properties
or any operations thereon, nor has the Optionor received notice
of same and the Properties do not have any mine features or
hazards, including but not limited to, openings, shafts,
excavations, adits, buildings, structures, machinery, tailings,
waste rock or any disturbances of the ground which create a
hazard to the public safety or environment or any other mine
hazards which have not been rehabilitated or restored in
accordance with the Laws.
Optionee agrees with Optionor that each of the foregoing representations,
warranties and covenants are conditions to this Agreement inserted for the sole
benefit of Optionor and that each such condition shall survive the execution and
delivery of this Agreement and all transactions contemplated hereby.
3.5 Materiality of Representations and Covenants - All representations,
warranties and covenants made in this Article III are material to this Agreement
and the Parties' intent in entering into it.
3.6 Disclosures - Each Party represents and warrants that it is unaware of
any material facts or circumstances that have not been disclosed to the other
Party and that should be disclosed to prevent the representations, warranties
and covenants contained in this Article III from being misleading.
8
3.7 Survival - All representations and warranties shall survive for a
period of four (4) years from the date of this Agreement. Recovery for breach of
such other representations and warranties by any Party shall be limited to the
fair market value of the other Party's interest in the Assets or Royalty
hereunder.
3.8 Indemnities/Limitation of Liability.
(a) Each Party shall indemnify the other Party, its officers, directors,
agents, employees and its Affiliates (collectively, the "Indemnified Party")
from and against any Material Loss. A "Material Loss" shall mean all costs,
expenses, damages or liabilities, including attorneys' fees and other costs of
litigation (including threatened or pending) arising out of or based on a breach
by a Party ("Indemnifying Party") of any representation, warranty or covenant
contained in this Agreement. A Material Loss shall be deemed to have occurred
if, in the aggregate, an Indemnified Party incurs losses, costs, damages or
liabilities in excess of five hundred dollars ($500.00) relating to the
warranties, representations and covenants described in this Agreement.
(b) If any claim or demand is asserted against an Indemnified Party in
respect of which such Indemnified Party may be entitled to indemnification under
this Agreement, written notice of such claim or demand shall promptly be given
to the Indemnifying Party. The Indemnifying Party shall have the right, by
notifying the Indemnified Party within thirty (30) days after its receipt of the
notice of the claim or demand, to assume the entire control of (subject to the
right of the Indemnified Party to participate, at the Indemnified Party's
expense and with counsel of the Indemnified Party's choice) the defence,
compromise or settlement of the matter. Any damages to the assets or business of
the Indemnified Party caused by a failure by the Indemnifying Party to defend,
compromise, or settle a claim or demand in a reasonable and expeditious manner,
after the Indemnified Party has given notice of such claim, shall be included in
the damages for which the Indemnifying Party shall be obligated to indemnify the
Indemnified Party. Any settlement or compromise of a matter by the Indemnifying
Party shall include a full release of claims against the Indemnified Party which
have arisen out of the claim or demand for which indemnification is sought.
PART I - THE OPTION PERIOD AND THE EARN BACK OPTION PERIOD
ARTICLE IV
SCOPE AND MAINTENANCE OF OPTION
4.1 Grant of Options and Rights - On execution and delivery of this
Agreement, Optionor hereby gives and grants to Optionee:
(a) Right and Option to Explore - Subject to the Optionee obtaining from
the appropriate Surface Rights holders, if any, all necessary consents and
approvals as to entry, use and occupation of the Surface Rights and, where
applicable, consents to explore land under water, the immediate licence,
authority and option to enter upon and explore and develop all parts of the
Properties and during the currency of the Option to acquire interests hereunder
with the same power and authority granted to Optionee, its servants, agents,
workers or contractors and their subcontractors and agents as Optionor has, to
sample, examine, diamond drill, prospect, explore, develop and mine the same in
searching for minerals, in such manner as may be permitted by Laws, the Surface
Rights owners, if any, and as Optionee in its sole discretion may determine,
including the right to erect, bring and install thereon all such buildings,
machinery, equipment and supplies as Optionee shall deem necessary and the right
to remove reasonable quantities of ore for assay and testing purposes only;
(b) Right to Return, Release and Otherwise Deal with Properties - Optionee
may at any time give 35 days' written notice (a "Release Notice") to Optionor
that it wishes to release all interest which it holds in any portion of the
Properties; provided, always, that the assessment work credits against any such
Properties will keep them in good standing for not less than one year from the
date of any such notice. In the case where the Release Notice relates to a
portion of the Properties held under the Mineral Act, unless Optionor exercises
its right to maintain such Properties, Optionee shall be free to allow such
Properties to lapse by ceasing to file assessment work in respect thereof or may
cause them to be abandoned or surrendered under the Mineral Act.
From the giving of Optionee's Release Notice with respect to any portion of
the Properties, that portion of the Properties shall no longer be subject to
this Agreement and either Party shall be free to acquire rights to explore or
mine or both over the areas previously covered by such Properties at any time.
During the currency of the Option, the Optionee shall have the right with
prior notice to and the concurrence of Optionor to apply for renewals and
extensions of each of the rights constituting the Properties, to make any
deficiency payments required, and to apply for and on behalf of both Parties for
further and other mineral rights in respect of the areas covered by the
Properties, to distribute work credits and apply for a mining lease and to
negotiate with the owners and occupiers of any Surface Rights, if any, required
for access to, or the exploration and development of, the Properties; and
9
(c) Right and Option to Earn a 100% Interest - The further sole and
exclusive right and option to earn on or before December 31, 2002, a 100%
undivided interest subject to the Royalty provided in Section 4.9 and the Earn
Back Option, in the Properties free of all other liens, charges, encumbrances
and conflicting claims (the "Option"), by (i) completing by December 31, 1999
the Initial Program and incurring Expenditures of $500,000; (ii) incurring an
aggregate of not less than $2,500,000 in Expenditures (in addition to the amount
set out in paragraph (i)) prior to December 31, 2002; and (iii) thereafter
giving the Optionor notice of exercise as provided in Section 4.4, all upon and
subject to the terms and conditions of this Agreement.
4.2 Commitments of Optionee
(a) Initial Program - Notwithstanding anything contained in this Agreement
and regardless of whether Optionee elects to maintain or exercise the Option,
Optionee agrees to complete the Initial Program by December 31, 1999, which
Expenditures shall include those necessary to ensure that PDC recovers in cash
the $126,678.65 of the payments made in lieu of work, and those necessary
Expenditures are set out in Schedule A Part 1.
(b) Maintenance of Properties Free of Tax Liens - Until such time as
Optionee may exercise the right to release portions of the Properties under
Subsection 4.1(b) or to abandon the Rights and Options pursuant to Section 4.5,
or until the formation of the Joint Venture, Optionee shall maintain the
Properties in good standing under the Mineral Act or other Laws, as applicable,
until such time as it may exercise the right to right to release portions of the
Properties under Subsection 4.1(b) or to abandon the Rights and Options pursuant
to Section 4.5.
(c) Reports - Prior to the formation of the Joint Venture, Optionee agrees
to file the results of all its Expenditures for assessment work credit under the
Mineral Act. Optionee agrees to give Optionor verbal reports of material
occurrences in the conduct of work prior to the exercise of the option as soon
as practicable and in all events not less frequently than monthly. Optionee
shall prepare an annual technical report giving details of the factual data
resulting from the Expenditures incurred in the last completed calendar year,
within ninety (90) days following the completion of the applicable calendar
year.
(d) Access - Until such time as the Optionor becomes the Operator, Optionor
and its authorized representatives shall be entitled to enter upon the
Properties in reasonable numbers and at reasonable times at their own risk and
expense to inspect the work being carried out by Optionee. Optionor will
indemnify Optionee against any expenses or damages that it may incur as a result
of any injury or property damage sustained or caused by Optionor or its
representatives.
(e) Removal of Liens - Until such time as the Optionor becomes the
Operator, Optionee will pay or cause to be paid all workers or wage earners
employed by it on the Properties and will pay for all material purchased by it
in connection with its work on the Properties which might give rise to a lien.
If a lien or notice of lien is recorded against the Properties as a result of
work done by or for Optionee, it will take reasonable steps to have the lien
removed; provided, however, that Optionee may dispute any claim for lien.
4.3 Requirements to Maintain and Exercise the Option
(a) Option - Subject to Subsection 4.3(b) below, in order to keep the
Option in good standing and exercise the same, Optionee shall be required to (i)
expend not later than the dates set forth in Column (2) below; and (ii) certify
in writing to Optionor not later than ninety (90) days following the dates set
forth in Column (2) below, not less than the cumulative aggregate Expenditures
10
set forth on the same line in Column (1) below, which certification shall
include or be accompanied by a report in the nature of the report referred to in
Subsection 4.2(c) in respect of such work to the extent not previously reported:
Column (1) Column (2)
Cumulative Aggregate Expenditures Required Dates
--------------------------------- --------------
$500,000 December 31, 1999
$3,000,000 December 31, 2002
(b) Title Disputes - Notwithstanding the dates set forth in this Agreement
for the incurring of any Expenditures by Optionee or the giving of any notices,
if Optionor's ownership of any of the Properties is disputed by proceedings in
any court, then the period of time within which Optionee is required to make any
Expenditures or give any notification hereunder shall be automatically extended
by the period of time between the commencement of any such proceedings and ten
(10) days after the final termination of any such proceedings in a court of
final resort from which no appeal can be taken by any party involved therein.
Similarly, all time periods and dates subsequent to such extended period shall
be adjusted to take into account the extension and delay arising out of such
dispute. Optionor shall be responsible for resolving any such proceedings;
however, Optionee shall co-operate with the Optionor, at Optionor's expense, in
the defence and resolution of such proceedings.
(c) Failure to Make Required Expenditures in respect of the Option Subject
to the provisions of Subsection 4.3(b) and the provisions regarding notice of
default in Section 4.6 and force majeure in Section 19.4 of this Agreement, if
on any stipulated date, Optionee fails to certify in writing to Optionor the
cumulative aggregate Expenditures required in accordance with Subsection 4.3(a),
then all Rights and Options hereunder shall lapse and the Option shall
terminate. Notwithstanding the foregoing, if Optionee should fail to make the
Expenditures required by Subsection 4.3(a) on or before the dates set forth
herein, Optionee shall have the option to pay any shortfall in cash to Optionor
and any such payment shall be counted towards the cumulative aggregate
Expenditures required by Subsection 4.3(a), in which case all Rights and Options
under the Agreement shall continue under the terms hereof.
(d) Rights or Duties on Termination - In the event of termination of the
Rights and Options hereunder through failure of Optionee to comply with the
provisions of Subsection 4.3(a) or as otherwise provided herein:
(i) Optionee shall surrender the use of the Properties to Optionor
provided that for a period of 180 days after the effective date
of such termination, subject to the Optionee making its own
arrangements with the owners of the Surface Rights, if any,
Optionee shall have the right of free access to the Properties
for the purposes of removing and may remove all buildings, plant,
equipment, machinery, tools, appliances, supplies and other
materials which it may have erected, placed or installed therein,
or thereon, but excluding any such items belonging to Optionor
(collectively, "Optionee's Equipment") and no rental or occupancy
shall be charged to Optionee for such privilege or removal. If
Optionee does not remove Optionee's Equipment within 180 days
after termination, Optionor may notify Optionee in writing that
it requires Optionee to remove all unremoved Optionee's
Equipment, and if such removal has not occurred within 45 days
after such notice was delivered, Optionor shall be entitled to
remove and dispose of all unremoved Optionee's Equipment, and
Optionor shall be entitled to recover from Optionee and Optionee
shall forthwith reimburse Optionor for its reasonable cost and
expenses of such removal;
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(ii) If Optionee has acquired any Surface Rights which are assignable
and are requested by Optionor to be assigned to it, Optionee
shall assign such Surface Rights to Optionor, subject to Optionor
paying to Optionee the amount of the transfer fee and other costs
for the transfer of such Surface Rights;
(iii)Optionee will comply with all regulatory authorities, including
municipal and provincial, with respect to clean-up of its work on
the Properties and in doing so will comply with all government
directives and regulations whatsoever, including those of
environmental agencies, and will be responsible for all
disturbances or contamination arising from its work on the
Properties; provided, however, that Optionee shall not be
responsible for disturbances or contamination of the Properties
that occurred on the Properties prior to the Effective Date or
following the termination of this Agreement;
(iv) Optionee will, within ninety (90) days of any termination,
deliver to Optionor a copy of any maps, reports, assays and a
certificate of its Expenditures in respect of those portions of
the Properties in respect of which termination has occurred, to
the extent that they have not previously been supplied by
Optionee to Optionor; and
(v) Optionee shall, to the extent not already paid, pay all taxes,
fees and fines if any, relating to all the Properties, applicable
to the period of the occupancy thereof by Optionee.
4.4 Exercise of the Option - If Optionee elects to exercise the Option, it
shall do so by giving written notice of exercise to Optionor on or before March
31, 2003.
4.5 Abandonment of All Rights and Options - Except for the commitments of
Optionee under Section 4.2 and Subsection 4.3(d), and any other accrued
obligations of Optionee to Optionor hereunder (which accrued obligations shall
be performed by Optionee irrespective of termination), it is agreed that nothing
contained in Article IV of this Agreement nor the doing of any act or thing by
Optionee under the terms of Article IV of this Agreement shall obligate it to do
anything else hereunder, it being clearly understood that Optionee may abandon
all the Rights and Options granted to it under this Article IV by giving notice
of such abandonment to Optionor. If Optionee gives notice of abandonment of the
Rights and Options granted to Optionee in Article IV, and provided Optionee
complies with all its accrued obligations to Optionor hereunder, Optionee shall
be under no obligation to make any payment or do anything else hereunder from
and after the date such notice is effective and shall forthwith thereafter
deliver the documentation and take the action relating to the Properties
referred to in Subsection 4.3(d).
4.6 Notice of Default - If, prior to the coming into effect of Part II,
Optionee fails to perform or defaults in the performance of a material
obligation under this Agreement, Optionor may terminate this Agreement, but only
if:
(a) Optionor has first given to Optionee a notice of default containing
particulars of the failure or default; and
(b) Optionee has not:
(i) in the case of default on any payment, including any expenditure
or payment in lieu of work as provided in Subsection 4.3(a) or
(c), cured such default within fifteen (15) days following
delivery of notice of default; or
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(ii) in any other case, cured such default or commenced proceedings to
remedy such default by appropriate performance within ninety (90)
days following delivery of notice of default (Optionee hereby
agreeing that should it so commence to cure any default it will
prosecute the same to completion without undue delay).
If Optionee fails to comply with the provisions of Subsection 4.6(b),
Optionor may then terminate the Rights and Options granted to Optionee by
written notice to Optionee.
4.7 Conduct of Optionee - The Optionee agrees that it shall, during the
currency of the Rights and Options hereby granted, carry out its activities as
contemplated hereunder in a manner consistent with good and prudent mining,
mineral exploration and environmental practices and in accordance with all Laws.
4.8 Transfer of Title - If Optionee exercises the Option by notice given
pursuant to Section 4.4 and provides Optionor with evidence that Optionee is
legally eligible to transfer title, then Optionor shall forthwith obtain all
requisite consents and take all requisite actions under the instruments and the
Laws by which the Properties are held to transfer, register and record the 100%
interest in the title to each of the Properties in favour of Optionee to be held
by Optionee subject to the terms and conditions of this Agreement, including
without limitation, the Earn Back Option.
4.9 Royalty - Upon the exercise of the Option, the Royalty shall vest in
the Optionor. Notwithstanding anything in this Agreement to the contrary, such
Royalty on Products shall comprise an interest in, run with, bind and touch the
Properties and the Products if, as and whenever they constitute "real property"
or severed "personal property", as the case may be. Upon the vesting of the
Royalty as provided above and subject to Section 5.9, PDC shall thereafter be
called a Royalty Holder. Subject to Subsection 16.6, the Royalty provided under
this Section 4.9 shall be freely transferable by the Royalty Holder
notwithstanding any other provisions of this Agreement, and such transfer shall
be binding upon and shall enure to the benefit of the parties involved and their
respective successors and assigns.
ARTICLE V
SCOPE AND MAINTENANCE OF EARN BACK OPTION
5.1 Grant of Options and Rights - On execution and delivery of this
Agreement, UPC hereby gives and grants to PDC the following rights and options,
provided that in order for PDC to be entitled to such rights and options, PDC
shall elect, on or before 180 days after UPC exercises its Option pursuant to
Section 4.4, to work toward exercising the Earn Back Option by giving notice to
UPC. If PDC fails to give such notice, PDC shall be deemed to have elected not
to work toward the exercise of the Earn Back Option. If PDC elects or is deemed
to have elected not to work toward the exercise of the Earn Back Option, this
Article V shall have no further force or effect.
(a) Right and Option to Explore - Subject to PDC with the assistance of UPC
obtaining from the appropriate Surface Rights holders, if any, all necessary
consents and approvals as to entry, use and occupation of the Surface Rights
and, where applicable, consents to explore land under water, immediately upon
the exercise of the Option by UPC pursuant to Section 4.4, the licence,
authority and option to enter upon and explore and develop all parts of the
Properties and during the currency of the option to acquire interests hereunder
with the same power and authority granted to PDC, its servants, agents, workers
or contractors and their subcontractors and agents as UPC has, to sample,
examine, diamond drill, prospect, explore, develop and mine the same in
searching for minerals, in such manner as may be permitted by Laws, the Surface
Rights owners, if any, and as UPC in its sole discretion may determine,
including the right to erect, bring and install thereon all such buildings,
machinery, equipment and supplies as PDC shall deem necessary and the right to
remove reasonable quantities of ore for assay and testing purposes only.
13
(b) Right to Return, Release and Otherwise Deal with Properties In the
event PDC has elected to work toward the Earn Back Option, PDC may at any time
give 35 days' written notice (a "Release Notice") to UPC that it wishes to
release all interest which it holds in any portion of the Properties; provided,
always, that the assessment work credits against any such Properties will keep
them in good standing for not less than one year from the date of any such
notice. In the case where the Release Notice relates to a portion of the
Properties held under the Mineral Act, unless UPC exercises its right to
maintain such Properties, PDC shall be free to allow such Properties to lapse by
ceasing to file assessment work in respect thereof or may cause them to be
abandoned or surrendered under the Mineral Act.
From the giving of PDC's Release Notice with respect to any portion of the
Properties, that portion of the Properties shall no longer be subject to this
Agreement and either Party shall be free to acquire rights to explore or mine or
both over the areas previously covered by such Properties at any time.
During the currency of the Earn Back Option, PDC shall have the right with
prior notice to and the concurrence of UPC to apply for renewals and extensions
of each of the rights constituting the Properties, to make any deficiency
payments required, and to apply for and on behalf of both Parties for further
and other mineral rights in respect of the areas covered by the Properties, to
distribute work credits and apply for a mining lease and to negotiate with the
owners and occupiers of any Surface Rights, if any, required for access to, or
the exploration and development of, the Properties; and
(c) Right and Option to Earn a 35% Interest - The further sole and
exclusive right and option to earn on or before December 31, 2006, a 35%
undivided interest in the Properties free of all other liens, charges,
encumbrances and conflicting claims (the "Earn Back Option"), by (i) incurring
an aggregate of not less than $3,000,000 in Expenditures and (ii) thereafter
giving UPC notice of exercise as provided in Section 5.4, all upon and subject
to the terms and conditions of this Agreement.
5.2 Commitments of PDC
(a) Maintenance of Properties Free of Tax Liens - Until such time as PDC
may exercise the right to release portions of the Properties under Subsection
5.1(b) or to abandon the Rights and Options pursuant to Section 5.5, or until
the formation of the Joint Venture, PDC shall maintain the Properties in good
standing under the Mineral Act or other Laws, as applicable, until such time as
it may exercise the right to right to release portions of the Properties under
Subsection 5.1(b) or to abandon the Rights and Options pursuant to Section 5.5.
(b) Reports - Prior to the formation of the Joint Venture, PDC agrees to
file the results of all its Expenditures for assessment work credit under the
Mineral Act. PDC agrees to give PDC verbal reports of material occurrences in
the conduct of work prior to the exercise of the Earn Back Option as soon as
practicable and in all events not less frequently than monthly. PDC shall
prepare an annual technical report giving details of the factual data resulting
from the Expenditures incurred in the last completed calendar year, within
ninety (90) days following the completion of the applicable calendar year.
(c) Access - Until such time as UPC resumes the role of Operator, UPC and
its authorized representatives shall be entitled to enter upon the Properties in
reasonable numbers and at reasonable times at their own risk and expense to
inspect the work being carried out by PDC. UPC will indemnify PDC against any
expenses or damages that it may incur as a result of any injury or property
damage sustained or caused by UPC or its representatives.
14
(d) Removal of Liens - Until such time as UPC becomes the Operator, PDC
will pay or cause to be paid all workers or wage earners employed by it on the
Properties and will pay for all material purchased by it in connection with its
work on the Properties which might give rise to a lien. If a lien or notice of
lien is recorded against the Properties as a result of work done by or for PDC,
it will take reasonable steps to have the lien removed; provided, however, that
PDC may dispute any claim for lien.
5.3 Requirements to Maintain and Exercise the Earn Back Option
(a) Earn Back Option - Subject to Subsection 5.3(b) below, in order to keep
the Earn Back Option in good standing and exercise the same, PDC shall be
required to (i) expend not later than December 31, 2006; and (ii) certify in
writing to UPC not later than ninety (90) days following December 31, 2006, not
less than $3,000,000 in cumulative aggregate Expenditures, which certification
shall include or be accompanied by a report in the nature of the report referred
to in subsection 5.2(b) in respect of such work to the extent not previously
reported.
(b) Title Disputes - Notwithstanding the dates set forth in this Agreement
for the incurring of any Expenditures by PDC or the giving of any notices, if
UPC's ownership of any of the Properties is disputed by proceedings in any
court, then the period of time within which PDC is required to make any
Expenditures or give any notification hereunder shall be automatically extended
by the period of time between the commencement of any such proceedings and ten
(10) days after the final termination of any such proceedings in a court of
final resort from which no appeal can be taken by any party involved therein.
Similarly, all time periods and dates subsequent to such extended period shall
be adjusted to take into account the extension and delay arising out of such
dispute. UPC shall be responsible for resolving any such proceedings; however,
PDC shall co-operate with UPC, at UPC's expense, in the defence and resolution
of such proceedings.
(c) Failure to Make Required Expenditures in respect of the Earn Back
Option - Subject to the provisions of Subsection 5.3(b) and the provisions
regarding notice of default in Section 5.6 and force majeure in Section 19.4 of
this Agreement, if on any stipulated date, PDC fails to certify in writing to
UPC the cumulative aggregate Expenditures required in accordance with Subsection
5.3(a), then all Rights and Options under Article V shall lapse and the Earn
Back Option shall terminate.
(d) Rights or Duties on Termination - In the event of termination of the
Rights and Options under this Article V through failure of PDC to comply with
the provisions of Subsection 5.3(a) or as otherwise provided herein:
(i) PDC shall surrender the use of the Properties to UPC provided
that for a period of 180 days after the effective date of such
termination, subject to PDC making its own arrangements with the
owners of the Surface Rights, if any, PDC shall have the right of
free access to the Properties for the purposes of removing and
may remove all buildings, plant, equipment, machinery, tools,
appliances, supplies and other materials which it may have
erected, placed or installed therein, or thereon, but excluding
any such items belonging to UPC (collectively, "PDC's Equipment")
and no rental or occupancy shall be charged to PDC for such
privilege or removal. If PDC does not remove PDC's Equipment
within 180 days after termination, UPC may notify PDC in writing
that it requires PDC to remove all unremoved PDC's Equipment, and
if such removal has not occurred within 45 days after such notice
was delivered, UPC shall be entitled to remove and dispose of all
unremoved PDC's Equipment, and UPC shall be entitled to recover
from PDC and PDC shall forthwith reimburse UPC for its reasonable
costs and expenses of such removal.
15
(ii) If PDC has acquired any Surface Rights which are assignable and
are requested by UPC to be assigned to it, PDC shall assign such
Surface Rights to UPC, subject to UPC paying to PDC the amount of
the transfer fee for recording the transfer of such Surface
Rights;
(iii)PDC will comply with all regulatory authorities, including
municipal and provincial, with respect to clean-up of its work on
the Properties and in doing so will comply with all government
directives and regulations whatsoever, including those of
environmental agencies, and will be responsible for all
disturbances or contamination arising from its work on the
Properties; provided, however, that PDC shall not be responsible
for disturbances or contamination of the Properties that occurred
on the Properties prior to the Effective Date while UPC was
operator or following the termination of this Agreement;
(iv) DC will, within ninety (90) days of any termination, deliver to
UPC a copy of any maps, reports, assays and a certificate of its
Expenditures in respect of those portions of the Properties in
respect of which termination has occurred, to the extent that
they have not previously been supplied by PDC to UPC; and
(v) PDC shall, to the extent not already paid, pay all taxes, fees
and fines if any, relating to all the Properties, applicable to
the period of the occupancy thereof by PDC.
5.4 Exercise of the Earn Back Option - If PDC elects to exercise the Earn
Back Option, it shall do so by giving written notice of exercise to UPC on or
before March 31, 2007.
5.5 Abandonment of All Rights and Options - Except for the commitments of
PDC under Section 5.2 and Subsection 5.3(d), and any other accrued obligations
of PDC to UPC hereunder (which accrued obligations shall be performed by PDC
irrespective of termination), it is agreed that nothing contained in Article V
of this Agreement nor the doing of any act or thing by PDC under the terms of
Article V of this Agreement shall obligate it to do anything else hereunder, it
being clearly understood that PDC may abandon all the Rights and Options granted
to it under this Article V by giving notice of such abandonment to UPC. If PDC
gives notice of abandonment of the Rights and Options granted to PDC in Article
V and provided PDC complies with all its accrued obligations to UPC hereunder,
PDC shall be under no obligation to make any payment or do anything else
hereunder from and after the date such notice is effective and shall forthwith
thereafter deliver the documentation and take the action relating to the
Properties referred to in Subsection 5.3(d).
5.6 Notice of Default - If, prior to the coming into effect of Part II, PDC
fails to perform or defaults in the performance of a material obligation under
this Agreement, UPC may terminate this Agreement, but only if:
(a) UPC has first given to PDC a notice of default containing particulars
of the failure or default; and
(b) PDC has not:
(i) in the case of default on any payment, including any expenditure
or payment in lieu of work as provided in Subsection 5.3(a) or
(c), cured such default within fifteen (15) days following
delivery of notice of default; or
16
(ii)in any other case, cured such default or commenced proceedings to
remedy such default by appropriate performance within ninety (90)
days following delivery of notice of default (PDC hereby agreeing
that should it so commence to cure any default it will prosecute
the same to completion without undue delay).
If PDC fails to comply with the provisions of Subsection 5.6(b), UPC may
then terminate the Rights and Options granted to PDC by written notice to PDC.
5.7 Conduct of PDC - PDC agrees that it shall, during the currency of the
rights and options granted pursuant to Article V, carry out its activities as
contemplated hereunder in a manner consistent with good and prudent mining,
mineral exploration and environmental practices and in accordance with all Laws.
5.8 Transfer of Title - If PDC exercises the Earn Back Option by notice
given pursuant to Section 5.4, UPC shall forthwith obtain all requisite consents
and take all requisite actions under the instruments and the Laws by which the
Properties are held to transfer a 35% beneficial interest in the title to each
of the Properties to PDC to be held by UPC in the capacity of the trustee and
agent for the Parties as their Participating Interests are determined from time
to time under the provisions of Article VIII.
5.9 Royalty Suspended - Upon the exercise of the Earn Back Option by PDC
and the vesting of the 35% Participating Interest in PDC, the Royalty shall be
suspended and only become payable as provided in Section 8.5. For certainty, if
PDC elects to work toward exercising the Earn Back Option pursuant to Section
5.1, but does not ultimately exercise the Earn Back Option and the 35%
Participating Interest is not vested in PDC, the Royalty shall continue to be
payable to PDC.
PART II - THE JOINT VENTURE
ARTICLE VI
NATURE OF RELATIONSHIP
6.1 Formation of Joint Venture and Appointment of Operator.
(a) Upon the exercise of the Earn Back Option, a Joint Venture with respect
to the Properties shall automatically be formed between PDC and UPC, with UPC
having a 65% Participating Interest and PDC having a 35% Participating Interest,
and UPC shall become the Operator with the rights and duties provided under
Parts II and III of this Agreement.
(b) UPC shall be entitled to continue to act as Operator for so long as it
maintains a Participating Interest equal to or greater than that of the other
Party. Thereafter, the Party who has a Participating Interest greater than that
of the other Party at a particular time (as determined pursuant to Article VIII)
shall be the Operator for so long as it retains such Participating Interest. If,
at any time, the Participating Interest of the Operator should cease to be equal
to or greater than the Participating Interest of the other Party, the
Non-Operator, by notice in writing to the Operator ("Notice of Change of
Operator"), shall be entitled to become the Operator. If Notice of Change of
Operator is given, the Party to whom it is given shall turn over all documents
and records and assign the rights under all contracts and otherwise co-operate
and take all proper actions reasonably necessary to allow the successor Operator
to assume its duties and responsibilities under this Agreement.
6.2 Purposes - The Joint Venture is formed for the following purposes and
for no others, and shall serve as the exclusive means by which PDC and UPC, or
either of them, accomplish such purposes:
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(a) to conduct Exploration on the Properties;
(b) to evaluate the possibilities for the Development and Mining of the
Properties;
(c) to engage in Development and Mining on the Properties;
(d) to engage in the storage and/or removal of Products, to the extent
permitted by Article XIII;
(e) to complete and satisfy all environmental compliance and Continuing
Obligations affecting the Properties; and
(f) to perform any other activity necessary, appropriate or incidental to
any of the foregoing.
6.3 Limitation - Unless the Parties otherwise agree in writing, the
purposes of the Operations shall be limited to those described in Section 6.2,
and nothing in this Agreement shall be construed to enlarge such purposes or to
change their relationship as set forth in Sections 19.12, 19.13 and 19.16.
6.4 Effective Date and Term - The effective date of this Part II (the
"Effective Joint Venture Date") shall be the date of the formation of the Joint
Venture. The term of this Part II shall be twenty (20) years from the Effective
Joint Venture Date and for so long thereafter as Products are produced from the
Properties or, if there is a cessation of production, for so long as the Parties
intend to recommence production, unless the Agreement is earlier terminated as
herein provided.
ARTICLE VII
CONTRIBUTIONS BY PARTIES
7.1 Deemed Initial Contributions - As of the Effective Joint Venture Date,
PDC and UPC shall each be deemed to have contributed and incurred an aggregate
of 35% and 65%, respectively, of $6,000,000 in Expenditures hereunder, or
$2,100,000 and $3,990,000, respectively.
7.2 Disregard of Other Expenses - All other expenses incurred by either UPC
or PDC prior to the Effective Joint Venture Date shall be ignored for the
purposes of calculating the Parties' Initial Contributions under this Agreement.
7.3 Additional Cash Contributions - Subject to election permitted by
Section 8.3, the Parties shall be obligated to contribute funds from time to
time to adopted Programs and Budgets in proportion to their respective
Participating Interests and such contributed funds shall be used in any
recalculations of Participating Interests made under this Agreement.
ARTICLE VIII
INTERESTS OF PARTIES
8.1 Initial Participating Interests - Immediately upon the Effective Joint
Venture Date, UPC shall have an initial Participating Interest equal to 65% and
PDC shall have an initial Participating Interest of 35%. All costs and
liabilities incurred in Operations shall be borne and paid, and all Assets
acquired and Products mined through the Operations shall be owned by such
Parties in accordance with their respective Participating Interests, as such
Participating Interests may be changed, from time to time, in accordance with
the provisions of this Agreement.
8.2 Changes in Participating Interests - A Party's Participating Interest
shall be changed upon:
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(a) an election by a Party pursuant to Section 8.3 not to contribute to an
adopted Program and Budget;
(b) default by a Party in making its agreed-upon contribution to an adopted
Program and Budget, followed by an election by the other Party to invoke
Subsection 8.4(b);
(c) reduction of a Party's Participating Interest to less than 10% pursuant
to the provisions of Subsection 8.5(a);
(d) transfer by a Party of less than all of its Participating Interest
pursuant to Article XVI; or
(e) acquisition of less than all of the Participating Interest of the other
Party, however arising.
8.3 Voluntary Non-Participation -
(a) Pursuant to Section 11.5, a Party may elect to contribute to all
adopted Programs and Budgets as follows:
(i) in the percentage amount of its then respective Participating
Interest; or
(ii) no contribution.
(b) If a Party elects not to contribute to an adopted Program and Budget
(such Program shall be called a "Non-Consent Program"), the Participating
Interest of the non-contributing Party shall be recalculated at the time an
adopted Non-Consent Program and Budget has been expended as follows:
Y = [(A plus B) divided by (C plus D plus the amount contributed
to the Non-Consent Program by the contributing Party)] X 100
where: "A" is the agreed value of the non-contributing Party's
Initial Contribution under Section 7.1;
"B" is the total of the non-contributing Party's additional
actual contributions under Section 7.3 up to but not including
the adopted Non-Consent Program and Budget for the Non-Consent
Program;
"C" is the agreed value of the aggregate of the Initial
Contributions under Section 7.1 of all Parties;
"D" is the aggregate of the additional actual contributions of
all Parties under Section 7.3 up to but not including the adopted
Non-Consent Program and Budget for the Non-Consent Program; and
"Y" is the recalculated Participating Interest of the
non-contributing Party.
The recalculated Participating Interest of the contributing Party shall be
calculated by subtracting Y from 100%.
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(c) Reports on the results of Expenditures otherwise required hereunder
shall be suspended until at least 85% of a Non-Consent Program has been
completed; provided, however, that reports on the amount of Expenditures shall
continue to be made. If the contributing Party in a Non-Consent Program fails to
spend at least 85% of its share of the associated Budget, then the
non-contributing Party shall be entitled, within thirty (30) days of being
notified of completion of the reduced Program and the amount of Expenditures
incurred, but without being allowed to review any results from such
Expenditures, to pay its share of the Expenditures actually made by the
contributing Party and thereby maintain its Participating Interest. As soon as
such thirty (30) day period expires or the non-contributing Party has paid its
share of Expenditures actually incurred, whichever occurs first, the
non-contributing Party shall be entitled to receive the results of such
Expenditures and if the non-consenting Party fails to contribute within such 30
day period, its Participating Interest shall be reduced in accordance with the
foregoing provisions.
8.4 Default in Making Contributions -
(a) If a Party defaults in making a contribution or cash call required by
an adopted Program and Budget, the non-defaulting Party may advance the
defaulted contribution on behalf of the defaulting Party (a "Cover Payment").
Each and every Cover Payment will constitute a demand loan bearing interest from
the date of the advance at the rate provided in Section 12.3. If more than one
Cover Payment is made, the Cover Payments shall be aggregated and the rights and
remedies described herein pertaining to an individual Cover Payment shall apply
to the aggregated Cover Payments. The failure to repay said loan upon demand
shall be a default under this Agreement.
Each Party hereby grants to the other a mortgage of and lien upon its
right, title and interest in the Assets and a security interest in its rights
under this Agreement and in its Participating Interest whenever acquired or
arising, and the proceeds from and accessions to the foregoing, to secure any
loan made thereby, including interest thereon, reasonable attorneys' fees and
all other reasonable costs and expenses incurred in recovering the loan with
interest and in enforcing such lien or security interest, or both. Each Party
hereby covenants with the other that such mortgage and security interest will
rank at all times prior to any and all other mortgages and security interests
affecting its interests in the Assets, or its Participating Interest. Each Party
hereby agrees to take all necessary action to perfect such mortgage and security
interest and irrevocably appoints the non-defaulting Party as its
attorney-in-fact to execute, file, and record all financing statements and any
other documents necessary to perfect or maintain such mortgage and security
interest or otherwise give effect to the provisions hereof.
Upon default being made in the payment of the indebtedness referred to
herein when due, the non-defaulting Party may exercise any or all of the rights
and remedies available to it at common law, by statute or hereunder. Without
limiting the generality of the foregoing, to the extent permitted by applicable
law, each Party grants to the non-defaulting Party a power of sale as to its
undivided interest in all parts of the Assets or Participating Interest that is
subject to the mortgage and security interest granted hereunder, such power to
be exercised in the manner provided by applicable law or otherwise in a
commercially reasonable manner and upon reasonable notice. If the non-defaulting
Participant enforces the mortgage or security interest pursuant to the terms of
this section, the defaulting Party waives any available right of redemption from
and after the date of judgment, any required valuation or appraisement of the
mortgaged or secured property prior to sale, any available right to stay
execution or to require a marshalling of assets, and any required bond in the
event a receiver is appointed, and the defaulting Party agrees that it will be
liable for any continuing deficiency. All such remedies shall be cumulative. The
election of one or more remedies shall not waive the election of any other
remedies.
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A non-defaulting Party may elect the applicable remedy under this
Subsection 8.4(a) or under Subsection 8.4(b), or, to the extent a Party has a
lien or security interest under applicable law, it shall be entitled to its
rights and remedies at law and in equity. All such remedies shall be cumulative.
The election of one or more remedies shall not be considered a waiver of the
election of any other remedies. Each Party hereby covenants with the other Party
to deliver all such documentation as may be required to perfect or effectuate
the applicable provisions of Section 8.4;
(b) The Parties acknowledge that if a Party defaults in making a
contribution, or a cash call, or in repaying a loan, as required hereunder, or a
Cover Payment made pursuant to Section 8.4(a) above, it will be difficult to
measure the damages resulting from such default (it being hereby understood and
agreed that the Parties have attempted to determine such damages in advance and
determined that the calculation of such damages cannot be ascertained with
reasonable certainty). Notwithstanding this, each Party acknowledges and
recognizes that the damage to the non-defaulting Party could be significant. In
the event of such default, or the making of a Cover Payment, as reasonable
liquidated damages and not as a penalty, the non-defaulting Party may, with
respect to any such default not cured within sixty (60) days after notice to the
defaulting Party of such default, elect one of the following remedies by giving
notice to the defaulting Party:
(i) For a default relating exclusively to an Exploration Program and
corresponding Budget, the non-defaulting Party may elect to have
the defaulting Party's Participating Interest reduced as provided
in Subsection 8.3(b), and further reduced by multiplying the
result by 90%. Amounts previously treated as a loan pursuant to
Subsection 8.4(a) and interest thereon shall be treated as actual
contributions to Programs and Budgets by the non-defaulting Party
in the calculation of the defaulting Party's reduced
Participating Interest. The non-defaulting Party's Participating
Interest shall, at such time, become the difference between 100%
and the further reduced Participating Interest. Such reductions
shall be effective as of the date of the default; and
(ii)For a default relating to a Development Program or Mining Program
and corresponding Budget, at the non-defaulting Party's election,
the defaulting Party shall be deemed to have withdrawn from the
Joint Venture in accordance with Section 14.2.
8.5 Elimination of Minority Interest -
(a) Upon the reduction of a Party's Participating Interest to 10% or less,
that Party shall be vested with a Royalty. Notwithstanding anything in this
Agreement to the contrary, such Royalty on Products shall comprise an interest
in, run with, bind and touch the Properties and the Products if, as and whenever
they constitute "real property" or severed personal property, as the case may be
and be an interest having priority to any interest created under Section 8.4.
Upon the vesting of the Royalty as provided above, such Party shall be
deemed to have transferred to the Continuing Party its Participating Interest
and such Party shall thereafter be called a Royalty Holder. Such transfer will
be without cost and free and clear of royalties, liens, or other encumbrances
arising by, through or under the Royalty Holder, except for the royalty referred
to in this Subsection 8.5(a), and those other interests and exceptions to which
both Parties have given their written consent after the date of this Agreement.
The Royalty Holder shall execute and deliver all instruments as may be necessary
to effect the transfer of its Participating Interest.
The transfer under this Subsection 8.5(a) shall not relieve the Royalty
Holder of its share of liabilities to third persons (whether accrued before or
after such transfer) arising out of Operations prior to the transfer. The
Royalty Holder's share of such liability shall be equal to its Participating
Interest at the time such liability was incurred.
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(b) Subject to Subsection 16.6 and Schedule D, the Royalty provided under
Subsection 8.5(a) shall be freely transferable by the Royalty Holder
notwithstanding any other provisions of this Agreement, and such transfer shall
be binding upon and shall enure to the benefit of the parties involved and their
respective successors and assigns.
8.6 Continuing Liabilities Upon Adjustments of Participating Interests Any
reduction of a Party's Participating Interest under this Article VIII shall not
relieve such Party of its share of any liability, whether it accrues before or
after such reduction, arising out of Operations conducted prior to such
reduction. For purposes of this Article VIII, such Party's share of such
liability shall be equal to its Participating Interest at the time such
liability was incurred. The increased Participating Interest accruing to a Party
as a result of the reduction of the other Party's Participating Interest shall
be free of royalties, liens or other encumbrances arising by, through or under
such other Party, other than those existing at the time the Properties were
acquired by, or contributed to, the Joint Venture or those to which both Parties
have given their written consent. An adjustment to a Participating Interest need
not be evidenced during the term of this Agreement by the execution and
recording of appropriate instruments, but each Party's Participating Interest
shall be shown in the books of the Operator. However, either Party, at any time
upon the request of the other Party, shall execute and acknowledge instruments
necessary to evidence such adjustment in form sufficient for recording in the
jurisdiction where the Properties are located.
8.7 Recording of Participating Interests and Changes - Subject to the
provisions of Sections 4.8 and 5.8, on exercise of the Option, a 100% interest
in the title to the Properties will be recorded in the name of the Operator.
Thereafter, the Participating Interest of each Party in the Properties shall not
be evidenced by the recording of appropriate instruments, unless a Party
requests such recording. Rather, the initial Participating Interests of each
Party and changes thereto shall be shown and maintained in the records of the
Operator. However, each Party at any time may request that the other Party
execute and deliver appropriate instruments in recordable or registrable form,
as the case may be, to evidence or transfer to it, its Participating Interest,
provided that it first provides to the other Party evidence of the requesting
Party's legal ability to subsequently transfer such interest in accordance with
the terms and conditions of this Agreement, in which case, the other Party will
comply with such request.
ARTICLE IX
MANAGEMENT COMMITTEE
9.1 Organization and Composition - The Parties hereby establish a
Management Committee to determine overall policies, objectives, procedures,
methods and actions under Part II of this Agreement. The Management Committee
shall consist of two members. Each Party shall appoint one member as the
representative (the "Representative") of each Party, and may appoint one or more
alternates to act in the absence of a regular member. Any alternate so acting
shall be deemed to be a member. Initial appointments shall be made in writing
and shall contain telephone and fax numbers of the appointed members at the time
that Part II comes into force. Subsequent appointments shall be made or changed
by notice to the other Party prior to the meeting at which the member is to act.
The actions of a Party's Representative shall bind the Party who made the
appointment.
9.2 Decisions - The Management Committee shall have exclusive authority to
determine all management matters related to this Agreement, except:
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(a) for the following matters, which shall require approval of a Party or
Parties holding more than 75% of the Participating Interests:
(i) the disposition of any single item of the Assets which had an
original capital cost of more than $250,000 unless that item is
to be replaced in a timely manner and the funds necessary to make
the replacement have been provided for in an approved Program and
Budget;
(ii)the commencement of litigation or any similar process involving a
claim for more than $250,000 or the settlement of any claim by or
against the Joint Venture where the settlement involves more than
$250,000;
(iii)any material amendment initiated by the Operator of: (i) the
title to any Properties forming part of a Production Area; and
(ii) any governmental permit or license or similar authorization
related to any Mine and Plant; and
(iv)the entry into any contract or agreement which has a term
exceeding 12 months, which is essential to the orderly conduct of
the business of the Joint Venture and which involves the Joint
Venture becoming indebted or obligated for an amount exceeding
$250,000 in any 12 month period, except any contract or agreement
relating to the employees of the Operator engaged at any Mine and
Plant; and
(b) for the matters delegated to the Operator pursuant to Section 10.2.
If any matter for decision, other than a matter referred to in paragraphs (a) or
(b) above, and other than in respect of Budgets and Programs (which are
addressed in Article XI), is not mutually agreed to by the Parties and the
Parties are deadlocked, the deadlock shall be resolved by a decision of the
Operator.
9.3 Meetings -
(a) The Management Committee shall hold regular meetings at least
semi-annually at a mutually agreed place. The Operator shall give thirty (30)
days advance notice to the Parties of such regular meetings. Additionally,
either Party may call a special meeting upon fifteen (15) days notice to the
Operator and the other Party. There shall be a quorum if at least one member
representing each Party is present; provided, however that if a quorum is not
present within fifteen (15) minutes of the appointed time, then one member may
adjourn the meeting to the same place and time on any date not more than thirty
(30) days from the originally appointed date. The member adjourning the meeting
shall provide five (5) days advance notice to the Parties of the date of any
such adjourned meeting. At any such adjourned meeting a quorum shall consist of
one member without the requirement that a member or alternate representing each
Party be present. Each notice of a regular meeting shall include an itemized
agenda prepared by the Operator, in the case of a regular meeting, or by the
Party calling the meeting, in the case of a special meeting, but any matters may
be considered in any meeting with the consent of all Parties. The Operator shall
prepare minutes of all meetings and shall distribute copies of such minutes to
the Parties within ten (10) days after the meeting. The minutes, when signed by
all Parties, shall be the official record of the decisions made by the
Management Committee and shall be binding on the Operator and the Parties. If
personnel employed by the Operator are required to attend a Management Committee
meeting, reasonable costs incurred in connection with such attendance shall be a
charge to the Joint Account. All other costs shall be paid by the respective
Parties.
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(b) In the case of an emergency, the Operator shall give such notice to the
other Party as it deems reasonable in the circumstances, having regard to the
seriousness of the matter and the urgency of having a meeting to address the
emergency. Other than in respect of the notice provisions set out in this
paragraph (b), which shall prevail in the case of emergency meetings, the
provisions of paragraph (a) above shall apply mutatis mutandis to emergency
meetings.
9.4 Action By Telephone Meeting - In addition to, or in lieu of, regular
meetings the Management Committee may hold conference telephone meetings (where
the members representing each Party can hear each other). Actions taken or
authorized at any such meeting are as effective as actions taken or authorized
at regular meetings so long as all decisions are immediately confirmed in
writing (which includes confirmation by facsimile) by the Party holding the
requisite Participating Interests pursuant to Section 9.2 to determine the
decision of the Management Committee.
ARTICLE X
OPERATOR
10.1 Appointment - The Parties hereby appoint UPC as the Operator with
overall management responsibility for Operations. UPC hereby agrees to serve
until it resigns as provided in Section 10.4 or is replaced as Operator pursuant
to Subsection 6.1(b).
10.2 Powers and Duties of Operator - Subject to the terms and provisions of
this Agreement, the Operator shall have the following powers and duties which
shall be discharged in accordance with adopted Programs and Budgets:
(a) The Operator shall manage, direct and control Operations and shall
prepare and present to the Management Committee proposed Programs and Budgets as
provided in Article XI;
(b) The Operator 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 has not received sufficient funds
to carry out its responsibilities under this Agreement;
(c) The Operator shall: (i) purchase or otherwise acquire all material,
supplies, equipment, water, utility and transportation services required for
Operations, such purchases and acquisitions to be made on the best terms
available, taking into account all of the circumstances; (ii) obtain such
customary warranties and guarantees as are available in connection with such
purchases and acquisitions; and (iii) keep the Assets free and clear of all
liens and encumbrances, except for those existing at the time of, or created
concurrent with, the acquisition of such Assets, or worker's, mechanic's or
materialmen's or construction liens which shall be released or discharged in a
diligent manner, or liens and encumbrances specifically approved by the
Management Committee;
(d) The Operator shall: (i) make or arrange for all payments required by
leases, licenses, permits, contracts and other agreements related to the Assets;
(ii) make royalty and/or reimbursement of contributions payments to the Parties
and third parties required hereunder; (iii) pay all taxes, assessments and like
charges on Operations and Assets except taxes determined or measured by a
Party's sales revenue or net income; and (iv) do all other acts reasonably
necessary to maintain the Assets. If authorized by the Management Committee, the
Operator shall have the right to contest in the courts or otherwise, the
validity or amount of any taxes, assessments or charges if the Operator deems
them to be unlawful, unjust, unequal or excessive, or to undertake such other
steps or proceedings as the Operator may deem reasonably necessary to secure a
cancellation, reduction, readjustment or equalization thereof before the
Operator shall be required to pay them, but in no event shall the Operator
permit or allow title to the Assets to be lost as the result of the nonpayment
of any taxes, assessments or like charges;
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(e) The Operator shall: (i) apply for all necessary permits, licenses and
approvals; (ii) comply with Laws; (iii) notify promptly the Management Committee
of any allegations of substantial violation thereof; and (iv) prepare and file
all reports or notices required for or as a result of Operations. The Operator
shall not be in breach of this provision if a violation has occurred in spite of
the Operator's good faith efforts to comply and the Operator has timely cured or
disposed of such violation through performance or payment of fines and
penalties;
(f) The Operator 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-Operator shall have the right to
participate, at its own expense, in such litigation or administrative
proceedings;
(g) The Operator shall provide insurance for the benefit of the Parties as
set out in Schedule F or as may otherwise be prudent in the view of the
Management Committee having regard to the Operations authorized, the risks
involved and usual industry practices with respect thereto;
(h) The Operator 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 Article XV. Without prior
authorization from the Management Committee, the Operator shall not: (i) dispose
of Assets in any one transaction having a value in excess of $50,000; (ii) enter
into any sales contracts or commitments for Products; (iii) begin a liquidation
of the Assets; or (iv) dispose of all or a substantial part of the Assets
necessary to achieve the purposes set forth in this Agreement;
(i) The Operator shall have the right to carry out its responsibilities
hereunder through agents, Affiliates or independent contractors;
(j) The Operator shall perform or cause to be performed during the term of
this Agreement all assessment and other work required by law in order to
maintain any unpatented mining claims that are or may become a part of the
Properties. The Operator 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 Operator shall not
be liable on account of any determination by any court or governmental agency
that the work performed by the Operator 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 in accordance with the
adopted Program and Budget. The Operator shall timely record with the
appropriate governmental agency, evidence in proper form attesting to the
performance of assessment work or notices of intent to hold in proper form, and
allocating therein, to or for the benefit of each claim, at least the minimum
amount required by law to maintain such claim or site;
(k) If authorized by the Management Committee, the Operator may: (i)
locate, amend or relocate any mineral rights; (ii) locate any fractions
resulting from such amendment or relocation; (iii) apply for further mineral
rights, permits to mine and/or mining leases or other forms of mineral tenure
for any such mineral rights; (iv) abandon any mineral rights for the purpose of
relocating such mineral rights or otherwise acquiring from a government agency
rights to the ground covered thereby; (v) exchange with or convey to a
government agency any of the Properties for the purpose of acquiring rights to
the ground covered thereby or other adjacent ground; (vi) convert any mineral
rights into one or more leases or other forms of mineral tenure pursuant to any
applicable law; and (vii) contract with and pay compensation to any person
including any government or agency thereof for surface rights, rights of access,
easements, rights of way or any other form of other tenement whether located at
or near the Properties or elsewhere useful in connection with the activities of
the Joint Venture;
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(l) The Operator shall keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure and in accordance with
customary cost accounting practices in the mining industry;
(m) The Operator shall keep the Management Committee advised of all
Operations by submitting to the Representative of each Party in writing the
following information as soon as it is available to the Operator: (i) quarterly
within one month after the end of each calendar quarter a quarterly report and
annually within three months after the end of each calendar year an annual
summary report, which reports include statements of Expenditures and comparisons
of such Expenditures to the adopted Budget; (ii) periodic summaries of data
acquired; (iii) a copy of any reports concerning Operations; (iv) a detailed
final report within 60 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 (v) a copy of
such other reports as either Party may reasonably request. Items (i) through
(iii) of this Subsection 10.2(m) shall be submitted by the Operator as it
prepares them in the normal course of business. Copying of items (i) through (v)
will be charged to the Joint Account. At all reasonable times the Operator shall
provide the Management Committee or the Representative of any Party, upon the
request of any member of the Management Committee, access to, and the right to
inspect and copy all maps, drill logs, core tests, reports, surveys, assays,
analyses, production reports, operations, technical, accounting and financial
records and other information acquired in Operations that has not been provided
pursuant to items (i) through (v) of this Subsection 10.2(m); such information
will be provided to the Management Committee as a charge to the Joint Account
and if additional copies are required by a Party, they will be paid for by that
Party. In addition, the Operator shall allow upon written request (which request
shall not be unreasonably denied) the Non-Operator, at the latter's sole risk
and expense, and subject to reasonable safety regulations, to inspect the Assets
and Operations at all reasonable times, so long as the inspecting Party does not
unreasonably interfere with Operations;
(n) The Operator shall undertake to perform Continuing Obligations when and
as economic and appropriate, whether before or after termination of this
Agreement. The Operator 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 Operator
shall prepare and distribute to the Parties a Program and Budget for performance
of Continuing Obligations and shall keep the Parties reasonably informed about
the Operator's efforts to discharge Continuing Obligations. Each Party 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 accounts related thereto; and
(o) The Operator shall undertake all other activities reasonably necessary
to fulfil the foregoing.
The Operator shall not be in default of any duty under this Section 10.2 if
its failure to perform results from the failure of the Non-Operator to perform
acts or to contribute amounts required of it by this Agreement.
10.3 Standard of Care - The Operator shall conduct all Operations in a
good, workmanlike and efficient manner, in accordance with: (a) sound mining and
other applicable industry standards and practices; (b) all Laws; and (c) the
terms and provisions of leases, licenses, permits, contracts and other
agreements pertaining to the Assets.
The Operator shall not be liable to the Non-Operator for any act or
omission resulting in damage or loss except to the extent caused by or
attributable to the Operator's willful misconduct or gross negligence.
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10.4 Resignation and Deemed Offer to Resign - The Operator may resign upon
giving ninety (90) days prior written notice to the other Party, in which case
the other Party may elect to become the new Operator by notice to the resigning
Party given within sixty (60) days after the notice of resignation is delivered.
If the other Party does not so elect to become the new Operator, this Agreement
shall terminate and the resigning Operator shall comply with the provisions of
Section 14.4.
If any of the following shall occur, the Operator shall be deemed to have
offered to resign, which offer shall be accepted by the other Party, if at all,
within ninety (90) days following such deemed offer by notice in writing to the
resigning Party and the Operator (if not the resigning Party):
(a) the Participating Interest of the Operator becomes less than 50%;
(b) the Operator fails to perform or in good faith commence 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 Party demanding
performance;
(c) the Operator fails to pay or contest in good faith its bills, whether
in connection with the Joint Venture or otherwise, within sixty (60) days after
they are due;
(d) a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for a substantial part of the Operator's 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 in by the Operator;
(e) the Operator commences a voluntary assignment under any applicable
bankruptcy, insolvency or similar laws now or hereafter in effect, 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, makes a general assignment for the benefit of creditors,
fails generally to pay its debts charged to the Joint Account as such debts
become due or takes corporate or other action in furtherance of any of the
foregoing; or
(f) entry is made against the Operator of a judgment, decree or order for
relief affecting a substantial part of its assets by a court of competent
jurisdiction in an involuntary case commenced under any applicable bankruptcy,
insolvency or other similar laws of any jurisdiction now or hereafter in effect.
If the other Party shall accept the Operator's deemed resignation then the other
Party shall be the successor Operator.
10.5 Payments to Operator - The Operator shall be compensated for its
services and reimbursed for its costs hereunder in accordance with the
Accounting Procedure.
10.6 Transactions With Affiliates - If the Operator engages Affiliates or
any person or entity with which it does not deal "at arm's length" as such
relationship would be defined under the Tax Act to provide services hereunder,
it shall do so on terms no less favourable to the Non-Operator than would be the
case in arm's-length transactions.
10.7 Activities During Deadlock : If the Management Committee for any
reason fails to adopt a Program and Budget for the maintenance of the Properties
or a Mining Program and Budget for the maintenance of the Assets for any
calendar year or part thereof, in the absence of contrary direction and subject
to the receipt of necessary funds, the Operator shall continue Operations at
levels sufficient to maintain the Properties and the Assets. In such event, for
purposes of determining required contributions of the Participants and their
respective Participating Interests, the last adopted Program and Budget or
Mining Program and Budget, as the case may be, shall be deemed extended.
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ARTICLE XI
PROGRAMS AND BUDGETS
11.1 Operations Pursuant to Programs and Budgets - Unless otherwise
provided herein, Operations shall be conducted, expenses shall be incurred, and
Assets shall be acquired only pursuant to approved Programs and Budgets.
11.2 Types of Programs - Three general types of Programs may be proposed:
Exploration Programs, Development Programs and Mining Programs.
(a) An "Exploration Program" shall be a Program that may entail geological
mapping, geochemical sampling, geophysical surveys, drilling, underground or
surface drilling, bulk sampling, and other work carried out to ascertain the
existence, location, quantity, and quality and preliminary economic assessment
of commercial value of deposits of Products on the Properties, including but not
limited to additional drilling required after discovery of potentially
commercial mineralization, and including related compliance with environmental
Laws.
(b) A "Development Program" shall be a Program that may entail Development
work, in-depth drilling, test mining, a Feasibility Study, and other such work
expended toward developing deposits of Products on the Properties, but does not
encompass, by itself, construction, operation, maintenance, and attendant
activities designed to bring a Mine on any of the Properties into production in
reasonable commercial quantities.
(c) A "Mining Program" shall be a Program, after a Favourable Feasibility
Study has been adopted, that is designed to bring a Mine into production and
that provides for its subsequent operation, modification or expansion. It may
entail Development and Mining work, including in-depth drilling, test mining,
engineering and design work, and work expended towards development of deposits
of Products, as well as construction, operation, maintenance modification,
expansion and attendant activities.
11.3 Preparation, Presentation and Content of Programs and Budgets -
(a) Content and Submission of Programs - Proposed Programs and Budgets
shall be prepared and submitted by the Operator; provided, however, that if the
Operator fails to prepare and submit to Non-Operator a proposed Program and
Budget or carry out a Program and Budget in any calendar year, then, after
thirty (30) days advance notice that, unless the Operator proposed a Program and
Budget within such thirty (30) days, the Non-Operator may propose to the
Operator a Program and Budget. If the Operator is not prepared to convene the
Management Committee and is not prepared to agree to fund its Participating
Interest share of the Non-Operator's proposed Program and Budget within thirty
(30) days of receipt of the Non-Operator's proposed Program and Budget then,
provided that Non-Operator is willing to fund 100% of the Budget for its
proposed Program, Non-Operator shall assume the duties of the Operator for the
period required to carry out its proposed Program and Budget and all the
provisions of this Agreement relating to the Operator shall apply mutatis
mutandis to Non-Operator for the period it is conducting such Program. Each
Program shall be accompanied by and shall include a corresponding Budget and
shall designate precisely the area on which Operations are to be performed,
describe work to be performed and state the estimated period of time required to
perform the work. Each Program shall state whether it is an Exploration,
Development or Mining Program;
(b) Content of Budgets - Each Budget shall be prepared in reasonable detail
and shall set forth each Expenditure of $5,000 or more for a budgeted item
which, under generally accepted accounting principles, would be capitalized.
Each Budget for an Exploration Program, as near as is practicable, shall show
the estimated expenditures for each calendar quarter covered by the Budget
period. Each Budget for any Development or Mining Program, as near as is
practicable, shall show the estimated Expenditures for each month covered by the
Budget period;
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(c) Initial Exploration Program and Budget - The first Exploration Program
and Budget shall commence as of the Effective Joint Venture Date and be in
effect through to the end of the calendar year in which the Effective Joint
Venture Date falls;
(d) Duration - After the period of the initial Exploration Program and
Budget, any Program and Budget shall be for a period of one calendar year unless
otherwise determined by the Management Committee but may extend for such longer
period as is reasonably necessary to complete the Program. Unless otherwise
determined by the Management Committee, only one Exploration Program and one
Development Program may be carried out at a time; provided, however, that
Exploration Programs may be conducted after or during Development Programs and
Mining Programs; and
(e) Review - Each adopted Program and Budget, regardless of length, shall
be reviewed at least once a year at a regular 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 Operator and submitted to the
Parties.
11.4 Submittal and Approval of Proposed Programs and Budgets -
(a) Submittal of Operator's Program and Budget - Within thirty (30) days
after the Operator submits a proposed Program and Budget to the Management
Committee, Non-Operator shall submit to the Management Committee:
(i) notice that the Non-Operator approves of the Program and Budget;
or
(ii)proposed modifications of the proposed Program and Budget, which
shall include detailed specific objections regarding the proposed
Program and Budget.
If a Non-Operator fails to give either of the foregoing responses within
the allotted time, the failure shall be deemed an approval by that Party of the
proposed Program and Budget. If a Non-Operator makes a timely submission to the
Management Committee pursuant to Clause 11.4(a)(ii), then the Management
Committee shall within the following thirty (30) days meet to consider the
proposed Program and Budget and proposed modifications;
(b) Submittal of Non-Operator's Program and Budget - If Management
Committee agreement with the proposed Program and Budget submitted by the
Operator is not reached at the meeting described in Subsection 11.4(a), then the
Non-Operator may within thirty (30) days of that meeting submit a proposed
Program and Budget for consideration and approval according to the procedure
provided for the Operator's Program and Budget in Subsection 11.4(a), mutatis
mutandis;
(c) Deemed Approval of Operator's Program and Budget - If Management
Committee agreement with a proposed Program and Budget submitted under
Subsection 11.4(a) or (b) is not reached, then the proposed Program and Budget
submitted by the Operator, incorporating any modifications agreed upon by the
Management Committee, shall be deemed adopted upon the Operator's giving notice
of its intent to conduct such Program and Budget; provided, however, that the
Operator and Management Committee shall use all reasonable efforts to
accommodate the Non- Operator's position in preparation and approval of the
Program and Budget;
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(d) Feasibility Study - Any Party may propose to the Management Committee
at any time that a Feasibility Study evaluating the feasibility of opening or
expanding a mine on the Properties be conducted on behalf of the Parties. If the
Management Committee does not approve of the preparation of such Feasibility
Study, then the Party proposing it may cause such Feasibility Study to be
prepared at its own expense. Promptly upon completion of a Favourable
Feasibility Study, the Party preparing it shall present it to the Management
Committee for evaluation. If a Separate Mining Program or Mining Program is then
proposed, based primarily on the Favourable Feasibility Study, any Party that
(i) did not contribute to the costs of preparing the Favourable Feasibility
Study; and (ii) participates in the Program, will reimburse the Party who
prepared the Favourable Feasibility Study at the commencement of the Program in
proportion to the Participating Interest in the Program of the non-preparing
Party plus a penalty of fifteen percent in the amount of its reimbursement; and
(e) Separate Mining Program - After completion of a Favourable Feasibility
Study and within one hundred and eighty (180) days prior to the expiration of a
Development Program, any Non-Operator may request that the Operator propose in
the next Program and Budget the opening of a mine. If the Operator does then
propose the opening of the mine, the proposal will be considered according to
Subsections 11.4(a), (b), and (c). If the Operator does not then propose the
opening of a mine, the Non-Operator may propose, under Subsection 11.4(b), a
Mining Program that includes the opening of a mine. If that proposed Mining
Program is not adopted by the Management Committee within thirty (30) days of a
submittal, the Non-Operator may conduct that Program as Operator. To do so, such
Non-Operator shall, within ten (10) days after expiration of the thirty (30)
days, give written notice to the Operator of its intent to conduct its proposed
Mining Program as a Separate Mining Program under this Subsection 11.4(e) as
Operator for the Program. The other Party shall then elect, according to Section
11.5, whether to participate in the Separate Mining Program.
(f) Non-Operator's Program - For so long as both Parties maintain more than
a 20% Participating Interest in the Properties, should Operator fail to propose
a Program and Budget in any calendar year, then at any time within 60 days after
the beginning of the next calendar year, but before the Operator proposes a new
Program and Budget, Non-Operator may propose a Program and Budget to Operator
provided that such proposed Program shall require contributions by the Parties
in proportion to their respective Participating Interests. The Operator shall be
entitled to carry out each such Program and Budget proposed by Non-Operator and
to contribute to Expenditures incurred thereunder. If, however, the Operator
fails to agree in writing to carry out and pay its Participating Interest of any
Program and Budget proposed by Non-Operator within 30 days of receipt thereof by
the Operator, Non-Operator shall thereupon assume the duties of the Operator for
that calendar year, shall carry out its proposed Program and Budget and shall
pay 100% of the Expenditures in connection with such Program and Budget.
11.5 Election to Participate -
(a) Deadline for Election - Any Party whose proposed Program and Budget is
adopted as provided in Subsection 11.4(a) or (b) is deemed to have elected to
contribute to that Program and Budget to the extent of its then Percentage
Interest. By notice in writing to the Management Committee within twenty (20)
days after either the final vote adopting a Program and Budget pursuant to
Subsection 11.4(a) or (b) or receipt of notice pursuant to Subsection 11.4(c) or
11.4(e), whichever is applicable, the other Party may elect to contribute to
such Program and Budget (i) in proportion to its then respective Participating
Interest; or (ii) not at all. If the other Party fails to notify the Management
Committee or the Party electing to conduct the Program within the twenty (20)
days, the Party so failing shall be deemed to have elected to contribute to such
Program and Budget in proportion to its then respective Participating Interest.
If a Party elects to contribute nothing, the Party who elected to contribute in
proportion to its then Participating Interest may within an additional twenty
(20) days revise or revoke its election to contribute, provided that any such
revision does not result in the proposed Program and Budget being for an amount
which is less than the amount that the contributing Party's Participating
Interest contribution would have been of the originally proposed Program and
Budget.
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(b) Participation in Program and Budget - If the other Party elects not to
participate in a Program and Budget at all, that Party's Participating Interest
shall be reduced as provided in Article VIII; and
(c) Contributions Schedule - Contributions for an Exploration Program
should be made at the beginning of each calendar quarter of the Budget period.
Contributions for a Development or Mining Program should be made at the
beginning of each month of the Budget period. An election to contribute to a
Program may not be changed or modified in percentage contribution over the
course of the Program.
11.6 Participation in Subsequent Programs - A Party may participate in any
subsequent Program at the level of the Party's then Participating Interest
unless the Party's Participating Interest has been converted to a Royalty
interest pursuant to Section 8.5.
11.7 Budget Overruns and Program Changes - The Operator shall immediately
notify the Management Committee of any material departure from an adopted
Program and Budget. If the Operator exceeds an adopted Budget by more than 10%,
then the excess over 10%, unless directly caused by an emergency or unexpected
expenditure made pursuant to Section 11.8 or unless otherwise authorized by the
Management Committee, shall be for the sole account of the Operator and such
excess shall not be included in the calculations of the Participating Interests.
Budget overruns of 10% or less shall be borne by the Parties in proportion to
their respective Participating Interests as of the time the overrun occurs.
11.8 Emergency or Unexpected Expenditures - In case of emergency, the
Operator may take any reasonable action it deems necessary to protect life, limb
or property, to maintain and protect the Assets and to comply with Laws. The
Operator may also make reasonable Expenditures for events which are beyond its
reasonable control and which do not result from a breach by it of its standard
of care. The Operator shall promptly notify the Parties of the emergency or
unexpected Expenditure, and the Operator shall be reimbursed for all resulting
costs by the Parties in proportion to their respective Participating Interests
at the time the emergency or unexpected Expenditures are incurred.
ARTICLE XII
ACCOUNTS AND SETTLEMENTS
12.1 Monthly Statements - The Operator shall promptly submit to the
Management Committee monthly statements of account reflecting in reasonable
detail the charges and credits to the Joint Account during the preceding month.
12.2 Cash Calls - Except where a Party has voluntarily elected not to
participate in an adopted Program and Budget pursuant to Sections 8.3 and 11.5,
on the basis of the adopted Program and Budget, the Operator may submit to each
Party 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 Party shall advance to the Operator its proportionate share of the
estimated amount. Time is of the essence with respect to payment of such
xxxxxxxx. The Operator shall either (a) maintain at all times a cash balance
approximately equal to the rate of disbursement for up to thirty (30) days; or
(b) xxxx the Non-Operator on a monthly basis in the month following the month in
which Expenditures were incurred. All funds in excess of immediate cash
requirements shall be invested in interest-bearing accounts in a bank to be
selected by the Management Committee, for the benefit of the Joint Account.
12.3 Failure to Meet Cash Calls - A Party that fails to meet cash calls in
the amount and at the times specified in Section 12.2 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 three (3) percentage points over the Prime Rate, but in
no event shall said rate of interest exceed the maximum permitted by law. The
non-defaulting Party shall have those rights, remedies and elections specified
in Section 8.4.
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12.4 Audits - Upon request made by any Party within twenty-four (24) months
following the end of any calendar year (or, if the Management Committee has
adopted an accounting period other than the calendar year, within twenty-four
(24) months after the end of such period), the Operator shall order an
independent audit of the accounting and financial records for such calendar year
(or other accounting period). All written exceptions to and claims upon the
Operator for discrepancies disclosed by such audit shall be made not more than
three (3) months after receipt of the audit report. Failure to make any such
exception or claim within the three (3) month period shall mean the audit is
correct and binding upon the Parties. The audits shall be conducted by a
national firm of chartered accountants selected by the Operator, unless
otherwise agreed by the Management Committee and the costs thereof shall be
chargeable to the Joint Account.
ARTICLE XIII
DISPOSITION OF PRODUCTION
13.1 Taking in Kind - At the time and place specified from time to time by
the Operator, each Party hereto owning a Participating Interest shall take in
kind or separately dispose of its Participating Interest share of the Products
produced from any Production Area. Risk of loss of any Products held for each
Party's respective account shall be borne by such Party, provided that such loss
is not caused by the Operator's gross negligence, intentional misconduct, or bad
faith. Each Party shall take possession of such Products at the time and place
specified by the Operator and will thereafter bear the responsibilities and
costs of transportation, security and related expenses and shall, at its own
expense, construct, operate and maintain any facilities necessary to receive,
store and dispose of its share of production.
13.2 Failure to Take in Kind - If a Party fails to take in kind or
separately dispose of its share of Products as required by Section 13.1 after
ten (10) days' notice by the Operator, the Operator may either charge the
delinquent Party 150% of the cost and expense of storing such Products or the
Operator may act as the delinquent Party's agent to have an independent
contractor remove the Products and store them for the delinquent Party's
account.
13.3 Hedging - The Parties agree that no Party shall have any obligation to
account to any other Party nor have any interest or right of participation in
any profits or proceeds from future contracts, forward sales, trading in puts or
calls, or any similar hedging or marketing mechanism it may employ with respect
to any Products produced or to be produced from the Properties.
ARTICLE XIV
WITHDRAWAL AND TERMINATION
14.1 Termination by Expiration or Agreement - This Agreement shall
terminate as expressly provided in this Agreement, unless earlier terminated by
written agreement.
14.2 Withdrawal and Other Events of Termination -
(a) A Party may withdraw as a Party from this Agreement in any of three
ways:
(i) a Party, at any time, may withdraw voluntarily by giving notice
to the other Party of the effective date of withdrawal, which
shall be the later of the end of the then current Program and
Budget or at least thirty (30) days after the date of the notice;
(ii)aParty which is obligated to contribute to a Development or
Production Program and corresponding Budget and fails to make
such a contribution, upon election by the non-defaulting Party
pursuant to Clause 8.4(b)(ii) will be deemed to have withdrawn;
and
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(iii)a Party, which allows its Participating Interest in the
Properties to be reduced to 10% or less will be deemed to have
withdrawn;
(b) Upon withdrawal, the Joint Venture shall terminate, either as a whole
or as to certain lands (in which latter case the Joint Venture continues with
respect to such other lands), and the withdrawing Party shall be deemed to have
transferred to the remaining Party its Participating Interest, without cost and
free and clear of royalties, liens or other encumbrances arising by, through or
under such withdrawing Party, except the Royalty described in Section 8.5 and
those other interests and exceptions to which both Parties have given their
written consent after the date of this Agreement. The withdrawing Party shall
execute and deliver all instruments as may be necessary to effect the transfer
of its Participating Interest in the Assets and in this Agreement to the
remaining Party. Any withdrawal under this Section 14.2 shall not relieve the
withdrawing Party of its share of liabilities to third persons (whether such
liabilities accrue before or after such withdrawal) arising out of Operations
conducted prior to such withdrawal. For purposes of this Section 14.2, the
withdrawing Party's share of such liabilities shall be equal to its
Participating Interest at the time such liability was incurred;
(c) In addition to withdrawal under Subsections 14.2(a) and (b) resulting
in termination, this Agreement shall also terminate under this Subsection
14.2(c) if any of the following occur:
(i) if at any time there are no Assets which are subject to the
provisions of this Agreement;
(ii) if the rights of the Parties to explore and mine the Properties
have been terminated;
(iii)if the Properties have been mined to Economic Exhaustion.
"Economic Exhaustion" shall occur whenever a skilled and prudent
miner who is knowledgeable concerning costs and economics of the
mining industry would abandon permanently mineral extraction
operations as uneconomic, rather than continue the upkeep and
maintenance of the Assets on a standby basis. If a difference
should arise between the Parties concerning such occurrence it
shall be determined by arbitration in accordance with the
provisions of Section 19.21, but if one party is willing to
advance funds for standby Expenditures (which shall be subject to
recoupment), together with a sum equal to 100% of the standby
Expenditures (only from Products subsequently produced) then it
shall be conclusively presumed that Economic Exhaustion has not
occurred so long as standby Expenditures are so advanced;
(iv)if the entire Participating Interest of one Party is acquired by
the other Party pursuant to any provision hereof; or
(v) the Operator resigns and the other Party does not elect to become
the new Operator as provided for under Section 10.4.
14.3 Continuing Obligations - On termination of this Agreement under this
Article XIV, the Parties shall remain liable for Continuing Obligations
hereunder in proportion to their Participating Interests until final settlement
of all accounts. Such continuing obligations include liability for all amounts
chargeable with respect to any Budget to which the withdrawing Party is
committed, including costs incurred pursuant to such Budget after the effective
date of withdrawal but not in excess of the most recent cost estimates committed
to, or approved by, such withdrawing Party. The withdrawing Party shall also
remain liable in proportion to its Participating Interest for any liability,
whether it accrues before or after termination, if it arises out of Operations
during the term of the Agreement. Should the cumulative cost of satisfying
Continuing Obligations be in excess of cumulative amounts accrued or otherwise
charged to reclamation account, if any, each Party shall be liable for its
allocable share of the cost of satisfying such Continuing Obligations, whether
33
or not one or more Parties has previously withdrawn or reduced its Participating
Interest or had it converted to a Royalty. If the Participating Interests of the
Parties change, the Operator should propose to the Management Committee a method
for fairly allocating such costs. Upon withdrawal, the withdrawing Party will
assign its interest in any mining claims, leases or subleases to the remaining
Party.
14.4 Disposition of Assets on Termination - Promptly after termination of
this Agreement under this Article XIV, the Operator shall take all action
necessary to wind up the joint activities of the Parties, and all costs and
expenses incurred in connection with the termination of the Agreement shall be
expenses chargeable to the Parties. The Assets shall first be paid, applied, or
distributed in satisfaction of all liabilities of the Parties to third parties
and then to satisfy any debts, obligations or liabilities owed to the Parties.
Before distributing any funds or Assets to Parties, the Operator shall have the
right to segregate amounts which, in the Operator's reasonable judgment, are
necessary to discharge continuing obligations or to purchase for the account of
Parties, bonds or other security for the performance of such obligations.
Thereafter, any remaining cash and all other Assets shall be distributed (in
undivided interests unless otherwise agreed) to the Parties according to their
Participating Interests. No Party shall receive a distribution of any interest
in Products or proceeds from the sale thereof if such Party's Participating
Interest therein has been terminated pursuant to this Agreement.
14.5 Right to Data After Termination - After termination of this Agreement
pursuant to this Article XIV, each Party shall be entitled to a copy of all
information acquired hereunder before the effective date of termination not
previously furnished to it, but a terminating or withdrawing Party shall not be
entitled to copies of any such information relating to the period after its
withdrawal.
14.6 Continuing Authority - On termination of this Agreement or the
withdrawal of a Party pursuant this Article XIV, the Operator shall have the
power and authority, subject to control of the Management Committee, if any, to
do all things on behalf of the Parties which are reasonably necessary or
convenient to: (a) wind up Operations; and (b) complete any transaction and
satisfy any obligation, unfinished or unsatisfied, at the time of such
termination or withdrawal, if the transaction or obligation arises out of
Operations prior to such termination or withdrawal. The Operator 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 Parties, mortgage Assets and take any other reasonable
action in any matter with respect to which the former Parties continue to have,
or appear or are alleged to have, a common interest or a common liability.
ARTICLE XV
ABANDONMENT AND SURRENDER OF PROPERTIES
15.1 Surrender or Abandonment of Property - If the Management Committee
authorizes any surrender or abandonment over the objection of a Party, the Party
who desires to abandon or surrender shall assign to the objecting Party, by quit
claim deed and without cost to the surrendering Party, all of the surrendering
Party's interest in the property to be abandoned or surrendered, and the
abandoned or surrendered property shall cease to be part of the Properties. If
Properties to be abandoned or surrendered are located upon a mining lease or
sublease, abandonment shall be conducted in accordance with and only to the
extent permitted by any appurtenant mining lease or sublease. Any Transfer under
this Section 15.1 shall not relieve the transferring Party of its share of
liabilities to third persons arising out of Operations conducted prior to such
Transfer. Any assignment of an interest pursuant to this Section 15.1 shall not
reduce or change the transferor's Participating Interest.
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15.2 Reacquisition - If any Properties are abandoned or surrendered under
the provisions of this Article XV, then, unless this Agreement is earlier
terminated, neither Party nor any Affiliate thereof shall acquire any interest
in such Properties or a right to acquire such Properties for a period of two (2)
years following the date of such abandonment or surrender. If a Party reacquires
any Properties in violation of this Section 15.2, such Properties shall
automatically become subject to the terms of this Agreement and the other Party
may elect by notice to the reacquiring Party within forty-five (45) days after
it has actual notice of such reacquisition, to have such properties continued
subject to the terms of this Agreement. If such election is made, such
reacquisitions shall be held in the proportion that each Party owned the
reacquired Properties at the time they were abandoned and the costs of
reacquisition shall be paid in those proportions. If such an election is not
made, the reacquired properties shall thereafter cease to be treated as
Properties, and the costs of reacquisition shall be borne solely by the
reacquiring Party and shall not be included for purposes of calculating the
Parties' respective Participating Interests.
PART III - PROVISIONS APPLICABLE TO PARTS I AND II
ARTICLE XVI
TRANSFER OF INTEREST
16.1 Transfers Generally - Until such time as UPC has exercised the Option
pursuant to Section 4.4, UPC will be permitted to Transfer any part of its
Rights and Options hereunder provided it has first obtained the written consent
of PDC. After UPC has exercised the Option pursuant to Section 4.4, UPC will be
permitted to Transfer any part of its Rights and Options hereunder subject to
compliance with Section 16.2, 16.3 and 16.4. At all times after the Effective
Joint Venture Date, a Party shall have the right to Transfer all or any part of
its Participating Interest solely as provided in the provisions of Sections
16.2, 16.3 and 16.4.
16.2 Limitations on Free Transferability - At all times under this
Agreement after the coming into force of Part II and on complying only with the
provisions of Subsection 16.2(a) and Section 16.3, either Party shall be free to
Transfer all or any part of its Participating Interest under this Agreement.
However, the Transfer right of both Parties under this Article XVI shall be
subject to the following terms and conditions:
(a) No transferee of all or any part of any Participating Interest shall
have the rights of a Party, unless and until the transferring Party has provided
to all Continuing Parties notice of the Transfer and, except as provided in
Subsections 16.2(f) and 16.2(g), the transferee has:
(i) received a true copy of this Agreement;
(ii) as of the effective date of the Transfer, committed in writing to
the Continuing Parties to be bound by this Agreement in the place
and stead of the transferring Party; and
(iii)assured the Continuing Parties that in any subsequent Transfer
permitted under this Agreement any transferee from it and its
successors and assigns the transferee will covenant to the same
effect as is required by this Subsection 16.2(a);
(b) No Transfer permitted by this Article XVI shall relieve the
transferring Party of its share of any liability, whether accruing before or
after such Transfer, which arises out of Operations conducted prior to such
Transfer;
(c) The transferring Party and the transferee shall bear all tax
consequences of the Transfer;
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(d) In the event of a Transfer of less than all of a Participating
Interest, the transferring Party and its transferee shall thereafter act and be
treated as one Party hereunder and shall operate the transferred Participating
Interest with the transferring Party's untransferred Participating Interest as a
single interest except for the provisions of Section 6.1 regarding entitlement
to be the Operator;
(e) No Party shall Transfer any interest in the Assets except by Transfer
of part or all of its Participating Interest;
(f) No Party shall grant a security interest by mortgage, deed of trust,
pledge, lien or other encumbrance of any interest in this Agreement or any
Participating Interest to secure a loan or other indebtedness of a Party unless
it is in respect of a bona fide transaction for the purpose of developing or
mining the Assets. Any security interest granted by a Party shall be subordinate
to the terms of this Agreement and the rights and interests of the other Party
hereunder and shall be subject to the condition that the holder of any such
encumbrance (the "Chargee"), first enters into a written agreement with the
other Party in form satisfactory to the other Party, acting reasonably, binding
upon the Chargee, to the effect that: (i) the Chargee will not enter into
possession or institute any proceedings for foreclosure or partition of the
encumbering Party's Participating Interest and that such encumbrance shall be
subject to the provisions of this Agreement; (ii) the Chargee's remedies under
the encumbrance shall be limited to the sale of the whole (but only of the
whole) of the encumbering Party's Participating Interest to the other Party, or,
failing such a sale, at a public auction to be held thirty (30) days after prior
notice to the other Party, such sale to be subject to the purchaser entering
into a written agreement with the other Party whereby such purchaser assumes all
obligations of the encumbering Party under the terms of this Agreement; provided
that the price of any preemptive sale to the other Party shall be the remaining
principal amount of the loan plus accrued interest and related expenses; and
(iii) the charge shall be subordinate to any debt encumbering the Mine and Plant
and other Assets;
(g) If a sale or other commitment or disposition of Products or proceeds
from the sale of Products by a Party upon distribution to it pursuant to Article
XIII creates in a third party a security interest in Products or proceeds
therefrom prior to such distribution, such sales, commitment or disposition
shall be subject to the terms and conditions of this Agreement;
(h) Only Canadian currency shall be used for Transfers for consideration;
and
(i) Regardless of the number of Transfers, the total Royalty amount
available to be divided among all transferring and withdrawing Parties pursuant
to Section 8.5 hereof shall not exceed the amount provided therein.
16.3 Preemptive Right -
(a) Except as otherwise provided in this Article XVI, if either Party
desires to Transfer, directly or indirectly, all or any part of its
Participating Interest, the other Party shall have a preemptive right to acquire
such interests as provided in this Section 16.3.
(b) If a Party (the "Transferring Party") is intending to Transfer all or
any part of its Participating Interest, a Control Interest in itself or an
Affiliate or the Assets, it shall promptly notify the other Party of its
intentions. The notice shall state the price and all other pertinent terms and
conditions of the intended Transfer including the name of the proposed
transferee and shall be accompanied by a copy of an offer or contract for sale
to the other Party. If the consideration for the intended Transfer is, in whole
or in part, other than cash, the notice shall describe such consideration and
its cash equivalent (based upon the fair market value of the non cash
36
consideration and stated in cash). The other Party shall have sixty (60) days
from the date such notice is delivered to notify the Transferring Party whether
it elects to acquire the offered interest at the same price (or its cash
equivalent) and on the same terms and conditions as set forth in the notice. If
it does so elect, the Transfer shall be consummated promptly after notice of
such election is delivered to the Transferring Party;
(c) If the other Party fails to so elect within the period provided in
Subsection 16.3(b), the Transferring Party shall have ninety (90) days following
the expiration of such period to consummate the Transfer to a third party at a
price and on terms no less favourable than those offered by the Transferring
Party to the other Party in the notice required in Subsection 16.3(b);
(d) If the Transferring Party fails to consummate the Transfer to a third
party within the period set forth in Subsection 16.3(c), the preemptive right of
the other Party in such offered interest shall be deemed to be revived. Any
subsequent proposal to Transfer such interest shall also be conducted in
accordance with all of the procedures set forth in this Section 16.3.
16.4 Exceptions to Preemptive Right - Section 16.3 shall not apply to the
following:
(a) A transfer by either Party to an Affiliate of all or any of its
Participating Interest; provided that the transferee remains an Affiliate for
the period that this Agreement is in effect or the written consent of the other
Party is obtained prior to the transferee ceasing to be an Affiliate;
(b) The incorporation of a Party, or corporate merger, consolidation,
amalgamation or reorganization of a Party by which the surviving entity shall
possess substantially all of the issued shares, or all of the property rights
and interests, and be subject to substantially all of the liabilities and
obligations of the Party;
(c) Subject to the provisions of Subsection 16.2(f), the grant by either
Party of a security interest in any interest in this Agreement, any
Participating Interest, or royalty rights under this Agreement by mortgage, deed
of trust, pledge, lien or other encumbrance;
(d) The transfer of a Control Interest by an Affiliate to a Party or to
another Affiliate;
(e) The grant by any Affiliate of either Party of a security interest in
the ownership interest the Affiliate holds in the Party by mortgage, deed of
trust, pledge, lien or other encumbrances; or
(f) A sale or other commitment or disposition of Products or proceeds from
sale of Products by a Party upon distribution to it pursuant to Article XIII.
16.5 Compulsory Acquisition Option on Bankruptcy - If any of the events
referred to in Subsections 10.4(c) through 10.4(f), inclusive, occurs in
relation to any Party (an "Insolvent Party"), the other Party shall have an
option to acquire the entire Participating Interest of the Insolvent Party for a
cash purchase price determined by agreement with the Insolvent Party or its
legal representatives to be fair market value. The other Party may exercise such
option to purchase by written notice to the Insolvent Party and/or its legal
representatives given within thirty days of first becoming aware of the event
referred to in Subsections 10.4(c) to 10.4(f), inclusive. If no agreement is
reached on the fair market value of the entire Participating Interest of the
Insolvent Party within thirty (30) days of the giving of such notice, either
Party may submit the matter to arbitration in accordance with the provisions of
Section 19.21.
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16.6 Buy-Out Right on Royalty - At any time during the period commencing on
the completion of a Favourable Feasibility Study covering a specific portion of
the Properties and for a period of twenty (20) years thereafter, the Party who
is not a Royalty Holder (the "Non Royalty Holder") shall be entitled to purchase
one half of the interest in the Royalty then held, directly or indirectly, by
the Royalty Holder in respect of specified reserves or locations (the "Buy-Out
Right"). The Buy-Out Right shall be at net present value for that Royalty based
on the reserves and contemplated or existing mine plan with such net present
value discounted on an 8% discounted cash flow basis. The Non Royalty Holder
wishing to exercise its Buy-Out Right shall deliver to the Royalty Holder
detailed information on the reserves as set forth in the contemplated or
existing mine plan together with a configuration of those portions of the
Property in which such reserves are located and its calculation of the net
present value for the Royalty (the "Buy-Out Purchase Price"). The Royalty Holder
shall respond by notice in writing to the Non-Royalty Holder within thirty (30)
days of receiving such documentation and information as to whether it agrees
with the Buy-Out Purchase Price proposed by the Non-Royalty Holder and if the
Royalty Holder fails to notify the Non Royalty Holder within such thirty (30)
day period whether it agrees or disagrees with the Buy-Out Purchase Price, the
Royalty Holder shall be deemed to have agreed with the Buy-Out Purchase Price.
If there is agreement on the Buy-Out Purchase Price, the Royalty Holder will
execute and deliver to the Non-Royalty Holder all such documents as may be
reasonably required (in the opinion of counsel for such Party) to give effect to
the purchase of one half of its Royalty. Each party to such transaction shall
bear its own expenses in connection with the preparation, execution and delivery
of all such documents.
If, on the other hand, the Royalty Holder disagrees with the Buy-Out
Purchase Price for one half of its Royalty, either Party may refer the
determination of the Buy-Out Purchase Price to arbitration pursuant to Section
19.21.
16.7 Registration - This Agreement will not be registered by either Party
by filing and registering the entire Agreement unless required under Applicable
Law to protect such party's interest herein, but, at the request of either
Party, a memorandum sufficient to protect the interest of each Party will be
registered wherever necessary to protect such Party's interest from time to
time.
ARTICLE XVII
CONFIDENTIALITY
17.1 General - The terms of this Agreement and all information obtained in
connection with the performance of this Agreement and the confidentiality
agreement entered into prior to entering into this Agreement shall be the
exclusive property of the Parties and, except as provided in Section 17.2, shall
not be disclosed to any third party or the public without the prior written
consent of the other Party, which consent shall not be unreasonably withheld. No
Party need seek the consent of a Royalty Holder under this Article XVII;
however, as set forth in Section 17.3, a Royalty Holder shall continue to be
bound by the confidentiality provisions of this Article XVII.
17.2 Exceptions - The consent required by Section 17.1 shall not apply to a
disclosure:
(a) To an Affiliate of a Party, or to a Party's consultant, contractor or
subcontractor that has a bona fide need to be informed;
(b) To any third party to whom the disclosing Party contemplates a Transfer
of all or any part of its interest in or to this Agreement, or all or any part
of its Participating Interest;
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(c) To a governmental agency or to the public which the disclosing Party
believes in good faith is required by Laws or the applicable rules of any stock
exchange; or
(d) To any actual or potential lender or underwriter who has a bona fide
need to be informed.
In any case to which Subsections 17.2(b), (c) or (d) is applicable, the
disclosing Party shall give notice to the other Party concurrently with the
making of such disclosure specifying the entity receiving the information and
the reason for the disclosure. This notice shall include a summary of the
information disclosed and, if requested by the other Party, copies of all
confidential information delivered by the disclosing Party, and, in the case of
information delivered under Subsections 17.2(b) or (d), a copy of the agreement
protecting the confidential information from further disclosure. As to any
disclosure pursuant to Subsection 17.2(b), only such confidential information as
such third party shall have a legitimate business need to know shall be
disclosed and such third party shall first agree in writing to protect the
confidential information from further disclosure to the same extent as the
Parties are obligated under this Article XVII.
17.3 Duration of Confidentiality - The provisions of this Article XVII
shall apply during the term of this Agreement and for two (2) years following
termination of this Agreement pursuant to Section 14.1, and shall continue to
apply to any Party who withdraws, who is deemed to have withdrawn, or who
Transfers its Participating Interest, for two (2) years following the date of
such occurrence. Any Party whose Participating Interest is converted to a
Royalty and any person who becomes a Royalty Holder by means of a permitted
transfer of all or part of the Royalty hereunder shall be bound by the
confidentiality provisions of this Article XVII for so long as this Agreement
remains in force.
17.4 Internal Proprietary Information - The Parties agree not to use, sell,
give, disclose, or otherwise make available to third parties or the public at
any time any knowledge or information they may obtain relating to internal
proprietary techniques and methods used by the other Party for purposes of
geological interpretation, extraction, mining, processing of minerals, or any
other proprietary information that may be acquired.
17.5 Public Announcements - Subject to the exception in Subsection 17.2(c),
each Party shall consult with and obtain the consent of the other Party (which
consent is not to be unreasonably withheld) prior to making or issuing any
public announcement, press release, or similar publicity or disclosure with
respect to this Agreement or any agreement entered into contemporaneously
herewith or with respect to any activities under this Agreement or any such
other agreements. As early as practicable, and not less than forty-eight (48)
hours, before a Party makes any public announcement concerning this Agreement or
activities undertaken pursuant hereto (unless the disclosing Party demonstrates
that sooner disclosure is required by law), such Party shall first give the
other Parties notice of the intended announcement, including a copy of such
proposed announcement.
17.6 Parties' Information - Any analysis, data, documentation, or other
information developed by any Party on its own behalf, and at no cost to the
other Party, shall nevertheless be made available to any other Party if such
analysis, data, documentation, or information utilizes information relevant to
the Assets.
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ARTICLE XVIII
TAX DEDUCTIONS AND CERTIFICATES
18.1 Deductions - Each Party shall be entitled for tax purposes to take
advantage of any deductions or incentives or any elections which may be
available under the provisions of applicable federal, provincial, territorial or
municipal tax laws, regulations and incentive programs in relation to costs and
expenses incurred by it hereunder. Whenever deductions, incentives or elections
are granted to the Parties individually but a joint election is required, each
Party agrees that it will join with the other Party and execute and deliver any
documentation required in connection therewith and otherwise furnish such
information and take such action as may be reasonably requested by the other
Party in connection therewith; provided that nothing herein contained shall
require either Party to take any action which in the written opinion of counsel
for that Party is likely to be detrimental to that Party's tax position.
18.2 Certificates - Should either Party change its status as a non-resident
person to become a resident person, or if a resident person, become a
non-resident person for purposes of the Tax Act, it shall forthwith notify the
other Party in the manner provided in Section 19.1. Should any Party who is or
becomes a non-resident for purposes of the Tax Act, in the opinion of counsel
for the Operator, make a disposition of a Canadian resource property or taxable
Canadian Property within the meaning of the Tax Act, then, in such event, the
disposing person shall take all steps as are necessary including the payment of
money to obtain a certificate or certificates pursuant to section 116 of the Tax
Act designating one or more certificate limits equal to the estimated amount of
the proposed proceeds of disposition. If the disposing person does not obtain
such certificate with a certificate limit not less than the proceeds of
disposition, then the Operator may withhold from any payment due to such person
in respect of such disposition or from any subsequent payment due or otherwise
recover (until such time as the disposing person delivers a certificate with a
certificate limit equal to the proceeds of the disposition) an amount necessary
to permit the Operator to remit to the Receiver General of Canada the tax for
which any Party is liable under section 116 of the Tax Act. Any such
non-resident person shall indemnify and save harmless the other Party or Parties
to this Agreement for any increased taxes that such party or parties may incur
in connection with this Agreement as a consequence of such person's
non-residency.
18.3 GST Election - The Operator and each other Party shall jointly elect
in the prescribed form to authorize the Operator to perform all necessary
functions relating to the goods and services tax payable under the provisions of
section 273 of the Excise Tax Act (Canada), and any applicable provincial
legislation relating to goods and services, including any harmonized sales tax
(such as that presently provided for in certain Canadian Atlantic provinces)
(collectively, "GST"), as amended from time to time, which is payable by the
Operator and which arise out of the ownership and operation of the Properties or
the delivery of each Party's share of Product, if any. Should the Operator
receive any rebate of GST in respect of the Operations, such rebate shall be
credited to the Joint Account.
ARTICLE XIX
GENERAL PROVISIONS
19.1 Notices - All notices, payments and other required communications
("Notices") to the Parties shall be in writing, and shall be addressed
respectively as follows:
To: Xxxxxx Dodge Corporation of Canada, Limited
Xxxxx 000
000 Xxxxxxxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxx X0X 0X0 Facsimile: (000) 000-0000
Attention: Vice-President and Managing Director, Exploration
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With a copy to:
Xxxxxx Dodge Exploration Corporation
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx
X.X.X. 00000-0000 Facsimile: (000) 000-0000
Attention: President
To: Uranium Power Corporation
000 Xxxx Xxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
X0X 0X0 Facsimile: (000) 000-0000
Attention: President
And in the case of Notice to the Management Committee:
To the appointed member thereon of the other Party c/o the other Party as
specified above.
And in the case of Notice to the Operator if it is not a Party:
To the address, person's attention, telephone and facsimile specified
in the communication appointing such Operator.
All Notices shall be given (a) by personal delivery to the Party if
delivered during normal business hours; (b) by electronic communication, with a
confirmation sent by registered or certified mail return receipt requested; or
(c) by registered or certified mail return receipt requested.
All Notices shall be effective and shall be deemed delivered (a) if by
personal delivery, on the date of delivery if delivered during normal business
hours, and, if not delivered during normal business hours, on the next Business
Day following delivery; (b) if by electronic communication, on the next Business
Day following receipt of the electronic communication; or (c) if solely by mail,
on the next Business Day after actual receipt. A Party may change its address by
Notice to the other Party.
19.2 Waiver - The failure of a Party 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 the Party's right thereafter to enforce any provision or exercise any
right.
19.3 Modification - No modification of this Agreement shall be valid unless
made in writing and duly executed by the Parties.
19.4 Force Majeure - Except for any obligation to make payments when due
hereunder, the obligations of a Party 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,
labour disputes (however arising and whether or not employee demands are
reasonable or within the power of the party to grant); acts of God; laws,
regulations, orders, proclamations, 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 federal, provincial or
territorial or local environmental standards; 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,
41
sink holes, drought or other adverse weather conditions; 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,
labour, transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities; actions by
native rights or environmental pressure groups; or any other cause whether
similar or dissimilar to the foregoing. The affected Party shall promptly give
notice to the other Party of the suspension of performance, stating therein the
nature of the suspension, the reasons therefor, and the expected duration
thereof. The affected Party shall resume performance as soon as reasonably
possible. Commercial frustration, commercial impracticability or the occurrence
of unforeseen events rendering performance hereunder uneconomical shall not
constitute an excuse of performance of any obligation imposed hereunder.
19.5 Governing Law - Except for conveyancing and title matters which shall
be governed by the laws of the Province of Saskatchewan, this Agreement shall be
governed by and interpreted in accordance with the laws of the Province of
Ontario and the laws of Canada applicable therein.
19.6 Further Assurances - Each of the Parties agrees to take from time to
time such 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.
19.7 Survival of Terms and Conditions - The following Sections shall
survive the termination of this Agreement to the full extent necessary for their
enforcement and the protection of the Party in whose favour they run: Sections
8.4, 8.6, 12.3, 14.2, 14.3, 14.4, 14.5, 14.6, 17.3, and 19.11.
19.8 Entire Agreement - This Agreement contains the entire understanding of
the Parties and supersedes all prior agreements and understandings between the
Parties relating to the subject matter hereof including without limitation, the
confidentiality agreement dated July 6, 1998.
19.9 Successors and Assigns - This Agreement shall be binding upon and
enure to the benefit of the respective successors and permitted assigns of the
Parties. In the event of any conflict between this Agreement and any Schedule
attached hereto, the terms of this Agreement shall be controlling.
19.10 Severability - If a court of competent jurisdiction determines that
any term, part or provision of this Agreement is unenforceable, illegal, or in
conflict with any federal, provincial, territorial, or local laws, the Parties
intend that the court reform that term, part or provision within the limits
permissible under law in a way as to approximate most closely the intent of the
Parties to this Agreement; provided that, if the court cannot make a
reformation, then that term, part or provision shall be considered severed from
this Agreement. The remaining portions of this Agreement shall not be affected
and it shall be construed and enforced as if it did not contain that term, part
or provision.
19.11 No Partnership - Nothing contained in this Agreement shall be deemed
to constitute either Party the partner of the other, nor, except as otherwise
herein expressly provided, to constitute either Party the agent or legal
representative of the other, nor to create any fiduciary relationship between
them. It is not the intention of the Parties to create, nor shall this agreement
be construed to create, any mining, commercial or other partnership. Neither
Party shall have any authority to act for or to assume any obligation or
responsibility on behalf of the other Party, except as otherwise expressly
provided herein. The rights, duties, obligations and liabilities of the Parties
shall be several and not joint or collective. Each Party shall be responsible
only for its obligations as herein set out and shall be liable only for its
share of the costs and expenses as provided herein, it being the express purpose
and intention of the Parties that their ownership of Assets and the rights
42
acquired hereunder shall be as tenants in common. Each Party shall indemnify,
defend and hold harmless the other Party, its directors, officers, employees,
agents and attorneys from and against any and all losses, claims, damages and
liabilities arising out of any act or any assumption of liability by the
indemnifying Party, or any of its directors, officers, employees, agents and
attorneys done or undertaken, or apparently done or undertaken, on behalf of the
other Party, except pursuant to the authority expressly granted herein or as
otherwise agreed in writing between the Parties.
19.12 Further Ground Within Area of Interest and Other Business
Opportunities -
(a) If, during the currency of this Agreement, any Party or any Affiliate
of a Party (herein called an "Acquiring Party") shall stake or otherwise acquire
or propose to acquire any right to explore or mine or both or an interest in any
such rights, direct or indirect, whether by contract, staking or otherwise any
part of which is within the Area of Interest (as defined in Section 1.1) which
acquisition or proposed acquisition was not part of a Program (herein called an
"Additional Right"), such Additional Right shall be subject to the terms of this
Agreement. It is also agreed that any mining claim, part of which includes a
restaking of any ground that was originally part of the Properties, shall
nonetheless constitute an Additional Right to be dealt with under this Section
19.12;
(b) The Acquiring Party shall give notice (the "Notice") to the other Party
who shall be the "Notified Party", such Notice shall specify the nature and
location of the Additional Right, the acquisition costs and other terms upon
which such acquisition is proposed to be made or was made and any other
information which the Acquiring Party has which may be reasonably expected to be
pertinent to the Notified Party in determining whether it wishes to acquire a
Participating Interest in such Additional Right;
(c) If the Notified Party elects by written notice to the Acquiring Party
(notice to an Affiliate of a Party may be given to the Party affiliated) given
within thirty (30) days of the receipt of the Acquiring Party's Notice, to
continue such Additional Right subject to this Agreement, each Party shall pay
to the Acquiring Party if the acquisition has been completed or to the third
party seller if it is only a proposed acquisition an amount of such acquisition
cost equal to their then respective Participating Interest in the Properties and
such Additional Right shall thereafter form part of the Properties. The
Acquiring Party shall execute whatever instrument(s) are necessary to convey
title to the Additional Right to the proper Parties in accordance with the terms
of this Agreement. If the Notified Party does not elect to continue an
Additional Right subject to this Agreement as herein provided, then all costs
incurred by the Acquiring Party shall be for its own account and such Additional
Right shall be held by the Acquiring Party free and clear of any further
obligations to the Notified Party under the provisions of this Agreement;
(d) For purposes of this Section 19.12 "acquisition costs" mean the
consideration paid or to be paid by the Acquiring Party including, without
restriction, purchase price, registration fees, legal costs and other
out-of-pocket costs, but does not include an allocation of the overhead of the
Acquiring Party. If any acquisition costs are not expressed in money, such
acquisition costs shall be for purposes of this definition, the value of such
costs in money calculated on the basis that the Acquiring Party shall make no
profit or loss therefrom; and
(e) Without limiting the operation of Section 15.2, the provisions of this
Section 19.12 shall apply to any acquisition of an Additional Right by a former
party to this Agreement which ceases to be a Party through the disposition or
forfeiture of the Participating Interest of such former party in the Properties
or through the withdrawal of such Party from this Agreement in accordance with
its terms, during a period of one (1) year from such disposition, forfeiture or
withdrawal.
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(f) Each Party shall have the unrestricted right to stake or otherwise
acquire any rights to explore or mine or both or any other rights in any
property outside the Area of Interest, and to use information obtained under
this Agreement to do so without advising the other Party or without allowing the
other Party to acquire any interest in any such rights or properties, both
before and after the Effective Joint Venture Date. Except as expressly provided
in this Agreement, each Party shall have the unrestricted right to explore,
develop and mine any lands now owned or hereafter acquired by it without
allowing the other Party any participation in such activities; provided,
however, that if any orebody should be developed which straddles the boundary of
the Area of Interest and any such lands the Parties will use their reasonable
best efforts to enter into party wall or unitization agreements with regard to
the mining of any such orebody.
(g) Except as expressly provided in this Agreement, each Party shall also
have the right independently to engage in and receive full benefits from
business activities, whether or not competitive with the Operations, without
consulting the other. The doctrines of "corporate opportunity" or "business
opportunity" shall not be applied to any other activity, association, or
operation of either Party outside the Area of Interest. Unless otherwise agreed
in writing, no Party shall have any obligation to mill, beneficiate or otherwise
treat any Products or any other Party's share of Products in any facility owned
or controlled by such Party.
19.13 Waiver of Rights of Partition and Sale - The Parties hereby waive and
release all rights of partition or of sale in lieu thereof, or other division of
Assets, including any such rights provided by statute and all similar rights
applicable in the Province of Saskatchewan.
19.14 Transfer or Termination of Rights to Properties - Except as otherwise
provided in this Agreement, neither Party shall Transfer all or any part of its
interest in the Assets or this Agreement or otherwise permit or cause such
interests to terminate.
19.15 Implied Covenants - There are no implied covenants contained in this
Agreement except those of good faith, fair dealing and development.
19.16 Employees - Employees of the Operator are not and shall not be
employees of the Party which is not the Operator.
19.17 Expense and Commissions - Each Party shall pay its own legal and
other costs and expenses incurred in connection with this Agreement and agrees
to save harmless each other Party from and against any and all claims whatsoever
for any commissions or other remuneration payable or alleged to be payable to
anyone acting on its behalf.
19.18 Counterparts - Each Party agrees that this Agreement and all
documents and instruments contemplated hereby may be executed in one or more
counterparts which together shall be deemed to constitute one valid and binding
agreement or instrument, as the case may be. Delivery of the counterparts may be
effected by means of facsimile transmission.
19.19 Rule Against Perpetuities - Notwithstanding any provision of this
Agreement, the Parties 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 related rule against interests that last too long.
Accordingly, if any right, or option to acquire any interest in the Properties,
in a Participating 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 in the acquiring Party within time periods permitted by applicable
rules. If, however, any such violation should inadvertently occur, the Parties
hereby agree that a court shall reform that provision in such a way as to
approximate most closely the intent of the Parties within the limits permissible
under such rules.
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19.20 Payment of Royalties - All required payments of royalties to third
parties shall be made by each Party proportionately (based on each Party's
Participating Interest) following the disposition of Products in accordance with
Article XIII, and each Party undertakes to make such payments timely in
accordance with the terms of applicable agreements.
19.21 Arbitration of Disputes -
(a) The parties contemplate all matters in dispute under this Agreement may
be settled by final and binding arbitration with no appeal from the decision of
the arbitrators; provided, however, no party may refer any matter to arbitration
without first having given ten (10) Business Days advance written notice to each
other party specifying in detail the matter to be arbitrated, its proposed
resolution of such matter and the intention to refer the matter to arbitration
(collectively, a "Notice of Intended Arbitration"). After ten (10) Business Days
have elapsed from the delivery to each party of a Notice of Intended Arbitration
without resolution of the matter, the party who gave such notice may refer the
dispute to arbitration pursuant to all the provisions of the Arbitration Act,
1991 (Ontario) and regulations thereunder (collectively, the "Arbitration
Provisions") by naming an arbitrator and notifying each other party of the
arbitrator appointed by it accompanied by that arbitrator's acceptance of his or
her appointment;
(b) If the Parties agree in writing on a single arbitrator, any matter
covered by a Notice of Intended Arbitration under this Agreement may be referred
by the Parties to arbitration by a single arbitrator in lieu of the arbitration
panel otherwise contemplated herein. The Parties contemplate the arbitrator(s)
appointed will be persons qualified by experience and skill in the area(s)
referred to in the Notice of Intended Arbitration. The Parties further
contemplate the arbitrator(s) will determine the matter specified in the Notice
of Intended Arbitration, reduce their decision to writing and deliver a copy to
each party, all within forty-five (45) days of the appointment of the last
arbitrator, subject to any reasonable delay due to unforeseen circumstances.
Notwithstanding the foregoing, if the single arbitrator fails to make a decision
within sixty (60) days after appointment or if the arbitrators, or a majority of
them, fail to make a decision within sixty (60) days after the appointment of
the third arbitrator, then either of the Parties may by notice to the other
elect to have a new single arbitrator or arbitrators chosen in like manner as if
none had previously been selected;
(c) If the Parties do not agree on a single arbitrator, the other Party
shall, within ten days of the delivery of the notice of appointment and
acceptance of the first appointed arbitrator, appoint an arbitrator and deliver
to each other party notice of such appointment and the acceptance of the
appointed arbitrator. If two arbitrators are appointed, those arbitrators shall
within fifteen (15) days of the appointment of the second of them choose a third
member of the arbitration panel. If either Party fails to choose an arbitrator
or the two arbitrators appointed by the Parties, fail to choose a third member
of the arbitration panel, a judge of the Ontario Court (General Division) shall,
upon the request of either Party appoint the arbitrator or arbitrators to
complete the three person arbitration panel;
(d) The Parties agree that proceedings before the arbitrator(s) shall take
place in Xxxxxxx, Xxxxxxx, or such other place as the arbitrator(s) may
determine;
(e) Each Party to this Agreement expressly agrees with each other Party
that the arbitrators appointed hereunder shall have all the rights and
obligations provided for in the Arbitration Provisions and additionally that the
arbitrators shall be entitled to finally determine all questions of law, fact
and mixed fact and law without reference or appeal to any court;
45
(f) The fees and expenses of the arbitrator(s) (unless otherwise determined
by the arbitrator(s)) shall be paid by the Parties equally; and
(g) None of the Parties concerned shall be deemed to be in default of any
matter being arbitrated until ten (10) days after the decision of the
arbitrator(s) is delivered to all of them.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
XXXXXX DODGE CORPORATION OF CANADA, LIMITED
Per: /s/ R. Xxxxxxx Xxxx
--------------------------------------
R. Xxxxxxx Xxxx,
Vice-President and Managing Director,
Exploration
URANIUM POWER CORPORATION
Per: /s/ Xxxxxxxx Xxxxxxxxx
--------------------------------------
Xxxxxxxx X. Xxxxxxxxx,
President
Per:
--------------------------------------
46
Schedule A - Part 1
Property list - Saskatchewan Uranium Properties
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Property Name NTS Claim No. Size (ha) Payment made Due date
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Xxxxx 74H-5 CBS 7756 2,445 16,748.33 May 9, 1999
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
74H-5 CBS 7757 3,509 25,611.94 May 9, 1999
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Total 2 Claims 5,954
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Xxxxxxxx 74H-5 S-104749 2,945
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
74H-5 S-104750 2,235
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
74H-5 S-104764 3,210
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
74H-5 CBS 7741 2,980
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Total 4 Claims 11,370
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Jasper 74I-1, S-105750 1,415
(off map to Northeast) 74H-16
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Xxxxxx 74H-11 CBS 7752 3,125 16,318.66 May 9, 1999
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Perpete 74G-8 S-104755 1,370 9,268.75 May 11, 1999
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
74G-8 S-104756 3,265 22,089.40 May 2, 1999
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Total 2 Claims 4,635
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Xxxxx 74G-8 CBS 7758 3,753 36,641.57 May 9, 1999
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Grand Total 11 Claims 30,252 ha. $126,678.65 (Note 1)
---------------------------- ------------ -------------- --------------- ------------------ ------------------------
Note 1: To be repaid to PDC upon completion and filing of two years of
assessment work for each claim where payments have been made by the
applicable due date noted.
Schedule A - Part 2
Location Map
Schedule B
Initial Program and Expenditures
----------------- --------------------------- ------------------------------------- ------------- ------------------
Minimum
Initial Program - Estimated Required
Property Prior PD Expenditure Proposed Work Cost Expenditures*
----------------- --------------------------- ------------------------------------- ------------- ------------------
$1,618,263 Lithogeochem boulder $ 3,000 --
sampling
Xxxxxxxx
----------------- --------------------------- ------------------------------------- ------------- ------------------
Perpete 118,601 Drill 155,000 $ 86,978.14
----------------- --------------------------- ------------------------------------- ------------- ------------------
Jasper 59,472 Gridding, Detail 26,000 --
Lithogeochem
----------------- --------------------------- ------------------------------------- ------------- ------------------
Xxxxx 28,989 Gridding, TDEM, Mag/VLF,
Lithogeochem, Drill 180,000 113,808.29
----------------- --------------------------- ------------------------------------- ------------- ------------------
Xxxxx 8,395 Lithogeochem, Gridding, 81,677.57
TDEM
82,000
----------------- --------------------------- ------------------------------------- ------------- ------------------
Xxxxxx 20,205 Gridding, TDEM, 53,818.66
Lithogeochem
54,000
----------------- --------------------------- ------------------------------------- ------------- ------------------
54,652 Expenditures on previously held -- --
properties in area
----------------- --------------------------- ------------------------------------- ------------- ------------------
Total $1,908,577 $500,000 $336,282.66
----------------- --------------------------- ------------------------------------- ------------- ------------------
* Minimum required expenditures for recovery of PDC Payments in lieu of work.
(c) The cost of any required insurance, deductibles, or retention amounts
shall be charged to the Joint Account.
