This document is being submitted as required by 14(A)3 of
schedule 14(A) and will not be attached as an appendix to
the proxy statement mailed to the shareholders.
OPERATING AGREEMENT
FOR
CROWN ASPHALT RIDGE L.L.C.
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TABLE OF CONTENTS
Page
ARTICLE I THE LIMITED LIABILITY COMPANY 1
1.1 Formation 1
1.2 Name 1
1.3 Articles of Organization 1
1.4 Registered Office, Registered Agent 1
1.5 Principal Place of Business 2
1.6 Character of Business 2
1.7 The Members 2
1.8 Term 2
1.9 No State-Law Partnership 2
ARTICLE II DEFINITIONS 3
ARTICLE III CAPITAL CONTRIBUTIONS; MEMBER ADVANCES 13
3.1 Initial Capital Contributions of Crown 13
3.2 Initial Capital Contribution of MCNIC 13
3.3 Secondary Capital Contributions of Crown 13
3.4 Secondary Capital Contribution of MCNIC 16
3.5 Additional Capital Contributions 16
3.6 Failure to Contribute 16
3.7 Return of Contributions 18
3.8 Advances by Members 19
3.9 Conditions Precedent to Capital
Contributions by MCNIC 19
3.10 Conditions Precedent to Capital
Contributions by Crown 21
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS 22
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4.1 Capacity of Members 22
4.2 Litigation 22
4.3 Compliance with Laws; No Defaults 22
4.4 Investment Representations 23
4.5 Intellectual Property 23
4.6 Additional Representations, Warranties
and Covenants of Crown 24
4.7 Knowledge 29
4.8 Survival 29
ARTICLE V MANAGERS -- MANAGEMENT POWERS--OFFICERS 30
5.1 Managers 30
5.2 Management Authority 30
5.3 Annual Operating Plan. 33
5.4 Detailed Engineering 35
5.5 Duties 35
5.6 Reliance by Third Parties 35
5.7 Resignation 35
5.8 Vacancies 36
5.9 Information Relating to the Company 36
5.10 Insurance 36
5.11 Tax Matters Partner 36
5.12 Exculpation 36
5.13 Officers 37
ARTICLE VI MANAGEMENT FEES AND REIMBURSEMENTS; COMPANY
OPPORTUNITIES; CONFLICTS 38
6.1 Management Fee 38
6.2 Reimbursements 38
6.3 Company Opportunities; Conflicts of Interest 38
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2
ARTICLE VII OPERATING PROTOCOLS; CONSTRUCTION OF
ADDITIONAL PLANTS 40
7.1 In General 40
7.2 Properties 40
7.3 Marketing Plan 40
7.4 Construction of Initial Plant 41
7.5 Subsequent Plants 41
ARTICLE VIII DISTRIBUTIONS TO THE MEMBERS 48
8.1 Nonliquidating Distributions 48
8.2 Liquidating Distributions 48
8.3 Distributions in Kind 48
ARTICLE IX ALLOCATIONS OF PROFITS AND LOSSES 49
9.1 In General 49
9.2 Regulatory Allocations and
Curative Provisions 51
9.3 Other Allocation Rules 52
9.4 Adjustment of Sharing Ratios Upon Payout 53
ARTICLE X ALLOCATION OF TAXABLE INCOME AND
TAX LOSSES 53
10.1 In General 53
10.2 Allocation of Section 704(c) Items 53
10.3 Integration With Section 754 Election 53
10.4 Allocation of Tax Credits 54
ARTICLE XI MEMBERS 54
11.1 Limited Liability 54
11.2 Quorum 54
11.3 Informal Action 54
11.4 Meetings 54
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3
11.5 Place of Meeting 54
11.6 Notice of Meeting 54
11.7 Proxies 55
11.8 Conduct of Meeting 55
ARTICLE XII ACCOUNTING AND REPORTING 55
12.1 Books 55
12.2 Capital Accounts 55
12.3 Transfers During Year 56
12.4 Reports 56
12.5 Section 754 Election 57
12.6 Independent Audit 57
12.7 Treatment of Formation of LLC-2
and LLC-3 57
ARTICLE XIII TRANSFER OF MEMBER' S INTEREST--RIGHT
OF FIRST OFFER 57
13.1 Restrictions on Transfer 57
13.2 Right of First Offer 58
13.3 Tag-Along Rights 58
13.4 Cash Equivalents 59
13.5 Direct and Indirect Transfers 59
13.6 Substitution of a Member 59
13.7 Conditions to Substitution 60
ARTICLE XIV DISSOLUTION AND TERMINATION 61
14.1 Dissolution 61
14.2 Liquidation 61
14.3 Waiver of Right to Court Decree
of Dissolution 63
14.4 Articles of Dissolution 63
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ARTICLE XV INDEMNIFICATION 63
15.1 Indemnification 63
15.2 Implementation 65
ARTICLE XVI ARBITRATION 66
16.1 Submission to Arbitration 66
16.2 Initiation of Arbitration and
Selection of Arbitrators 66
16.3 Arbitration Procedures 66
16.4 Enforcement 67
16.5 Fees and Costs 67
16.6 Capital Contributions 67
ARTICLE XVII NOTICES 67
17.1 Method of Notices 67
17.2 Computation of Time 68
ARTICLE XVIII GENERAL PROVISIONS 68
18.1 Confidentiality 68
18.2 Public Announcements 69
18.3 Entire Agreement 69
18.4 Amendment 69
18.5 Applicable Law 69
18.6 Pronouns 69
18.7 U.S. Dollars 69
18.8 Counterparts 69
18.9 Additional Documents 69
18.10 Written Consents 69
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5
List of Schedules
Schedule 2.1 -- Intellectual Property
Schedule 2.2 -- Detailed Engineering
Schedule 2.3 -- Existing Data.
Schedule 3.3(a)(i)
Schedule 4.2
Schedule 4.3
Schedule 4.4(h)(ii)
Schedule 4.6 -- Project Area
Schedule 4.6(a)
Schedule 4.6(a)(ii)
Schedule 4.6(a)(iii)
Schedule 4.6(a)(iv)
Schedule 4.6(h)(i)
Schedule 4.6(l)
Schedule 4.6(m)
Schedule 7.5(c)
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6
OPERATING AGREEMENT
FOR
CROWN ASPHALT RIDGE L.L.C.
THIS OPERATING AGREEMENT (this "Agreement") dated as of
August 1, 1997 is between MCNIC PIPELINE & PROCESSING
COMPANY, a Michigan corporation ("MCNIC"), and CROWN ASPHALT
CORPORATION, a Utah corporation ("Crown"), which is a wholly
owned subsidiary of Crown Energy Corporation, a Utah
corporation ("Crown Parent"). MCNIC and Crown are sometimes
referred to herein collectively as the "Members" and each
individually as a "Member."
In consideration of the mutual covenants contained
herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I.
THE LIMITED LIABILITY COMPANY
1.1 Formation . The Members hereby form a limited
liability company pursuant to the Utah Limited Liability
Company Act (the "Act") upon the terms and conditions set
forth in this Agreement. To the fullest extent permitted by
the Act, this Agreement shall control as to any conflict
between this Agreement and the Act or as to any matter
provided for in this Agreement that is also provided for in
the Act.
1.2 Name . The name of the limited liability company
shall be Crown Asphalt Ridge L.L.C. (the "Company").
1.3 Articles of Organization . The Managers shall
cause articles of organization that comply with the
requirements of the Act to be properly filed with the Utah
Division of Corporations and Commercial Code. In the
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future, the Managers shall execute such further documents
(including amendments to the articles of organization) and
take such further action as shall be appropriate or
necessary to comply with the requirements of law for the
formation or operation of a limited liability company in all
states and counties where the Company may conduct its
business.
1.4 Registered Office, Registered Agent . The
location of the registered office of the Company shall be
CT Corporation System, or such other location as the Members
may designate. The Company's registered agent at such
address shall be ▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇.
1.5 Principal Place of Business . The location of the
principal place of business of the Company shall be at
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, or
at such other place as the Members from time to time may
select.
1.6 Character of Business . The business of the
Company shall be (a) to determine the means and economic
feasibility of the processing, refining or other
beneficiation of Products; (b) to receive an assignment of
or acquire the Properties as provided for herein and the
Sublicense; (c) to acquire additional property within the
Project Area or Area of Mutual Interest; (d) to engage in
Development and Mining on the Properties; (e) to construct
one or more facilities or other improvements for the
handling, processing, refining or other beneficiation of
Products; (f) to engage in Operations on the Properties; (g)
to engage in marketing asphalt, diesel fuel and other
Products; (h) to perform any other activity necessary,
appropriate or incidental to any of the foregoing; and (i)
to transact any and all other businesses for which limited
liability companies may be formed under the Act.
1.7 The Members . The name and business address of
each Member are as follows:
Name Address
MCNIC ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Crown Asphalt Corporation ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
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2
Additional Members shall not be admitted to the Company
without the prior written consent of all of the Members.
1.8 Term . The Company shall continue until the
happening of the first to occur of January 1, 2090 or one of
the events set forth in Section 14.1.
1.9 No State-Law Partnership . The Members intend
that the Company not be a partnership (including, without
limitation, a limited partnership or a mining partnership)
or joint venture, and that no Member or Manager be a partner
or joint venturer of any other Member or Manager, for any
purposes other than federal and state tax purposes, and this
Agreement may not be construed to suggest otherwise.
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3
ARTICLE II.
DEFINITIONS
The following terms shall have the indicated meaning:
"AAA" shall mean the American Arbitration Association.
"Acquiring Member" shall have the meaning set forth in
Section 6.3(b)(i).
"Adjusted Capital Account Deficit" shall mean with
respect to any Member, the deficit balance, if any, in such
Member's Capital Account as of the end of the fiscal year
after giving effect to the following adjustments:
(a) Credit to such Capital Account any addition
thereto pursuant to 1.704-2(g)(1) and 1.704-2(i)(5) of
the Treasury Regulations, after taking into account
thereunder any changes during such year in partnership
minimum gain (as determined in accordance with 1.704-2(d)
of the Treasury Regulations) and in the minimum gain
attributable to any Member for nonrecourse debt (as
determined under 1.704-2(i)(3) of the Treasury
Regulations); and
(b) Debit to such Capital Account the items
described in 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the
Treasury Regulations.
This definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of
Treasury Regulation 1.704-1(b)(2)(ii)(d).
"Adjusted Properties" shall have the meaning set forth
in Section 10.2.
"Additional Capital Contribution" shall mean, with
respect to any Member, the aggregate amount of cash to be
contributed by such Member to the Company in respect of any
capital call pursuant to Section 3.5 or Section 5.3(e).
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4
"Additional Opportunities" shall have the meaning set
forth in Section 6.3(a).
"Affiliate" shall mean with respect to a Member (a) any
Person directly or indirectly owning, controlling or holding
with power to vote 50% or more of the outstanding voting
securities, membership interests or partnership interests of
the Member, (b) any Person 50% or more of whose outstanding
voting securities, membership interests or partnership
interests are directly or indirectly owned, controlled or
held with power to vote by the Member or a Person or group
described in "(a)", and (c) any officer, director, member,
manager or partner of the Member or any Person described in
subsections (a) or (b) of this paragraph.
"AMI Opportunity" shall have the meaning set forth in
Section 6.3(b).
"Annual Operating Plan" shall have the meaning set
forth in Section 5.3(a).
"Application for Payment" shall mean the invoice
presented by the General Contractor to the Company for
payment of amounts due pursuant to the EPC Contract. The
EPC Contract shall describe in detail the contents of each
"Application for Payment" which shall contain such
information as is customary for bank financed construction
loans or as is required by MCNIC, and shall require each
"Application for Payment" to be in the form of an affidavit.
"Area of Mutual Interest" shall mean the State of Utah
excluding the Project Area.
"Available Cash" shall mean the cash or cash equivalent
items held by the Company, less cash reserve accounts
established by the Management Committee. The Management
Committee shall be authorized to set up such cash reserve
accounts as it reasonably determines are necessary including
cash reserve accounts for future capital expenditures.
"Back-in Option" shall have the meaning set forth in
Section 7.5(f).
"Capital Accounts" shall mean the account established
for each Member pursuant to Section 12.2.
"Capital Contribution" shall mean for any Member at the
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5
particular time in question the aggregate of the dollar
amounts of any cash or cash equivalents contributed to the
capital of the Company, or, if the context in which such
term is used so indicates, the agreed value of any property
agreed to be contributed or requested to be contributed by a
Member to the capital of the Company.
"Carrying Value" The initial "Carrying Value" of
property contributed to the Company by a Member shall mean
the agreed value of such property at the time of
contribution as determined by the Managers and the
contributing Member. The initial Carrying Value of any
other property shall be the adjusted basis of such property
for federal income tax purposes at the time it is acquired
by the Company. The initial Carrying Value of a property
shall be reduced (but not below zero) by all subsequent
depreciation, cost recovery, depletion and amortization
deductions with respect to such property as taken into
account in determining profit and loss. The Carrying Value
of any property shall be adjusted from time to time in
accordance with Sections 12.2(b) and 12.2(c), and to reflect
changes, additions or other adjustments to the Carrying
Value for dispositions, acquisitions or improvements of
Company properties, as deemed appropriate by the Managers.
"CERCLA" shall mean the Comprehensive Environmental
Response, Compensation, and Liability Act of 1986, as
amended.
"Chairman" shall have the meaning set forth in
Section 5.1(a).
"Claim Notice" shall have the meaning set forth in
Section 15.2(b).
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. Any reference herein to a
specific section or sections of the Code are deemed to
include a reference to any corresponding provision of future
law.
"Company" shall have the meaning set forth in
Section 1.2.
"Confidential Information" shall have the meaning set
forth in Section 18.1.
"Continuing Obligations" shall mean obligations or
responsibilities that are reasonably expected to continue or
arise after Operations on a particular area of the
Properties or Operation of the Plant have ceased or are
suspended, such as future monitoring, stabilization or
Environmental Compliance.
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6
"Contractor's Affidavit" shall be the affidavit of the
General Contractor required by the EPC Contract to be
presented to the Company along with each Application for
Payment. The EPC Contract shall require the "Contractor's
Affidavit" to contain such statements as are customary in
connection with bank financed construction loans or as are
required by MCNIC.
"Crown" shall have the meaning set forth in the
preamble to this Agreement.
"Crown Base Sharing Ratio - LLC-2" shall have the
meaning set forth in Section 7.5(d).
"Crown Base Sharing Ratio - LLC-3" shall have the
meaning set forth in Section 7.5(d).
"Crown Intellectual Property" shall mean the
Intellectual Property contributed to the Company by Crown
pursuant to Section 3.3(a)(ii), and including the items
identified on Schedule 2.1.
"Crown Parent" shall have the meaning set forth in the
preamble to this Agreement.
"Date of Notice" shall have the meaning set forth in
Section 5.12(b).
"Default Interest Rate" shall mean a rate per annum
equal to the lesser of (a) 6% plus the General Interest
Rate, and (b) the maximum rate permitted by applicable law.
"Delinquent Member" shall have the meaning set forth in
Section 3.6(a).
"Detailed Engineering" shall mean the study to be
conducted by the Company concerning the items set forth on
Schedule 2.2 -- Detailed Engineering.
"Development" shall mean all preparation for the
removal and recovery of Products, including, without
limitation, construction of any improvements to be used for
the Mining or handling of Products, and all related
Environmental Compliance.
"Effective Date" shall mean August 1, 1997.
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7
"18% Threshold Return" shall be deemed to have been
achieved if:
(i) for purposes of applying Section 7.5(a),
during any Test Period - Initial Plant: (A) MCNIC's Sharing
Ratio share of the Net Operating Income of the Company
attributable to the Initial Plant, less (B) interest during
such test period at the General Interest Rate on 50% of the
aggregate Capital contributions of MCNIC to the Company,
equals or exceeds (C) 18% of 50% of the aggregate Capital
Contributions of MCNIC to the Company;
(ii) for purposes of applying Section 7.5(b),
during any Test Period - Plant 2: (A) MCNIC's sharing ratio
(in LLC-2) share of the Net Operating Income of LLC-2
attributable to Plant 2, less (B) interest during such test
period at the General Interest Rate on 50% of the aggregate
capital contributions of MCNIC to LLC-2, equals or exceeds
(C) 18% of 50% of the aggregate capital contributions of
MCNIC to LLC-2.
"Environmental Compliance" shall mean all actions
performed during or after Operations to comply with the
requirements of all Environmental Laws or commitments or
obligations related to reclamation of the Properties or
compliance with Environmental Laws.
"Environmental Laws" shall mean Laws aimed at
reclamation or restoration of the Properties; abatement of
pollution; protection of the environment; protection of
wildlife, including endangered species; ensuring public
safety from environmental hazards; protection of cultural or
historic resources; management, storage or control of
hazardous materials and substances; releases or threatened
releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or hazardous
wastes into the environment, including without limitation,
ambient air, soil, surface water and groundwater, and all
other Laws relating to the manufacturing, processing,
distribution, use, treatment, storage, disposal, handling or
transport of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes,
including, by way of example and without limitation, CERCLA
and RCRA.
"Environmental Liabilities" shall mean any and all
claims, actions, causes of action, damages, losses,
liabilities, obligations, penalties, judgments, amounts paid
in settlement, assessments, costs, disbursements, or
expenses (including, without limitation, attorneys' fees and
costs, experts' fees and costs, and consultants' fees and
costs) of any kind or of any nature whatsoever that are
asserted against any Person, by any Person alleging
liability (including, without limitation, liability for
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8
study, testing or investigatory costs, cleanup costs,
corrective action costs, response costs, removal costs,
remediation costs, natural resource damages, property
damages, business losses, personal injuries, penalties or
fines) arising out of, based on or resulting from (i) the
presence, release, threatened release, discharge or emission
into the environment of any Hazardous Substances existing or
arising on, beneath or above the Properties and/or emanating
or migrating and/or threatening to emanate or migrate to or
from the Properties to or from off-site properties, (ii)
physical disturbance of the environment, or (iii) the
violation or alleged violation of any Environmental Laws.
"Encumbrances" shall mean mortgages, deeds of trust,
security interests, pledges, liens, net profits interests,
royalties or overriding royalty interests, other payments
out of production, or other burdens of any nature.
"EPC Contract" shall have the meaning set forth in
Section 7.4(a)
"Equipment Leases" shall mean capital leases in form
and substance satisfactory to MCNIC pursuant to which Crown
leases the Leased Equipment from the lessor-owner thereof.
"Equipment Lease Fair Market Value" shall mean the fair
market value of the Leased Equipment.
"Existing Data" shall mean maps, drill logs or other
drilling data, core tests, samples, reports, surveys,
assays, analyses, production reports, operations, technical,
accounting and financial records, title reports, title
opinions, status reports, title policies and policy
commitments and other information and data related to title
to the Properties, test results and other information
regarding pilot or demonstration projects, operating and net
revenue interests, prices currently being received for
production and other material information developed with
respect to the Properties or the actual or potential
development thereof prior to the Effective Date, including,
without limitation, the reports, studies and analyses set
forth in Schedule 2.3 -- Existing Data.
"Financial Statements" shall have the meaning set forth
in Section 4.6(m).
"General Contractor" shall have the meaning set forth
in Section 7.4(a).
"General Interest Rate" shall mean a rate per annum
equal to the lesser of (a) an annual rate of interest which
equals the floating commercial loan rate as published in the
Wall Street Journal from time to time as the "Prime Rate,"
adjusted in each case as of the banking day in which a
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9
change in the Prime Rate occurs, as reported in the Wall
Street Journal; provided, however, that if such rate is no
longer published in the Wall Street Journal, then it shall
mean an annual rate of interest which equals the floating
commercial loan rate of Citibank, N.A., or its successors
and assigns, announced from time to time as its "base rate,"
adjusted in each case as of the banking day in which a
change in the base rate occurs; and (b) the maximum rate
permitted by applicable law.
"Governmental Fees" shall mean all location fees,
mining claim rental fees, mining claim maintenance payments
and similar payments required by Law to locate and hold
unpatented mining claims.
"Guaranty" shall mean the Guaranty dated as of the date
of this Agreement from Crown Parent for the benefit of
MCNIC, guaranteeing all obligations of Crown under this
Agreement and the Management Agreement.
"▇▇▇▇▇▇" shall mean Park ▇▇▇▇▇▇ Enterprises, Inc.
"▇▇▇▇▇▇ License" shall mean that License Agreement
dated as of January 20, 1989, between Park ▇▇▇▇▇▇
Enterprises, Inc., as licensor, and Crown, as licensee,
covering the state of Utah and including any amendments
thereto.
"Hazardous Substances" shall have the meaning set forth
in Section 4.6(j).
"Initial Plant" shall mean the Plant to be constructed
by the Company in accordance with this Agreement.
"Initial Plant Payout" shall mean 7:00 A.M., local
time, on the first day of the calendar month following the
earliest calendar month during which (a) the aggregate cash
distributions actually received by MCNIC from the Company
(without including any tax credits, tax benefits or other
tax effects under federal, state or local laws), equal (b)
the product of (i) 1.15, multiplied by (ii) the aggregate
Capital Contributions actually paid by MCNIC pursuant to
Sections 3.2, 3.4 and 3.5 (and Capital Contributions at
MCNIC's election pursuant to Section 3.6). Payout may occur
only once hereunder, notwithstanding that MCNIC may make
additional Capital Contributions to the Company after the
occurrence of Payout which, if included in the computation
of Initial Plant Payout, would result in Payout not having
occurred.
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10
"Intellectual Property" shall mean patents, trade
secrets, proprietary information, processes, copyrights,
trademarks, software, know-how, technology, operating
manuals and technical information now or hereafter owned by
the Company, and shall include Crown Intellectual Property
and developments, improvements and enhancements paid for by
the Company or occurring during pursuit of the business of
the Company.
"Law" or "Laws" shall mean all applicable federal,
state and local laws (statutory or common), rules,
ordinances, regulations, grants, concessions, franchises,
licenses, orders, directives, judgments, decrees, and other
governmental restrictions, including Permits and other
similar requirements, whether legislative, municipal,
administrative or judicial in nature.
"Leased Equipment" shall mean that certain mining
equipment identified on Schedule 3.3(a)(i), as amended from
time to time to meet the needs of the Company as determined
by Management Committee to be used in the Mining of tar
sands from the Properties and the handling and delivery of
such Products to the Initial Plant for processing at the
Initial Plant; provided that to the extent the Leased
Equipment exceeds an Equipment Lease Fair Market Value of
$3,500,000, the last items of Leased Equipment that cause
the Equipment Lease Fair Market Value to exceed $3,500,000
shall be the responsibility of the Company.
"LLC-2" shall mean the limited liability company, if
any, formed pursuant to Section 7.5(d) to construct and
operate Plant 2.
"LLC-3" shall mean the limited liability company, if
any, formed pursuant to Section 7.5(d) to construct and
operate Plant 3.
"Loss" shall have the meaning set forth in Section
15.2(a).
"Major Decision" shall have the meaning set forth in
Section 5.2(b).
"Management Agreement" shall mean that certain
Operating and Management Agreement dated as of the Effective
Date between the Company and Crown.
"Management Committee" shall have the meaning set forth
in Section 5.2(a).
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11
"Managers" shall have the meaning set forth in
Section 5.1(a).
"Marketing Plan" shall have the meaning set forth in
Section 7.3.
"Material Adverse Effect" shall mean, with respect to
any Member, a material adverse effect on (i) the condition
(financial or otherwise), business, assets or results of
operations of that Person and its Affiliates (excluding
those Persons included within subsection (c) of the
definition of "Affiliate"), taken as a whole, or (ii) the
ability of that Person to perform its obligations under this
Agreement.
"MCNIC" shall have the meaning set forth in the
preamble to this Agreement.
"Mine Production Plan" shall have the meaning set forth
in Section 7.2.
"Minimum Budget" shall have the meaning set forth in
Section 5.3(c).
"Mining" shall mean the mining, extracting, producing,
beneficiating, handling, refining or other processing of
Products, as well as the removal of overburden from and the
reclamation or restoration of the Properties.
"Net Operating Income" with respect to a plant shall
mean the gross proceeds received from the sale of Products
produced from such plant, less:
(i) all costs and expenses to operate and
maintain the subject plant, including, without limitation,
costs for tar sands and other inputs, and reserves for
Environmental Compliance, (allocated over the projected
economic life of the subject plant using the units of
production method) major maintenance and other matters (but
not including Plant Costs);
(ii) income taxes attributable to income from the
plant (determined using an assumed tax rate of 35%),
excise, sales, severance and other taxes on inputs and
Products, property taxes on the plant and equipment and all
other taxes; and
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12
(iii) depreciation, depletion and
amortization.
The above items shall be determined in accordance with
generally accepted accounting principles consistently
applied after giving effect to the express terms of this
Agreement, allocable to the applicable Test Period.
"Nonacquiring Member" shall mean any Member that is not
an Acquiring Member.
"Non-Defaulting Member" shall have the meaning set
forth in Section 3.6(a).
"Non-Participating Member" shall have the meaning set
forth in Section 7.5(d).
"Notice of Additional Capital Contributions" shall
mean, with respect to any call for Additional Capital
Contributions from the Members, a notice from the Chairman
setting forth (a) the Required Capital, (b) the Additional
Capital Contribution required from each Member, and (c) the
date on which such Additional Capital Contributions are
required to be made to the Company.
"Operating Protocols" shall mean those requirements for
the activities of the Company set forth in Article VII.
"Person" shall mean an individual, natural person,
corporation, joint venture, partnership, limited liability
partnership, limited partnership, limited liability limited
partnership, limited liability company, trust, estate,
business trust, association, governmental authority or any
other entity.
"Permits" shall mean those permits, consents and
authorizations listed on Schedule 4.6(h)(i) hereto and all
other licenses, permits (including with respect to
environmental matters), plans of operation, consents,
approvals, authorizations, permissions, notations,
qualifications and orders of governmental authorities and
third Persons as are required or necessary (i) for the
Members to make their respective Capital Contributions and
otherwise perform their obligations under this Agreement and
the Management Agreement, (ii) for the Company to hold and
#325596.v2
13
operate the Properties and conduct Mining operations thereon
as presently operated and as contemplated by this Agreement
and the Management Agreement, (iii) to construct and operate
the Initial Plant as contemplated by this Agreement and the
Management Agreement, and (iv) to market and sell Products,
in each case for the term of this Agreement and the
Management Agreement, and (v) to dispose of materials or
byproducts (including Hazardous Substances) generated or
resulting from any of the foregoing activities.
"Plant" shall mean a facility or facilities for the
handling, processing, separation, flotation, refining or
other beneficiation of Products.
"Plant Costs" shall mean all costs and expenses of
designing, developing, siting, permitting, constructing,
equipping and testing the applicable plant and for all
mining and other equipment purchased by the entity that owns
the applicable Plant to be used in supplying such Plant with
Products. All such expenditures and costs shall be
determined in accordance with the accounting procedure
attached as Exhibit "C" to the Management Agreement.
"Plant 2" shall mean the first Subsequent Plant, if
any.
"Plant 3" shall mean the second Subsequent Plant, if
any.
"Plant 2 Payout" shall mean 7:00 A.M., local time, on
the first day of the calendar month following the earliest
calendar month during which (a) the aggregate cash
distributions actually received by MCNIC from LLC-2 (without
including any tax credits, tax benefits or other tax effects
under federal, state or local laws), equal (b) the product
of (i) 1.15, multiplied by (ii) the aggregate Capital
Contributions actually paid to LLC-2 by MCNIC pursuant to
those provisions of the operating agreement for LLC-2 that
are the substantial equivalents of Sections 3.2, 3.4 and 3.5
of this Agreement. Payout may occur only once hereunder,
notwithstanding that MCNIC may make additional Capital
Contributions to LLC-2 after the occurrence of Plant 2
Payout which, if included in the computation of Plant 2
Payout, would result in Payout not having occurred.
"Plant 3 Payout" shall mean 7:00 A.M., local time, on
the first day of the calendar month following the earliest
calendar month during which (a) the aggregate cash
distributions actually received by MCNIC from LLC-3 (without
including any tax credits, tax benefits or other tax effects
under federal, state or local laws), equal (b) the product
of (i) 1.15, multiplied by (ii) the aggregate Capital
Contributions actually paid to LLC-3 by MCNIC pursuant to
those provisions of the operating agreement for LLC-3 that
are the substantial equivalents of Sections 3.2, 3.4 and 3.5
of this Agreement. Payout may occur only once hereunder,
notwithstanding that MCNIC may make additional Capital
Contributions to LLC-3 after the occurrence of Plant 3
Payout which, if included in the computation of Plant 3
Payout, would result in Payout not having occurred.
#325596.v2
14
"Plant 2 Properties' Value" shall mean (i) an amount
equal to $0.10 per barrel of Products that are projected to
be commercially producible from Plant 2 at the design rate
for the 20-year projected economic life of Plant 2 from the
proved reserves of commercially recoverable tar sands
contained in the Plant 2 Properties if the 30% Threshold
Return is achieved, or (ii) $1 if the 30% Threshold Return
is not achieved.
"Plant 3 Properties' Value" shall mean an amount equal
to $0.10 per barrel of Products that are projected to be
commercially producible from Plant 3 at the design rate for
the 20-year projected economic life of Plant 3 from the
proved reserves of commercially recoverable tar sands
contained in the Plant 3 Properties if the 30% Threshold
Return is achieved, or (ii) $1 if the 30% Threshold Return
is not achieved.
"Products" shall mean all tar sands, hydrocarbons,
bitumen, asphaltum and minerals and mineral resources
produced from the Properties, and all products produced
therefrom by or at the Plant, including, without limitation,
asphalt, performance grade asphalt, and synthetic crude oil
and diesel fuel.
"Profit or Loss" shall mean the income or loss of the
Company as determined under the capital accounting rules of
Treasury Regulation 1.704-1(b)(2)(iv) for purposes of
adjusting the Capital Accounts of Members including, without
limitation, the provisions of paragraphs
1.704-1(b)(2)(iv)(g) and 1.704-1(b)(4) of those regulations
relating to the computation of items of income, gain,
deductions and loss.
"Project Area" shall mean the area described in
Schedule 4.6 -- Project Area.
"Properties" shall mean those interests in real
property and Water Rights described in Schedule 4.6(a) and
its subparts.
"RCRA" shall mean the Resource Conservation and
Recovery Act.
"Regulatory Allocations" shall have the meaning set
forth in Section 9.2(g).
"Required Capital" shall mean, with respect to any
capital call pursuant to Section 3.5 or Section 5.3(e), the
aggregate amount of cash to be contributed by both Members
to the Company.
#325596.v2
15
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Sharing Ratios" shall mean each Member's membership
interest in the Company. The Member's "Sharing Ratios"
shall initially be as follows:
MCNIC 75%
Crown 25%
Such Sharing Ratios shall be adjusted as provided in
Sections 3.6 and 9.4.
"Subsequent Plants" shall mean two Plants that may be
constructed by the Members after completion of the Initial
Plant. The Subsequent Plants shall not be owned or held by
the Company but shall be held in separate limited liability
companies owned by the parties as described in Article VII.
"Sublicense" shall have the meaning specified in
Section 3.3(a)(ii).
"Tag-Along Rights" shall have the meaning set forth in
Section 13.3.
"Test Period - Initial Plant" shall mean any
consecutive 12-month period following the date of the first
sale of Products produced from the Initial Plant.
"Test Period - Plant 2" shall mean any consecutive 12-
month period following the date of the first sale of
Products produced from the Plant 2.
"30% Threshold Return." The "30% Threshold Return"
shall be deemed to have been achieved if (A) MCNIC's Sharing
Ratio share of the Net Operating Income attributable to the
Initial Plant during any Test Period - Initial Plant ending
on or before the commencement of first sales of Products
from Plant 2, less (B) interest during the applicable test
period at the General Interest Rate on 50% of the aggregate
Capital Contributions of MCNIC to the Company, equals or
exceeds (C) 30% of 50% of the aggregate Capital
Contributions of MCNIC to the Company.
#325596.v2
16
"TMP" shall have the meaning set forth in Section 5.11.
"Treasury Regulations" shall mean regulations issued by
the Department of Treasury under the Code. Any reference
herein to a specific section or sections of the Treasury
Regulations shall be deemed to include a reference to any
corresponding provision of future regulations under the
Code.
"200% Payout" shall have the meaning set forth in
Section 7.5(f)(ii).
"Voting Interest" Each Member shall have a "Voting
Interest" equal to its Sharing Ratio.
"Water Rights" shall mean water and water rights and
water permits, together with all applications for water
rights or applications or Permits for the use, transfer,
exchange or change of water rights, ditch and ditch rights,
well and well rights, reservoir and reservoir rights, and
stock or interests in irrigation or ditch companies
appurtenant to the Properties and all other rights to water
for use at or in connection with the Properties, the Initial
Plant or the other improvements thereon, or the Mining of
Products on or in the Properties that are now owned or
hereafter acquired by Crown Parent or Crown or that are
subsequently acquired and held by the Company pursuant to
this Agreement.
ARTICLE III.
CAPITAL CONTRIBUTIONS; MEMBER ADVANCES
3.1 Initial Capital Contributions of Crown . For the
express purpose of funding the Detailed Engineering, Crown
shall make an initial Capital Contribution to the Company
within 30 days of the Company's formation of $100,000.
3.2 Initial Capital Contribution of MCNIC . For the
express purpose of funding the Detailed Engineering, MCNIC
shall make an initial Capital Contribution to the Company
within 30 days of the Company's formation of $300,000.
3.3 Secondary Capital Contributions of Crown .
Following the completion of the Detailed Engineering, and
#325596.v2
17
upon Crown's determination to proceed with the development
of the Initial Plant:
(a) Crown shall make a Capital Contribution of
the following funds and property to the Company:
(i) Crown's rights as the lessee under the
Equipment Leases in the Leased Equipment as identified on
Schedule 3.3(a)(i); provided that (A) as part of its Capital
Contribution Crown shall retain and timely pay, perform and
discharge all of the lessee's rental and other obligations
under the Equipment Leases for the entire term thereof, and
shall purchase at its expense the Leased Equipment at the
end of the term thereof, (B) Crown shall be credited with a
Capital Contribution equal to the amount of each such
payment when it is actually made by Crown, (C) the failure
to make any such payment shall constitute a failure by Crown
to make a required Capital Contribution to the Company in an
amount equal to the amount that the Company or MCNIC would
be required to expend to remedy such failure after the
Company or MCNIC is notified of such failure (including,
without limitation, the unpaid amount and any interest, fees
or other amounts payable to the lessor due to such failure),
and (D) the Company shall be entitled to any deduction
relating to the Equipment Leases;
(ii) a grant to the Company of any rights,
now or hereafter owned or controlled by Crown or any
Affiliate of Crown, which are necessary or beneficial for
pursuing the business of the Company as contemplated by this
Agreement, the grant to include a sublicense (the
"Sublicense") to the Company under the ▇▇▇▇▇▇ License in a
form reasonably satisfactory to MCNIC and including royalty
and other obligations no more onerous than those required of
the licensee under the ▇▇▇▇▇▇ License; and
(iii) the Properties.
For the purposes of this Agreement, the Members agree
that the agreed value of the items being contributed by
Crown pursuant to Section 3.3(a)(ii) is $1, and
Section 3.3(a)(iii) is $500,000.
Crown shall be responsible for and shall pay all ad
valorem, property, production, severance, excise and similar
taxes and assessments, and royalties based on or measured by
the ownership of the Properties or the production of
Products therefrom, or the ownership of the Crown
Intellectual Property, either accruing or assessed based
upon such ownership or production before the Effective Date,
regardless of whether such taxes and assessments and
royalties become due before or after such date; and the
Company shall be responsible for and shall pay such taxes
and assessments and royalties accruing or assessed based
upon the ownership of the Properties or the production
therefrom, or the ownership of the Intellectual Property
after the Effective Date.
#325596.v2
18
(b) Crown shall contribute in cash to the Company
such additional amounts as shall be necessary to pay timely,
but in no event later than two business days before such
amounts become due and payable by the Company and, if
applicable, no later than the date set forth in a Notice of
Additional Capital Contributions delivered pursuant to
Section 5.3(e), the costs and expenses allocated and charged
to Crown in Sections 5.3(e) and 7.4 and elsewhere herein.
Crown shall only be required to make cash Capital
Contributions to the Company pursuant to this Section 3.3(b)
to pay the costs and expenses allocated and charged to Crown
in Section 7.4 to the extent that the sum of (A) the
aggregate cash amount contributed by Crown to pay such costs
and expenses, plus (B) $500,001 plus (C) the Equipment Lease
Fair Market Value (as reasonably estimated by the Managers
at the time the Detailed Engineering is approved) is less
than (D) one-third of the expected Capital Contributions of
MCNIC pursuant to Section 3.4 to pay costs and expenses
allocated and charged to MCNIC in Section 7.4, as reasonably
estimated by the Managers from time to time taking into
consideration the EPC Contract costs and the progress of
construction under the EPC Contract.
Crown shall make cash Capital Contributions
to the Company as Capital Contributions are required from
the Members from time to time to pay costs and expenses
allocated and charged to the Members in Section 7.4 in an
amount equal to the product of (x) the amount of the
required Capital Contribution from Crown (determined
pursuant to Section 7.4(b)(i) before giving effect to this
Section), multiplied by (y) a fraction, the numerator of
which is equal to the amount of the required Capital
Contribution from MCNIC (determined pursuant to Section
7.4(b)(i) before giving effect to this Section), and the
denominator of which is equal to the then expected aggregate
Capital Contributions of MCNIC to pay costs and expenses
allocated and charged to MCNIC pursuant to Section 7.4
(before giving effect to this Section) as reasonably
estimated by the Managers from time to time as provided in
"(D)" above (for example, if the sum of "(A)", "(B)" and
"(C)" above is equal to $4MM and the expected aggregate
Capital Contributions from MCNIC is equal to $15MM, Crown
would be required to contribute an aggregate amount of $1MM
to the Company pursuant to this Section ($15MM/3 - $4MM =
$1MM) and if MCNIC was required to contribute $1MM on a
given date, Crown would be required to contribute $66,667 on
such date ($1MM X $1MM/$15MM)).
If, when the amounts estimated in "(C)" and
"(D)" are finally known based on actual contributions, Crown
has contributed a greater or lesser amount that it would
have contributed if the estimate(s) in "(C)" and "(D)" had
equaled the actual amount, then appropriate adjustments to
the Members' Capital Contributions shall be made to cause
Crown's cash Capital Contribution under this Section 3.3(b)
after such adjustments (without any adjustment for interest)
to equal the amount Crown would have contributed if the
estimates in "(C)" and "(D)" had equaled the actual amount;
provided that if such adjustments result in a reduction in
Crown's Capital Account, the Company shall not make a
#325596.v2
19
distribution to Crown in the amount of such reduction but
shall assume the obligation of Crown to make future
payments under the Equipment Leases in an amount equal to
the amount of such reduction in Crown's Capital Account.
Unless otherwise agreed by the Members, the Company shall
satisfy such obligation by paying such amount towards
satisfaction of the purchase price of the Equipment at the
expiration of the term of the Equipment Leases and, if any
excess amount remains, towards the last payments under the
Equipment Leases.
(c) Crown shall make Additional Capital
Contributions as provided in Section 3.5.
3.4 Secondary Capital Contribution of MCNIC .
Following the completion of the Detailed Engineering, and
upon MCNIC's determination to proceed with the development
of the Initial Plant, MCNIC shall make the following Capital
Contributions to the Company:
(a) MCNIC shall contribute in cash to the Company
such amounts as shall be necessary to pay timely, but in no
event later than two business days before such amounts
become due and payable by the Company, and, if applicable,
no later than the date set forth in a Notice of Additional
Capital Contributions delivered pursuant to Section 5.3(e),
the costs and expenses allocated and charged to MCNIC in
Sections 5.3(e) and 7.4 and elsewhere herein.
(b) MCNIC shall make Additional Capital
Contributions as provided in Section 3.5.
3.5 Additional Capital Contributions . The Managers
shall have the right to call for Additional Capital
Contributions from the Members, pro rata to their respective
Sharing Ratios. Any such call shall constitute a Major
Decision. If the Management Committee approves an
Additional Capital Contribution pursuant to this
Section 3.5, the Chairman shall, as soon as practicable
thereafter, deliver to each Member a Notice of Additional
Capital Contribution at least 30 business days in advance of
the time such Additional Capital Contribution is required to
be made to the Company. The required Additional Capital
Contribution for each Member shall be calculated by
multiplying the Required Capital by that Member's percentage
Sharing Ratio. The Members shall be obligated to make such
Additional Capital Contributions to the Company in
immediately available funds on or before the date specified
in the applicable Notice of Additional Capital
Contributions.
3.6 Failure to Contribute.
#325596.v2
20
(a) If a Member (the "Delinquent Member") does
not contribute by the time required all or any portion of a
Capital Contribution that such Member is required to make as
provided in this Agreement, the Company, at the direction of
the other Member (the "Non-Defaulting Member"), or the Non-
Defaulting Member, may exercise, on notice to the Delinquent
Member, one or more of the remedies set forth in "(i),"
"(ii)," "(iii)," and "(iv)" below. The Company or the Non-
Defaulting Member, as the case may be, may plead for relief
under one or more of such remedies in any arbitration or
judicial proceeding; provided, however, to the extent the
Company or the Non-Defaulting Member exercises one of such
remedies as to all or a portion of the Capital Contribution
that is in default and receives the payment, adjustment or
other relief provided for in connection with such remedy,
the Defaulting Member shall not be liable in any event for
more than the obligation that is owed.
(i) Taking such action as the Non-Defaulting
Member may deem appropriate to obtain payment to the Company
by the Delinquent Member of the portion of the Delinquent
Member's Capital Contribution that is in default, together
with interest thereon at the Default Interest Rate from the
date that the Capital Contribution was due until the date
that it is made, all at the cost and expense of the
Delinquent Member; or
(ii) the Non-Defaulting Member may advance,
in the Non-Defaulting Member's sole discretion, the portion
of the Delinquent Member's Capital Contribution that is in
default and designate whether such contribution is made
under the loan provisions of Section 3.6(a)(ii)(A) or is
made as a Capital Contribution by the Non-Defaulting Member
under the provisions of Section 3.6(a)(ii)(B);
(A) A Capital Contribution made to
the Company and designated under this
Section 3.6(a)(ii)(A) shall constitute a loan from
the Non-Defaulting Member to the Delinquent Member
and a Capital Contribution of that sum to the
Company by the Delinquent Member pursuant to the
applicable provisions of this Agreement, with the
following results:
(1) the principal
balance of the loan and all accrued unpaid
interest thereon shall be due and payable in
whole on the tenth day after written demand
therefor by the Non-Defaulting Member to the
Delinquent Member;
(2) the amount loaned
shall bear interest at the Default Interest
#325596.v2
21
Rate from the day that the advance is deemed
made until the date that the loan, together
with all interest accrued on it, is repaid to
the Non-Defaulting Member;
(3) all distributions
from the Company that otherwise would be made
to the Delinquent Member (whether before or
after dissolution of the Company) instead
shall be paid to the Non-Defaulting Member
until the loan and all interest accrued on it
have been paid in full to the Non-Defaulting
Member (with payments being applied first to
accrued and unpaid interest and then to
principal);
(4) the payment of the
loan and interest accrued on it shall be
secured by a security interest in the
Delinquent Member's membership interest, as
more fully set forth in Section 3.6(b); and
(5) the Non-Defaulting
Member has the right, in addition to the
other rights and remedies granted to it
pursuant to this Agreement or available to it
at law or in equity, to take any action that
the Non-Defaulting Member may deem
appropriate to obtain payment by the
Delinquent Member of the loan and all accrued
and unpaid interest on it, at the cost and
expense of the Delinquent Member;
(B) A Capital Contribution made to
the Company and designated under this
Section 3.6(a)(ii)(B) shall be treated as a
Capital Contribution by the Non-Defaulting Member
and shall be credited to the Capital Account of
the Non-Defaulting Member making the contribution.
The Sharing Ratio of the Delinquent Member shall
be reduced by the following (expressed as a
percentage number):
Unpaid Contribution of Delinquent Member
Total Capital Contributions By All Members
For purposes of this Section 3.6(a)(ii)(B) "Total Capital
Contributions By All Members" means the aggregate Capital
Contributions of the Members (including the Capital
Contribution made by the Non-Defaulting Member pursuant to
this Section 3.6(a)(ii)). The Sharing Ratio of the Non-
#325596.v2
22
Defaulting Member that makes the contribution shall be
increased by a percentage number equal to the reduction in
the Sharing Ratio of the Delinquent Member. Appropriate
adjustments shall be made in the Capital Accounts of the
Members and the Carrying Value of Company property as
provided in Section 12.2(b) to reflect actual cash
contributions;
(iii) exercising the rights of a secured
party under the Uniform Commercial Code of the State of
Utah, as more fully set forth in Section 3.6(b); or
(iv) exercising any other rights and remedies
available at law or in equity.
(b) Each Member grants to the Company, and to the
Non-Defaulting Member with respect to any loans made by the
Non-Defaulting Member to that Member as a Delinquent Member
pursuant to Section 3.6(a)(ii)(A), as security, for the
payment of all Capital Contributions that Member has agreed
to make and the payment of all loans and interest accrued on
them made by the Non-Defaulting Member to that Member as a
Delinquent Member pursuant to Section 3.6(a)(ii)(A), a
security interest in and a general lien on all of its
interest in the Company and the proceeds thereof, all under
the Uniform Commercial Code of the State of Utah. On any
default in the payment of a Capital Contribution or in the
payment of such a loan or interest accrued on it, the
Company or the Non-Defaulting Member, as applicable, is
entitled to all the rights and remedies of a secured party
under the Uniform Commercial Code of the State of Utah with
respect to the security interest granted in this
Section 3.6(b), subject to Article XVI. Each Member shall
execute and deliver to the Company and the other Members all
financing statements and other instruments that the Company
or the Non-Defaulting Member, as applicable, may request to
effectuate and carry out the preceding provisions of this
Section 3.6(b). At the option of the Company or a Non-
Defaulting Member, this Agreement or a carbon, photographic,
or other copy hereof may serve as a financing statement.
3.7 Return of Contributions . A Member is not
entitled to the return of any part of its Capital
Contributions or to be paid interest in respect of either
its Capital Account or its Capital Contributions. Any
unrepaid Capital Contribution is not a liability of the
Company or of any Member. A Member is not required to
contribute or to lend and cash or property to the Company to
enable the Company to return any Member's Capital
Contributions. The provisions of this Section 3.7 shall not
limit a Member's rights under Article XIV.
3.8 Advances by Members . If at any time the cash
available to the Company is less than: (i) the Company's
then current obligations, and (ii) expenses and amounts
necessary for the Company to conduct its business and
operations according to its ordinary and usual course of
business, preserve intact its business organization, keep
#325596.v2
23
available the services of its officers and employees and
maintain satisfactory relationships with persons having
business relationships with the Company, the Members may, if
requested by the Management Committee, but shall not be
obligated to, advance all or any portion of such cash
deficiency to the Company. Such request and advance shall
not constitute a Major Decision notwithstanding any
provision of Section 5.2(b). If more than one Member elects
to make such advance, they shall make the advances in
proportion to their respective Sharing Ratios. All advances
made pursuant to this Section 3.8 shall constitute a loan
from the advancing Member(s) to the Company, shall bear
interest at the General Interest Rate and shall not be
considered as part of the Company's equity or Members'
capital contributions. Any such loan shall be subordinate
to any loans from any then existing third-party lender to
the Company if required by such lender and shall be repaid
prior to any distributions to the Members.
3.9 Conditions Precedent to Capital Contributions by
MCNIC . Notwithstanding anything to the contrary contained
in this Agreement, the obligation of MCNIC to make Capital
Contributions to the Company pursuant to Sections 3.4 and
3.5 is subject to the satisfaction of the following
conditions precedent to such Capital Contributions at and as
of the time such contribution is to be made:
(a) All representations and warranties of Crown
and Crown Parent contained in this Agreement and the
Guaranty shall be true and correct, and Crown and Crown
Parent shall have performed and satisfied all agreements
required by this Agreement to be performed and satisfied by
Crown and Crown Parent through the date of such MCNIC
Capital Contributions.
(b) The Company shall have obtained all Permits
as are required in MCNIC's reasonable judgment to consummate
the transactions contemplated herein, to operate the
Properties and to construct and operate the Initial
Plant or, as to Permits that have not been obtained, in
MCNIC's reasonable judgment all such Permits shall be
expected to be timely obtained.
(c) The Company shall be legally entitled to use
the Crown Intellectual Property in the manner contemplated
by this Agreement upon terms no less favorable than those
upon which Crown could use the Crown Intellectual Property
on the day immediately preceding the Effective Date.
(d) MCNIC shall have received the Guaranty from
Crown Parent in form and substance satisfactory to MCNIC.
(e) Crown shall have entered into and assigned to
the Company, exchange, delivery or other agreements
satisfactory to MCNIC or identified alternate sources
#325596.v2
24
reasonably satisfactory to MCNIC such that the Company will
have the right to convey or take water pursuant to the Water
Rights or from alternate points of diversion and convey the
water to and use and consume the water at the Properties and
the Initial Plant.
(f) The Equipment Leases shall be in form and
substance satisfactory to MCNIC.
(g) MCNIC shall have received one or more
opinions from counsel to Crown and Crown Parent, in form and
substance reasonably satisfactory to MCNIC, which opinions
shall address: (i) the due formation, valid existence and
good standing of Crown and Crown Parent in the State of
Utah, (ii) the due execution and delivery of this Agreement,
the Management Agreement, the Guaranty, and the Sublicense,
(iii) the due authorization of this Agreement, the
Management Agreement, the Guaranty, and the Sublicense, and
the performance of the transactions contemplated herein and
therein, including specifically an opinion that this
Agreement, the Management Agreement, the Guaranty, and the
Sublicense, and the transfer of the Property and Water
Rights to the Company, have been duly authorized by all
necessary corporate and Shareholder action, (iv) the
enforceability of this Agreement, the Management Agreement,
the Guaranty, and the Sublicense against Crown and Crown
Parent, as appropriate, in accordance with their respective
terms except as enforcement may be limited by bankruptcy,
insolvency, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general
principles of equity, (v) the Company's right to use the
Crown Intellectual Property as contemplated herein and in
the Sublicense, (vi) that the investment by Crown in the
Company constitutes a private placement by the Company to a
single accredited investor and is exempt from registration
under all applicable federal and state securities laws, and
(vii) such other matters as MCNIC reasonably requires.
(h) The Company shall have received the executed
Sublicense from Crown and shall have received from ▇▇▇▇▇▇
written confirmation reasonably satisfactory to MCNIC
confirming that (i) the ▇▇▇▇▇▇ License is in full force and
effect and there are no defaults thereunder that have not
been cured, (ii) consenting to the grant of the Sublicense
to the Company and the grant of additional like sublicenses
to LLC-2 and LLC-3 pursuant to Section 7.5, (iii) agreeing
that the Sublicense and such sublicenses to LLC-2 and LLC-3
will survive any breach, default under or termination of the
▇▇▇▇▇▇ License and (iv) no rights under U.S. Patent
No. 4,968,412, including any option or contingent interests,
are held by any entity, except MCNIC, not within the
definition of a small business concern under the regulations
of the Small Business Administration in 13 C.F.R. part 121.
Notwithstanding anything to the contrary contained in this
Agreement, (i) in the event that each of the conditions
precedent set forth in (a) through (g) above have not been
satisfied in a manner reasonably acceptable to MCNIC on or
#325596.v2
25
before the date that is two years from the date of this
Agreement, MCNIC shall have no obligation to make any
Capital Contributions to the Company under Sections 3.4 and
3.5; (ii) once the conditions precedent set forth in (a)
through (g) above have been satisfied and the Company has
entered into the EPC Contract, MCNIC shall be obligated to
continue making the Capital Contributions described in
Section 7.4 pursuant to Section 3.4 to the extent required
to satisfy the Company's obligations under the EPC Contract,
but MCNIC shall not be required to make any other Capital
Contributions pursuant to Sections 3.4 or 3.5 unless, in
each instance, the conditions precedent set forth in (a)
through (g) above are satisfied in all material respects at
and as of the time such Capital Contribution is to be made
by MCNIC.
3.10 Conditions Precedent to Capital Contributions
by Crown. Notwithstanding anything to the contrary
contained in this Agreement, the obligation of Crown to make
Capital Contributions to the Company pursuant to
Sections 3.3 or 3.5 is subject to the satisfaction of the
following conditions precedent to such Capital Contributions
at and as of the time such contribution is to be made:
(a) All representations and warranties of MCNIC
contained in this Agreement shall be true and correct, and
MCNIC or its Affiliates shall have performed and satisfied
all agreements required by this Agreement to be performed
and satisfied by MCNIC or its Affiliates as of the date of
such Capital Contributions.
(b) In the case of Crown's contribution
obligations under Section 3.3, MCNIC shall have indicated
its present intent to contribute to the Company the cash
specified by Section 3.4(a) subject to the terms and
conditions of this Agreement.
(c) Crown shall have received one or more
opinions from counsel to MCNIC (which may be MCNIC's in-
house counsel and may be limited to Michigan law), in a form
satisfactory to Crown, which opinions shall address: (i)
the due formation, valid existence and good standing of
MCNIC in the state of Michigan, (ii) the due execution and
delivery of this Agreement, (iii) the due authorization of
this Agreement, including specifically an opinion that this
Agreement has all necessary MCNIC shareholders and board of
directors approvals that may be required pursuant to Law,
(iv) the enforceability of this of this Agreement against
MCNIC in accordance with its respective terms, except as
enforcement may be limited by bankruptcy, insolvency,
moratorium and similar laws affecting the enforcement of
creditor's rights generally and by general principles of
equity, and (v) such other matters as Crown reasonably
requires.
(d) The Company shall have obtained all Permits
as are required in Crown's reasonable judgment to consummate
the transactions contemplated herein, to operate the
#325596.v2
26
Properties following the Effective Date and to construct and
operate the Initial Plant or, as to Permits that have not
been obtained, in Crown's reasonable judgment, all such
Permits shall be expected to be timely obtained.
Notwithstanding anything to the contrary contained in this
Agreement, (i) in the event that each of the conditions
precedent set forth in (a) through (d) above have not been
satisfied in a manner reasonably acceptable to Crown on or
before the date that is two years from the date of this
Agreement, Crown shall have no obligation to make any
Capital Contributions to the Company under Sections 3.3 and
3.5; (ii) once the conditions precedent set forth in (a)
through (d) above have been satisfied and the Company has
entered into the EPC Contract, Crown shall be obligated to
continue making the Capital Contributions described in
Section 7.4 pursuant to Section 3.3 to the extent required
to satisfy the Company's obligations under the EPC Contract,
but Crown shall not be required to make any other Capital
Contributions pursuant to Sections 3.3 or 3.5 unless, in
each instance, the conditions precedent set forth in (a)
through (d) above are satisfied in all material respects at
the time such Capital Contribution is to be made by Crown.
ARTICLE IV.
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Capacity of Members . Each Member represents and
warrants to the other Member as follows:
(a) such Member is a corporation duly
incorporated and in good standing under the laws of the
jurisdiction of its incorporation and is qualified to do
business and is in good standing in those jurisdictions
where necessary in order to carry out the purposes of this
Agreement;
(b) the execution, delivery and performance by it
of this Agreement and all transactions contemplated herein
are within its corporate powers and have been duly
authorized by all necessary corporate actions;
(c) this Agreement constitutes its valid and
binding obligation, enforceable against it in accordance
with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium and similar laws
affecting the enforcement of creditors' rights generally and
by general principles of equity; and
#325596.v2
27
(d) the execution, delivery and performance by it
of this Agreement will not conflict with, result in a breach
of or constitute a default under any of the terms,
conditions or provisions of (i) any applicable law,
regulation, order, writ, injunction or decree of any court
or governmental authority, (ii) its articles or certificate
of incorporation or bylaws, or (iii) any agreement or
arrangement to which it or any of its Affiliates is a party
or which is binding upon it or any of its Affiliates or any
of its or their assets.
4.2 Litigation . Except as disclosed in Schedule 4.2,
each Member represents and warrants to the other Member that
as of the date of this Agreement there is no action, suit or
proceeding pending against, or to its knowledge threatened
against or affecting, such Member or any of its Affiliates
before any court or any arbitrator, governmental department,
agency, official or instrumentality except, in the case of
MCNIC, for any actions, suits or proceedings that would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on MCNIC or its
Affiliates.
4.3 Compliance with Laws; No Defaults . Except as
disclosed in Schedule 4.3, each Member represents and
warrants to the other Member that as of the date of this
Agreement such Member and its Affiliates (i) are not in
violation of any applicable law, rule, regulation, judgment,
injunction order or decree except for violations that have
not had and would not reasonably be expected to have a
Material Adverse Effect and (ii) are not in default under,
and no condition exists that with the giving of notice or
the passage of time or both would constitute a default under
any agreement or other instrument binding upon them, or any
license, franchise, Permit or similar authorization held by
them, except for defaults or potential defaults that have
not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
4.4 Investment Representations .
(a) In acquiring an interest in the Company, each
Member represents and warrants that it is acquiring such
interest for its own account for investment and not with a
view to its sale or distribution. Each Member recognizes
that investments such as those contemplated by the Company
are speculative and involve substantial risk. Each Member
further represents and warrants that the other Member has
not made any guaranty or representation upon which it has
relied concerning the possibility or probability of profit
or loss as a result of its acquisition of an interest in the
Company.
(b) Each Member recognizes that (i) the
membership interests in the Company have not been registered
under the Securities Act, in reliance upon an exemption from
#325596.v2
28
such registration, and covenants not to sell, offer for
sale, transfer, pledge or hypothecate all or any part of its
interest in the Company in the absence of an effective
registration statement covering such interest under the
Securities Act unless such sale, offer of sale, transfer,
pledge or hypothecation is exempt from registration under
the Securities Act (ii) the Company has no obligation to
register any Member's interest for sale, or to assist in
establishing an exemption from registration for any proposed
sale, and (d) the restrictions on transfer contained in this
Agreement and under the Securities Act may severely affect
the liquidity of a Member's investment.
4.5 Intellectual Property
(a) Crown knows of, and has no reason to suspect
the existence of, any intellectual property or other rights
of another which would be infringed, interfered with or
otherwise violated in pursuing the business of the Company
as contemplated by this Agreement.
(b) Neither Crown nor any affiliate of Crown own
or control any intellectual property rights, other than
rights under the ▇▇▇▇▇▇ License, which would be necessary or
beneficial to pursuing the business of the Company as
contemplated by this Agreement, and if Crown or any
affiliate of Crown do now or hereafter own or control any of
such other intellectual property rights, then Crown shall
grant to the Company such of those rights as are necessary
or beneficial to pursuing the business of the Company as
contemplated by this Agreement and any such grant shall be
deemed to be included in the capital contribution of Crown
required under Section 3.3(a)(ii) hereof.
(c) The ▇▇▇▇▇▇ License is valid and has not been
terminated and no party to the ▇▇▇▇▇▇ License is currently
in material breach of that license and neither Crown nor any
Affiliate of Crown has any reason to suspect that any party
to that license will materially breach that agreement at any
future date.
(d) Neither Crown nor any Affiliate of Crown have
knowledge of or reason to suspect that U.S. Patent No.
4,968,412 is invalid or unenforceable.
(e) Crown and Affiliates of Crown, now and since
January 20, 1989, qualify as a small business concern as
defined by the regulations of the Small Business
Administration in 13 C.F.R. part 121 and Crown, including
Affiliates of Crown, now and since January 20, 1989, have no
more than 500 employees; furthermore no sublicense or other
rights under the ▇▇▇▇▇▇ License have heretofore been
granted, including any options or contingent interests, to
#325596.v2
29
any entity not within the definition of a small business
concern under the regulations of the Small Business
Administration in 13 C.F.R. part 121 and neither Crown nor
any Affiliate of Crown have any reason to believe that any
rights under U.S. Patent No. 4,968,412 have heretofore been
granted to any entity not within the definition of a small
business concern under such regulations; moreover Crown
shall inform Park ▇▇▇▇▇▇ Enterprises, Inc. of the interest
of MCNIC under U.S. Patent No. 4,968,412 hereunder to permit
a proper determination for the basis for payment of future
maintenance or other fees concerning that patent.
(f) Crown has obtained approval from Park ▇.
▇▇▇▇▇▇ Enterprises, Inc., pursuant to the ▇▇▇▇▇▇ License,
for the Initial Plant and the Subsequent Plants.
4.6 Additional Representations, Warranties and
Covenants of Crown . Crown represents and warrants to (as
of the date of this Agreement), and covenants with, MCNIC
that as of the date of this Agreement and hereafter, as
applicable:
(a) Schedule 4.6(a) and its subparts contain a
description of the Properties, including, without
limitation, all interests in real property, minerals and
Water Rights that are being contributed to the Company by
Crown pursuant to Section 3.3(a)(iii).
(i) Schedule 4.6(a)(i) is a description of
fee and titled interests, patented mining claims, patented
millsites, and severed and reserved mineral interests to be
contributed to the Company. To Crown's knowledge, except as
specifically set forth in Schedule 4.6(a)(i), Crown has good
and defensible title to the respective parcels and interests
purported to be owned by Crown and described on
Schedule 4.6(a)(i) free and clear of all Encumbrances and
claims and defects of title of any kind.
(ii) Schedule 4.6(a)(ii) lists each lease or
other contract under which Crown is lessee of Property to be
contributed to the Company. To Crown's knowledge, with
respect to those Properties in which Crown holds an interest
under leases or other contracts: (i) Crown is in exclusive
possession of such Properties; (ii) Crown has not received
any notice of default of any of the terms or provisions of
such leases or other contracts; (iii) Crown has the
authority under such leases or other contracts to perform
fully its obligations under this Agreement; (iv) such leases
and other contracts are in full force and effect, are valid
and subsisting, cover the entire estates they purport to
cover and contain no express provisions that require
#325596.v2
30
material development operations in order to earn or to
continue to hold all or any portion of the Properties, and
Crown has never been advised directly or indirectly by any
lessor under any lease or by any other party of a default
under any lease or other contract or of any requirements or
demands to develop any of the land covered by such leases or
other contracts; (v) there is no, and there has not been
any, act, omission or condition on the Properties which
could be considered or construed as a default under any such
lease or other contract; (vi) all royalties, rentals and
other payments due under such leases or other contracts have
been properly and timely paid, and all conditions necessary
to keep such leases and other contracts in force have been
fully performed and (vii) except as specifically set forth
in Schedule 4.6(a)(ii), Crown has good and defensible title
to the Properties covered thereby, free and clear of all
Encumbrances and claims and defects of title of any kind.
(iii) Schedule 4.6(a)(iii) is a
description of unpatented mining claims and millsites to be
contributed to the Company. To Crown's knowledge, with
respect to unpatented mining claims and millsites that are
included within the Properties, except as provided in
Schedule 4.6(a)(iii) and subject to the paramount title of
the United States: (i) all assessment work required to hold
the unpatented mining claims has been performed and all
Governmental Fees have been timely and properly paid through
the assessment year ending September 1, 1997; (ii) all
affidavits of assessment work, evidence of payment of
Governmental Fees, and other filings required to maintain
the claims in good standing have been properly and timely
recorded or filed with appropriate governmental agencies;
(iii) the claims are free and clear of Encumbrances or
defects in title; and (iv) there are no conflicting mining
claims.
(iv) Schedule 4.6(a)(iv) lists Crown's
interests in Water Rights to be contributed to the Company.
To Crown's knowledge, Crown (i) owns the Water Rights free
and clear of all Encumbrances and claims of any kind; (ii)
the Water Rights have been maintained in accordance with
Utah Law and may be used for the purposes for which they are
intended under this Agreement and the Management Agreement;
(iii) the Water Rights are adequate to supply the
requirements of the Initial Plant and for Mining operations
anticipated to meet the needs of the Initial Plant; (iv) all
payments, rentals or royalties due to third parties with
respect to the Water Rights have been timely and properly
made and all conditions necessary to keep the Water Rights
in force have been fully performed; and (v) there are no
conflicting claims to the Water Rights or their beneficial
use.
(b) To Crown's knowledge, except as specifically
set forth in Schedule 4.6(a) and its subparts, Crown has
good and defensible title to the Properties, free and clear
of all liens, Encumbrances, burdens, claims and defects of
title of any kind.
(c) No suit, action or other proceeding is
pending or, to Crown's knowledge, threatened, before any
court or governmental agency and, to Crown's knowledge, no
cause of action exists that relates to the Properties or
that might result in impairment or loss of Crown's title to
any portion of the Properties or the value thereof or that
might hinder or impede the operation or enjoyment of the
Properties and there have been no previous transactions
affecting Crown's interests in the Properties that have not
been for fair consideration.
#325596.v2
31
(d) Crown and Crown Parent have delivered to or
made available for inspection by MCNIC all information in
their possession relating to the Properties, the Water
Rights, the Crown Intellectual Property, including, without
limitation, all Existing Data and all information
concerning title to the Properties in its possession or
control, including, but not limited to, true and correct
copies of all leases or other contracts relating to the
Properties.
(e) To Crown's knowledge, except as specifically
indicated in Schedule 4.6(a) and its subparts, no overriding
royalties, royalties, production payments, net profits
interests or burdens exist on or relate to the Properties.
(f) To Crown's knowledge, all ad valorem,
property, production, severance, excise and similar taxes
and assessments based on or measured by the ownership of
property or the production of Products or the receipt of
proceeds therefrom on the Properties that have become due
and payable have been properly and timely paid.
(g) To Crown's knowledge, the Properties entitle
Crown to receive not less than the undivided interests set
forth in Schedule 4.6(a) as "Net Revenue Interests" of all
Products produced, saved and marketed from or attributable
to the Properties. Crown's obligation to bear costs and
expenses relating to the Mining of and Operations on the
Properties is not, and shall not be, greater than the
"Operating Interests" set forth in Schedule 4.6(a) and its
subparts.
(h) (i) All Permits required or necessary for
the present operations of the Properties have been obtained
by Crown and all such Permits are in full force and effect.
Crown shall use its best efforts to transfer to the Company
or assist the Company to obtain in the name of the Company,
comply with and maintain, as appropriate, all Permits
necessary for the present and contemplated operations of the
Properties, the conduct of Mining operations on the
Properties, the construction and operation of the Initial
Plant, and the marketing and sale of Products.
Schedule 4.6(h)(i) lists (A) Permits that are currently
held or that have been or are being applied for by Crown
pertaining to the present and contemplated operations on the
Properties and the construction and operation of the Initial
Plant and (B) all agreements and contracts between or among
any federal, state, or local governmental authority, agency,
or instrumentality and Crown or any of its Affiliates,
agents, or independent contractors, relating to the
Properties or the construction and operation of the Initial
Plant. To Crown's knowledge, except as set forth on
Schedule 4.6(h)(i), all Permits required or necessary for
the present operations on the Properties have been obtained
by Crown and there is no reason to believe that the transfer
of any Permits that have been obtained by Crown to the
Company will not receive any required approvals or that any
Permits that have not been timely obtained by Crown will not
be obtained by the Company. To Crown's knowledge, there is
no reason to believe that all Permits that have not yet been
#325596.v2
32
obtained and that are required or necessary for the
contemplated operations on the Properties and the
construction and operation of the Initial Plants and
Subsequent Plants will not be timely obtained by the
Company. To Crown's knowledge, all applications, reports,
certificates, and other instruments filed with or furnished
to any local, state, or federal governmental body,
authority, or agency do not (1) contain any untrue statement
of material fact, or (2) omit any statement of material fact
necessary to make the statements therein not misleading.
(ii) Schedule 4.6(h)(ii) lists all
outstanding material commitments to federal, state, or local
governmental authorities that require Crown to expend funds
to act with respect to health, safety, or the environment
and which relate to the operation or condition of the
Properties or the construction and operation of the Initial
Plant.
(i) [Intentionally left blank.]
(j) To Crown's knowledge, the Properties are, and
at all times have been, operated in compliance in all
material respects with all applicable Environmental Laws; no
conditions exist that would subject Crown or MCNIC or the
Company to any damages (including, without limitation,
actual, consequential, exemplary or punitive damages),
penalties, injunctive relief or cleanup costs under any
Environmental Laws, or that require or are likely to require
cleanup, removal, remedial action or other response by Crown
or MCNIC or the Company pursuant to Environmental Laws.
Crown is not a party to any litigation or administrative
proceeding, nor, to Crown's knowledge, is any litigation or
administrative proceeding threatened against Crown or the
Properties, which asserts or alleges that Crown or any of
its predecessors violated or is violating Environmental Laws
or that Crown is required to clean up, remove or take
remedial or other responsive action due to the use, storage,
treatment, disposal, discharge, leakage or release of any
Hazardous Substances (as hereinafter defined). Neither
Crown, any of its predecessors, nor any part of the
Properties is subject to any judgment, decree, order or
citation related to or arising out of Environmental Laws and
Crown has not been named or listed as a potentially
responsible party by any governmental entity in a matter
arising under or relating to any Environmental Laws. To
Crown's knowledge, Crown and its predecessors have obtained
or applied for all Permits required under Environmental Laws
for the operations on the Properties through the date of
this Agreement and there is no reason to believe that any
Permit applied for will not be obtained by the Company, and
there are not now, nor have there ever been materials
discharged, leaked, spilled or released, under or at the
Properties or stored, treated or recycled at or in tanks or
other facilities thereon or related thereto which require
cleanup, removal or some other remedial action under
Environmental Laws. Crown undertook, at the time of
acquisition of the Properties, all appropriate inquiry into
the previous ownership and uses of the Properties consistent
#325596.v2
33
with good commercial and industry practice. To Crown's
knowledge, (a) no Hazardous Substances have been used or
stored on, in or in connection with the Properties, or
disposed from the Properties, except in compliance in all
material respects with all Environmental Laws, and (b) no
Hazardous Substances have been treated, processed,
discharged or released on, in, to or from the Properties.
To Crown's knowledge, there are no underground storage tanks
located on or in the Properties.
As used herein, the term "Hazardous Substances"
shall mean any and all (i) "hazardous substances," as
defined by CERCLA; (ii) crude oil or any fraction thereof,
natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel (or mixtures of natural gas
and such synthetic gas), except for those naturally
occurring in the tar sands in place on the Properties in
their undisturbed condition; (iii) "solid wastes" and
"hazardous wastes," as defined by RCRA; (iv) any pollutant,
contaminant or hazardous, dangerous or toxic chemicals,
materials or substances within the meaning of any
Environmental Law; (v) any radioactive material, including
any source, special nuclear or by-product material as
defined at 42 U.S.C. 2011 et seq., as amended or hereafter
amended; and (vi) asbestos in any form or condition.
As used herein, the term "release" shall have the
meaning specified in CERCLA, and the term "disposal" or
"disposed" shall have the meaning specified in RCRA.
To the extent that the laws of any state in which
the Properties are located establish a meaning for
"hazardous substance," "release," "solid waste," "hazardous
wastes," or "disposal" that is broader than that specified
in either CERCLA or RCRA, such broader meaning shall apply.
(k) Crown is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign
estate (as those terms are defined in the Code and the rules
and regulations promulgated thereunder).
(l) Schedule 4.6(l) lists and briefly describes
each material contract, indenture, guarantee, agreement, or
other instrument relating to or affecting the Properties to
which Crown is a party or as to which any of the Properties
or the Crown Intellectual Property is subject or by which it
is bound as of the date hereof, including by way of example,
without limitation, all sales contracts, processing or
refining agreements, transportation agreements, warehousing
arrangements, sales representative or sales manager
agreements, agency agreements, operating agreements,
employment or consulting agreements, railroad trackage
agreements, purchase orders or agreements, purchase bids,
utility service agreements, construction and maintenance
contracts, agreements for the purchase of equipment, goods
or services and agreements with local and state governments.
To Crown's knowledge, Crown is not in default or breach in
any material respect under any of the foregoing and no event
#325596.v2
34
has occurred which, with the lapse of time or the giving of
notice, or both, would constitute such a default or breach
by Crown. Crown has provided to MCNIC copies of all such
material contracts, indentures, guarantees, agreements or
other instruments listed in Schedule 4.6(l) and except as
specifically indicated in Schedule 4.6(l), there are no
contracts or other agreements pertaining to the Properties
which require any further action on the part of Crown or
require Crown to perform any obligations thereunder.
(m) Schedule 4.6(m) contains the audited
operating and financial reports of Crown Parent dated
December 31, 1996, which contain the consolidated financial
statements of Crown (the "Financial Statements"). The
Financial Statements present fairly in all material
respects, and in accordance with generally accepted
accounting principles applied on a consistent basis, Crown
Parent's and Crown's financial position at the date thereof
and the results of Crown Parent's and Crown's operations and
cash flows for the period covered thereby. Neither Crown
nor Crown Parent is aware that there is any material error
in, or omission from the Financial Statements. Since the
date of the respective Financial Statements, neither Crown
nor Crown Parent has suffered any Material Adverse Effect.
(n) The Form 10-K filed by Crown Parent for the
fiscal year ended December 31, 1996 and the Form 10-Q filed
by Crown Parent for the fiscal quarter ended June 30, 1997
are true and correct in all respects. Since June 30, 1997,
there has been no Material Adverse Effect with respect to
Crown Parent.
(o) To Crown's knowledge, no portion of the
Properties (1) has been contributed to and is currently
owned by a tax partnership; (2) is subject to any form of
agreement (whether formal or informal, written or oral)
deemed by any state or federal tax statute, rule or
regulation to be or to have created a tax partnership; or
(3) otherwise constitutes "partnership property" (as that
term is used throughout Subchapter K of Chapter 1 of
Subtitle A of the Internal Revenue Service Code of 1986, as
amended (the "Code")) of a tax partnership. For purposes of
this Section 4.6(o) a "tax partnership" is any entity,
organization or group deemed to be a partnership within the
meaning of section 761 of the Code or any similar state or
federal statute, rule or regulation, and that is not
excluded from the application of the partnership provisions
of Subchapter K of Chapter 1 of Subtitle A of the Code and
of all similar provisions of state tax statutes or
regulations by reasons of elections made, pursuant to
section 761(a) of the Code and all such similar state or
federal statutes, rules and regulations, to be excluded from
the application of all such partnership provisions.
(p) To Crown's knowledge, none of the Existing
Data contains any untrue statement of a material fact or
omits or will omit a material fact necessary to make the
statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
#325596.v2
35
(q) Crown covenants with MCNIC that it will use
its best efforts to negotiate Equipment Leases on terms
acceptable to MCNIC and that throughout the term of this
Agreement Crown will insure that the Equipment Leases
relating to the Leased Equipment remain in full force and
effect and will make (at its own expense) all payments
required and perform and observe all obligations and
requirements thereunder for so long as such equipment is
utilized in the Initial Plant and further acknowledges that
all obligations relating to such Equipment Leases shall be
the sole obligation of Crown and not of the Company and
Crown shall indemnify and hold the Company harmless from any
liability or costs relating thereto.
(r) The "total assets" and "net sales" of Crown
Parent and Crown, as such terms are used in 16 C.F.R.
801.40(b), are each less than $10,000,000.
4.7 Knowledge . For a representation or warranty made
to a Member's "knowledge," the term "knowledge" shall mean
actual knowledge on the part of the officers, employees and
agents of the representing Member or of facts that would
reasonably lead to the indicated conclusions. For purposes
of this Agreement, Crown shall be deemed to have knowledge
of a matter if Crown Parent has knowledge of such matter.
4.8 Survival . The representations and warranties set
forth in Sections 4.1 through 4.6 above shall survive the
execution and delivery of any documents of transfer or
conveyance provided under this Agreement.
ARTICLE V.
MANAGERS -- MANAGEMENT POWERS--OFFICERS
5.1 Managers .
(a) The Company shall have five Managers (the
"Managers," and each individually a "Manager"). By notice
to the other Member, MCNIC shall appoint four Managers and
Crown shall appoint one Manager. One of the Managers shall
be elected to serve as the Chairman of the Management
Committee (the "Chairman") by majority vote of the Managers.
#325596.v2
36
Each of the Managers may be removed and replaced, with or
without cause, from time to time by the Member who appointed
such Manager. The Members agree to vote their interests as
necessary from time to time to give effect to the foregoing
provisions for appointment of Managers. If a Member
transfers all of its interest in the Company and the
transferee is admitted as a substitute member pursuant to
Section 13.7, the transferee of such interest shall succeed
to all rights of the transferor with respect to the
appointment and removal of Manager(s). If a Member
transfers a portion of its interest in the Company, the
transferor and transferee shall agree on the procedure to be
used to remove and replace the Manager(s) appointed by the
transferor. No transfer or partial transfer shall increase
the number of Manager(s).
(b) Any Member with the right to appoint more
than one Manager shall have the right, in lieu of appointing
one or more of its Managers, to designate that one or more
of its appointed Managers shall have the right to additional
votes on the Management Committee (or otherwise as a
Manager) so that the total number of votes held by the
Managers appointed by such Member is equal to the number of
Managers such Member had the right to appoint.
(c) If an adjustment to Sharing Ratios is made
pursuant to Section 3.6(a)(ii)(B), Section 7.5(d) or
Section 9.4, the provisions of Section 5.1(a) shall be
modified prospectively to allow each Member to appoint one
Manager for each twenty percentage points in Sharing Ratio
held by that Member, rounded to the nearest 20% ▇▇▇▇ (e.g.,
if Member A has a Sharing Ratio of 46% and Member B has a
Sharing Ratio of 54%, Member A would appoint two managers
(20 + 20 + 6) and Member B would appoint three Managers (20
+ 20 + 14); provided, however, that each of MCNIC and Crown
shall be entitled to appoint at least one Manager at all
times for so long as they are Members. Notwithstanding the
provisions of Section 5.1(a) limiting the number of Managers
to five, if Sharing Ratios are such that rounding up to the
nearest 20% would result in six Managers (e.g., 70/30 or
50/50), six Managers will be permitted.
5.2 Management Authority .
(a) The "Management Committee" shall be composed
of all the Managers. The Managers shall exercise their
authority through the Management Committee. Except as
otherwise expressly provided in this Agreement, the
Management Committee is hereby expressly authorized on
behalf of the Company to make all decisions with respect to
the Company's business by majority vote of the Managers with
each Manager having one vote on the Management Committee
(except as provided in Section 5.1(b)) and to take all
actions to carry out such decisions, provided that any Major
Decision shall require the approval of all the Managers.
The Management Committee shall have regular meetings at
least quarterly with the timing and agenda to be determined
by the Chairman. The Chairman shall give 15 days' notice to
the other Managers of such regular meetings. Any Manager
#325596.v2
37
may, upon 72 hours notice to all Managers, call a special
meeting. In case of emergency, reasonable notice of a
special meeting shall suffice. Such meetings may be
conducted in person or by conference telephone call where
all Managers can hear each other. Minutes shall be kept of
all meetings and copies distributed to the Managers within
ten days of each meeting. Any action that may be taken at a
meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by
Managers whose collective vote would be sufficient to take
such action at a meeting of all Managers. The Managers
executing any such written consent in lieu of meeting shall
immediately furnish copies to the other Managers.
(b) Each of the matters listed in this
Section 5.2(b) shall constitute a "Major Decision." Any
expenditure or other action or item constituting a Major
Decision that is covered by an approved Annual Operating
Plan shall not require separate approval.
(i) the expenditure of more than $400,000 by
the Company to conduct the Detailed Engineering;
(ii) approval of the Detailed Engineering;
(iii) approval of, or substantial
amendment to, the Annual Operating Plan;
(iv) any change to the Operating Protocols;
(v) approval of the EPC Contract;
(vi) any call for additional Capital
Contributions pursuant to Section 3.5 (excluding calls for
additional Capital Contributions for purposes set forth in
Section 7.4 pursuant to Sections 3.3(b) and 3.4(a), which
may be made by the Chairman acting alone and calls for
additional Capital Contributions for purposes set forth in
Section 5.3(e) pursuant to Sections 3.3(b) and 3.4(a), which
may be made by majority vote of the Management Committee);
(vii) subject to Section 5.3(d), any
overrun of the total budget set forth in the Annual
Operating Plan by more than 10% in the aggregate (inclusive
of expenditures that would not otherwise constitute Major
Decisions under this Section 5.2(b));
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38
(viii) entering into any futures, swap or
other hedging arrangements of any type, or financial
derivative instruments or agreements of any type;
(ix) except as provided in Section 5.3(c) and
Section 8.1(a), any distribution to the Members;
(x) any guaranty (or other obligations that,
in economic effect, are substantially equivalent to a
guaranty) of any amount owed by or any obligation of any
person other than a person wholly owned by the Company;
(xi) pledging, mortgaging, or granting a
security interest in the property or assets of the Company
other than: purchase money security interests and other
liens created or existing at the time of acquisition of an
asset; and materialmen's, mechanics', contractors',
operators', tax and similar liens or charges arising in the
ordinary course of business or by operation of law;
(xii) any merger, reorganization,
consolidation or similar restructuring of the Company;
(xiii) the sale, lease or other
disposition of all or substantially all of the assets of the
Company;
(xiv) the approval of a contract or
transaction between the Company and any Member, Manager or
their respective Affiliates other than those on terms
comparable to and competitive with those available to the
Company from others dealing at arm's length;
(xv) the exercise of the purchase option
conferred by Section 6.3(c) relating to the acquisition of
properties outside of the Project Area but within the Area
of Mutual Interest;
(xvi) the undertaking by the Company of
any Additional Opportunity within the Project Area;
(xvii) settlement of any claim against the
Company in excess of an aggregate of $50,000; and
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39
(xviii) the selection of the auditor to
conduct the audit described in Section 12.6.
Section 12.6
(c) All documents executed on behalf of the
Company must be signed either (i) by the Chairman, or (ii)
by no less than two Managers, one appointed by MCNIC and one
appointed by Crown; provided, however, that this authority
may be delegated otherwise as the Members or Management
Committee may agree.
(d) At all meetings of the Management Committee
and for purposes of action taken without a meeting under
Section 5.2(a), a Manager may vote in person or by proxy
executed in writing by the Manager or the Manager's duly
authorized attorney-in-fact. Such proxy shall be filed
before or at the meeting with the person keeping minutes of
the meeting or, in the case of action taken without a
meeting, attached to the written consent setting forth the
action taken.
5.3 Annual Operating Plan.
(a) At least 90 days prior to the beginning of
each calendar year the Chairman shall submit to the
Management Committee a proposed annual operating plan for
the coming calendar year (and such longer period as may be
necessary to cover projects that will not be completed
within the coming calendar year). Such proposed plan shall
describe in reasonable detail the nature and extent of
proposed activities and operations of the Company and the
cost thereof for the coming calendar year including, without
limitation:
(i) the most recent Mine Production Plan,
(ii) a processing plan showing tonnages and
grades of tar sands to be processed, recovery and Product
inventory changes,
(iii) manpower resource scheduling,
(iv) production operating costs broken down
by line item and nature of cost,
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40
(v) basic pro forma financial reports
including an income statement, balance sheet and statement
of cash flows prepared in accordance with generally accepted
accounting principles consistently applied,
(vi) the most recent Marketing Plan,
(vii) a plan for capital expenditures,
(viii) an exploration program and budget,
if any,
(ix) proposed Plant maintenance and
improvements,
(x) a plan for financing the activities of
the Company, if any, and
(xi) provision for accrual of reasonably
anticipated Environmental Compliance expenses for all
operations contemplated under the proposed annual operating
plan.
To the extent practicable, the proposed annual operating
plan shall separately identify capital and expense items.
The Management Committee shall meet and consider such
proposed annual operating plan and alternatives thereto to
make the proposed plan and budget acceptable to all the
Managers. The plan and budget, if any, approved by the
Management Committee shall be the "Annual Operating Plan."
(b) If the Management Committee is unable to
approve an Annual Operating Plan for a calendar year, to the
extent necessary to maintain its existing assets as would a
prudent similarly situated company, a majority of the
Managers shall have the power and authority to continue the
activities and operations of the Company at levels
comparable to the last approved Annual Operating Plan and
shall be guided by the logic thereof while taking into
account new circumstances.
(c) During any year for which an Annual Operating
Plan has not been approved the Management Committee shall
#325596.v2
41
diligently and in good faith seek to approve an Annual
Operating Plan for the remainder of such year and the
following year, provided that a Manager's vote to approve
any Annual Operating Plan shall be within the sole
discretion of such Manager. If by the end of such year an
Annual Operating Plan has not been approved for the
following year, the Management Committee shall agree upon a
budget necessary to maintain the Company's existing assets
as would a prudent similarly situated company, including,
without limitation, making any necessary repairs to and
otherwise maintaining the Properties and the Initial
Plant (the "Minimum Budget"). If the Managers are unable to
agree on the Minimum Budget the determination of the Minimum
Budget shall be submitted to arbitration in accordance with
the provisions of Article XVI, provided that a neutral "Big
Six" accounting firm shall act as the sole arbitrator in
lieu of three arbitrators. The Minimum Budget shall be
redetermined from year to year using the procedure described
above until the Management Committee approves an Annual
Operating Plan. During the periods covered by a Minimum
Budget, the Company shall make quarterly distributions of
all Available Cash (determined using the Minimum Budget) to
the Members pursuant to Article VIII.
(d) In case of an actual emergency, any Manager
may take on behalf of the Company any reasonable action he
or she deems necessary to protect life or property, to
protect the assets of the Company or to comply with
applicable law, without approval of a Major Decision or any
other necessary approval of the Management Committee if time
does not permit obtaining such approval. A Manager taking
such action shall promptly notify the other Managers and the
Members of the emergency or unexpected expenditure.
(e) The Management Committee shall have the right
to call for Additional Capital Contributions from the
Members, pro rata to their respective Sharing Ratios, to pay
for costs and expenses incurred by the Company and either
(i) budgeted for in the current Annual Operating Plan but
not incurred under the EPC Contract (capital calls to pay
costs and expenses incurred under the EPC Contract may be
made in accordance with Section 7.4), or (ii) incurred
pursuant to Section 5.3(d). If the Management Committee
approves an Additional Capital Contribution pursuant to this
Section 5.3(e), the Chairman shall, as soon as practicable
thereafter, deliver to each Member a Notice of Additional
Capital Contribution. The required Additional Capital
Contribution for each Member shall be calculated by
multiplying the Required Capital by that Member's percentage
Sharing Ratio. The Members shall be obligated to make such
Additional Capital Contributions to the Company in
immediately available funds on or before the date specified
in the applicable Notice of Additional Capital
Contributions.
(f) Following the approval of an Additional
Capital Contribution pursuant to Section 5.3(e) to pay costs
and expenses incurred in connection with any action taken
pursuant to Section 5.3(d), any Member shall be entitled to
contest the necessity for and reasonableness of such costs
#325596.v2
42
and expenses, if all of the Managers appointed by such
Member voted not to approve such Additional Capital
Contribution, by notice to the other Member within 15
calendar days of the date on which the decision approving
the Additional Capital Contribution was passed by the
Management Committee; provided that Crown (or any assignee
of all or any portion Crown's interest in the Company) shall
not be entitled to contest the reasonableness of any such
cost or expense taken at any time that Crown or any
Affiliate of Crown is the operator under the Management
Agreement unless MCNIC declared the emergency resulting in
the incurrence of such cost or expense and MCNIC caused the
Company to incur such cost or expense without the
concurrence of Crown. In the event that disputes arising
under the foregoing sentence are not resolved by
negotiations among the Members, the reasonableness of the
above described shall be determined by arbitration pursuant
to Article XVI. The contesting Member shall not be
obligated to make its share of the Additional Capital
Contribution to the extent the contested costs and expenses
are determined not to have been necessary and reasonable.
5.4 Detailed Engineering . The Chairman shall use his
reasonable efforts to deliver the Detailed Engineering to
the Management Committee on or before November 1, 1997.
The Management Committee shall meet and consider such
Detailed Engineering to determine whether the Company should
proceed with Operations on the Properties and the
construction of the Initial Plant. The Company shall not
commence Operations on the Properties or the construction of
the Initial Plant unless and until the Management Committee
has approved the Detailed Engineering.
5.5 Duties . Each Manager shall carry out her or his
duties in good faith, in a manner that she or he believes to
be in the best interests of the Company, and with such care
as an ordinarily prudent person in a like position would use
under similar circumstances. Each Manager shall devote such
time to the business of the Company as she or he, in her or
his discretion, deems necessary for the efficient carrying
on of the Company's business.
5.6 Reliance by Third Parties . No third party
dealing with the Company shall be required to ascertain
whether the Chairman is acting in accordance with the
provisions of this Agreement. All third parties may rely on
a document executed by the Chairman as binding the Company.
The foregoing provisions shall not apply to third parties
who are Affiliates of a Member or a Manager. A Manager
acting without authority shall be liable to the Members for
any damages arising out of its unauthorized actions.
5.7 Resignation . A Manager may resign at any time by
giving written notice to the other Managers and to the
Members. Unless otherwise specified in the notice, the
resignation shall take effect upon receipt by the other
Managers and Members, and the acceptance of the resignation
shall not be necessary to make it effective.
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43
5.8 Vacancies . Vacancies occurring for any reason
shall be filled by the Member who appointed the vacating
Manager. A Manager appointed to fill a vacancy shall hold
office for the unexpired term of his predecessor.
5.9 Information Relating to the Company . Upon
request, the Managers shall supply to the Members any
information requested regarding the Company or its
activities, provided that obtaining the information is not
unduly burdensome to the Managers. During ordinary business
hours, any Member or its authorized representative shall
have access to all books, records and materials in the
Company's offices regarding the Company or its activities.
5.10 Insurance . The Company shall maintain or cause
to be maintained in force at all times, for the protection
of the Company and the Members to the extent of their
insurable interests, such insurance as the Managers believe
is warranted for the operations being conducted and taking
into consideration any separate insurance maintained for the
projects of the Company.
5.11 Tax Matters Partner .
(a) The tax matters partner ("TMP") as defined in
section 6231(a)(7) of the Code shall be designated by the
Management Committee by majority vote and MCNIC is hereby
designated as the initial TMP. Subject to the provisions
hereof, the TMP is authorized and required to represent the
Company in connection with all examinations of the Company's
affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend
Company funds for professional services and costs associated
therewith. Notwithstanding the foregoing, the TMP shall
promptly notify all Members of the commencement of any
audit, investigation or other proceeding concerning the tax
treatment of Company tax items, shall keep all Members
adequately informed of such proceedings, and upon the
request of any Member shall promptly take appropriate action
to cause such Member to be a "notice partner" as defined in
6231(a)(8) of the Code.
(b) The TMP and the Managers shall make or cause
to be made all available elections as are necessary to cause
the Company to be classified as a partnership for federal
income tax purposes.
5.12 Exculpation .
(a) In carrying out their duties hereunder, the
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44
Managers shall not be liable to the Company nor to any
Member for their good faith actions, or failure to act, nor
for any errors of judgment, nor for any act or omission
believed in good faith to be within the scope of authority
conferred by this Agreement, but shall be liable for fraud,
willful misconduct or gross negligence in the performance of
their duties under this Agreement.
(b) Subject to the limitations of the Act, the
Company shall indemnify and hold harmless each of the
Managers and officers from and against third party claims
arising as a result of any act or omission of such Manager
or officer believed in good faith to be within the scope of
authority conferred in accordance with this Agreement,
except for fraud, willful misconduct or gross negligence,
but not in excess of the value of the net assets of the
Company as of the date the Company learns of the act or
omission on which the third party claim is based (the "Date
of Notice"). In all cases, indemnification shall be
provided only out of and to the extent of the net assets of
the Company as of the Date of Notice, and no Member shall
have any personal liability whatsoever on account thereof.
In no event shall the Company be obligated under this
Section 5.12 for the amount of any additional contributions
made to the Company after the Date of Notice or for the
amount of any increase in value of any Company assets after
the Date of Notice. Notwithstanding the foregoing, the
Company's indemnification of the Managers and officers as to
third party claims shall be only with respect to such loss,
liability or damage that is not otherwise compensated by
insurance carried for the benefit of the Company.
5.13 Officers .
(a) The Managers may, from time to time,
designate one or more persons to be officers of the Company.
Any officers so designated shall have such authority and
perform such duties as the Managers may, from time to time,
delegate to them. The Managers may assign titles to
particular officers. If the title is one commonly used for
officers of a business corporation formed under the Utah
Revised Business Corporation Act, the assignment of such
title shall constitute the delegation to such officer of the
authority and duties that are normally associated with that
office, subject to any specific delegation of authority and
duties made to such officer, or restrictions placed thereon,
by the Managers. Each officer shall hold office until his
or her successor is duly designated, until his or her death
or until he or she resigns or is removed in the manner
hereinafter provided. Any number of offices may be held by
the same person. The salaries or other compensation, if
any, of the officers of the Company shall be fixed from time
to time by the Managers.
(b) Any officer may resign at any time by giving
written notice thereof to the Managers. Any officer may be
removed, either with or without cause, by the Managers
whenever in their judgment the best interests of the Company
#325596.v2
45
will be served thereby; provided, however, that such removal
shall be without prejudice to the contract rights, if any,
of the person so removed. Designation of an officer shall
not, by itself, create contract rights.
#325596.v2
46
ARTICLE VI.
MANAGEMENT FEES AND REIMBURSEMENTS;
COMPANY OPPORTUNITIES; CONFLICTS
6.1 Management Fee . The Managers shall not receive
any fee or salary.
6.2 Reimbursements . Each Manager shall be reimbursed
by the Company for any reasonable out-of-pocket costs
incurred by such Manager on the Company's behalf upon the
submission of reasonable documentation of such costs.
6.3 Company Opportunities; Conflicts of Interest .
(a) Additional Opportunities within Project Area.
The Company may elect to acquire any interest or right to
acquire any interest in real property, fixtures or
improvements (including surface and mineral rights of any
kind), and water rights (whether or not appurtenant to the
Properties) within the Project Area (collectively
"Additional Opportunities"). If the Management Committee
elects to pursue an Additional Opportunity, the Members
shall either form a new limited liability company to pursue
such Additional Opportunity or pursue such Additional
Opportunity in the Company or in LLC-2 or LLC-3. If a new
limited liability company is formed, the provisions of the
limited liability company operating agreement shall be in
form and substance substantially similar to the provisions
of this Agreement with appropriate modifications to the
Members' membership interests in such limited liability
company and such other changes as are necessary or
appropriate to reflect the terms and conditions applicable
to the Additional Opportunity or such entity as contemplated
in this Agreement. Crown shall have the right, but not the
obligation, to elect to obtain an initial ownership interest
in each Additional Opportunity of no less than 10% and no
greater than 50% (with MCNIC obtaining the remaining
interests) and Crown's ownership interest may be different
with respect to each Additional Opportunity. In the event
that the Management Committee should determine not to
proceed with an Additional Opportunity, but a Member of the
Company desires to proceed without the other Member's
agreement, the Member desiring to pursue the Additional
Opportunity shall be free to do so subject to the Back-in
Option set forth in Section 7.5(f) and provided that all of
the Managers elected or appointed by the Member electing to
proceed voted in favor of the Company proceeding with such
Additional Opportunity.
(b) Area of Mutual Interest. Any activity to
#325596.v2
47
exploit or develop any interest in real property, fixtures
or improvements (including surface and tar sands and other
mineral rights of any kind) within the Area of Mutual
Interest and water rights related thereto provided such
property is either acquired or proposed to be acquired
during the term of this Agreement) by or on behalf of either
Member or any Affiliate of such Member which relates to the
processing of tar sands, bitumen, asphaltum or other
minerals or mineral resources into asphalt, performance
grade asphalt, synthetic crude oil, diesel fuel or any other
Product produced using the Crown Intellectual Property or
any derivation thereof (an "AMI Opportunity") shall be
offered to the Company for the purposes of its determining
whether it wishes to participate in such AMI Opportunity.
Any AMI Opportunity not relating to the processing of tar
sands, bitumen, asphaltum or other minerals or mineral
resources into asphalt, performance grade asphalt, synthetic
crude oil, diesel fuel or any other Product produced, or
capable of being produced using the Crown Intellectual
Property or any derivation thereof may, but shall not be
required to, be offered to the Company; provided, however
that any such foregoing AMI Opportunity which is not offered
to the Company may not employ any portion of the Crown
Intellectual Property or any derivation thereof for the
purposes of processing tar sands, bitumen, asphaltum or
other minerals or mineral resources into asphalt,
performance grade asphalt, synthetic crude oil, diesel fuel
or any Product produced or capable of being produced using
the Crown Intellectual Property or any derivation thereof at
the Initial Plant or any Subsequent Plant. The following
procedures shall apply to the offer of an AMI Opportunity to
the Company:
(i) Notice to the Company and the
Nonacquiring Member. Within 15 days after a Member or any
of its Affiliates proposes to proceed with an activity that
constitutes an AMI Opportunity such Member (the "Acquiring
Member") shall notify the Company and the other Member (the
"Nonacquiring Member") thereof; provided further that if
such exploitation or development activity pertains to real
property or water rights partially within the Area of Mutual
Interest, then all such related activities (i.e., the part
within the Area of Mutual Interest and the part outside the
Area of Mutual Interest) shall be subject to this
Section 6.3. The Acquiring Member's notice shall describe
in detail the activity, the acquiring party if that party is
an Affiliate, the lands and minerals covered thereby, any
water rights related thereto, the cost thereof, and the
reason, if any, why the Acquiring Member believes that the
activity is in the best interests of the Members. In
addition to such notice, the Acquiring Member shall make any
and all information concerning the activity available for
inspection by the Company and the Nonacquiring Member.
(ii) Option Exercised. The Company shall
have 30 days after receiving the Acquiring Member's notice
pursuant to "(i)" to notify the Acquiring Member of the
Company's election to accept the AMI Opportunity; the
Company shall elect to accept the AMI opportunity if the
Nonacquiring Member notifies the Company to do so within
25 days after receiving the Acquiring Member's notice under
"(i)." Promptly upon such notice, the Members shall act to
form an additional limited liability company pursuant to an
#325596.v2
48
operating agreement in form and substance substantially
similar to this Agreement, with appropriate modifications to
the Members' membership interests in such limited liability
company and such other changes as are necessary or
appropriate to reflect the terms and conditions applicable
to the acquired interest as contemplated in this Agreement,
in which Crown or Crown Parent shall have the option, though
not the obligation, of acquiring (and making a like share of
all capital contributions) up to (i) a 50% sharing ratio if
the applicable AMI Opportunity relates primarily to or is
designed for the production of and sale of asphalt or
performance grade asphalt, or (ii) a 66b% sharing ratio if
the AMI Opportunity relates to the production of synthetic
crude oil, diesel fuel or any other opportunity, and MCNIC
shall acquire the balance of the sharing ratio. Following
the formation of the foregoing limited liability company,
the Acquiring Member shall convey or cause its Affiliate to
convey to the newly formed entity all of the Acquiring
Member's (or its Affiliate's) interest in the AMI
Opportunity, free and clear of all Encumbrances arising by,
through or under the Acquiring Member (or its Affiliate)
other than those to which the Nonacquiring Member has
agreed. The newly formed entity shall promptly pay to the
Acquiring Member the latter's actual out-of-pocket
acquisition costs.
(iii) Option Not Exercised. If the
Company does not give such notice within such 30 day period
set forth in Section 6.3(b)(ii), no Member (other than the
Acquiring Member) shall thereafter have any interest in the
activity or AMI Opportunity.
(c) Other Business Opportunities. Except as
expressly provided in this Section 6.3, each Member and its
Affiliates shall have the right independently to engage in
and receive full benefits from business activities, whether
or not competitive with the operations of the Company or any
Member or its Affiliates, without consulting the others;
provided, that neither Member shall use the Crown
Intellectual Property in connection with such activities
except that Crown shall remain free to use the Crown
Intellectual Property according to its terms in connection
with such activities.
ARTICLE VII.
OPERATING PROTOCOLS; CONSTRUCTION OF ADDITIONAL PLANTS
7.1 In General . The Managers shall determine the
operations and activities of the Company pursuant to
Article V and, except as they may be modified by unanimous
vote of the Managers pursuant to Section 5.2(b), the
requirements set forth in this Article VII.
7.2 Properties . The Development, Mining and
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49
operations on the Properties shall be managed by the
Managers in a manner consistent with this Section 7.2. At
least 90 days prior to the beginning of each calendar year,
the Chairman shall prepare a proposed mine production plan
(the "Mine Production Plan") setting forth in reasonable
detail (i) the tonnages and grades of tar sands, overburden
and waste to be mined or removed in such calendar year, (ii)
the Properties to be mined in such calendar year, (iii) the
relative amount and rate of production in such year for each
of the Properties identified in (ii) above, (iv) manpower
resource scheduling, (v) production operating cost broken
down by line item and nature of cost, and (vi) a plan for
capital expenditures relating to Development of the
Properties, and, to the extent practicable, shall separately
identify capital and expense items. The Mine Production
Plan shall be a part of the proposed Annual Operating Plan
delivered to the Management Committee pursuant to
Section 5.3.
7.3 Marketing Plan . At least 90 days prior to the
beginning of each calendar year the Chairman shall prepare a
proposed marketing plan for the Products for such calendar
year (the "Marketing Plan"). The Marketing Plan shall
address, among other things, the projected market and prices
for each Product, potential purchasers and the terms of
existing and anticipated contracts for sale of Products, and
potential new markets. The Marketing Plan shall be a part
of the proposed Annual Operating Plan delivered to the
Management Committee pursuant to Section 5.3.
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50
7.4 Construction of Initial Plant.
(a) The Company shall use its reasonable
commercial efforts to negotiate and enter into an
engineering, procurement and construction contract (the "EPC
Contract") for construction of the Initial Plant on terms,
including price, completion and performance guarantees, and
payment and performance bonds, and with a general
contractor, acceptable to and approved by the Management
Committee (the "General Contractor").
(b) The Members shall bear the cost of
construction of the Initial Plant in proportion to their
respective Sharing Ratios. In this regard, each Member
shall be required to make additional Capital Contributions
to the Company to allow the Company to pay timely all costs
and expenses incurred by the Company under the EPC Contract
or otherwise in connection with such construction.
(i) Upon receipt of the Application for
Payment from the General Contractor, the Chairman shall
provide a written notice to each Member setting forth the
total amount owing from the Company to the General
Contractor pursuant to the Application for Payment (the
"Payment Amount"), the date such payment is due and payable,
and the required Capital Contribution from each Member. The
required Capital Contribution from each Member shall be
calculated by multiplying the Payment Amount by that
Member's percentage Sharing Ratio; provided, that if the
adjustment to Crown's Capital Contributions set forth in
Section 3.3(b) is applicable at the time of such Capital
Contribution, the required Capital Contribution from Crown
shall be decreased by the amount of any reduction pursuant
to Section 3.3(b), and the required Capital Contribution
from MCNIC shall be increased by such amount.
(ii) Each Member shall be required to make
the additional Capital Contribution called for pursuant to
Section 7.4(b)(i) no later than two business days before the
date the Payment Amount becomes due and payable to the
General Contractor.
(iii) If Crown elects not to proceed with
the Initial Plant upon the completion of the Detailed
Engineering, MCNIC shall have the right to cause the Company
to construct the Initial Plant. If MCNIC elects to proceed,
Crown shall contribute to the Company the items described in
Sections 3.3(a)(ii) and (iii) subject to the Back-in Option
set forth in Section 7.5(f).
7.5 Subsequent Plants . The construction of
Subsequent Plants shall be governed by this Section 7.5.
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51
(a) Decision to Construct Plant 2.
(i) If:
(A) the Initial Plant has achieved
an 18% Threshold Return; and
(B) either:
(1) The Members are in
agreement that an adequate market exists for
Products to be produced from the Initial Plant and
Plant 2; or
(2) the Members have received
and each Member has approved (in its reasonable
discretion) a marketing study prepared by a
reputable third party acceptable to the Members
that demonstrates adequate markets with adequate
reasonably projected market prices for Products in
the quantities to be produced from the Initial
Plant and Plant 2, to sustain Net Operating Income
from the Initial Plant and Plant 2 at levels not
less than those necessary to achieve the 18%
Threshold Return pursuant to "(i)(A)";
(ii) then the Members, or either of
them, may elect to proceed with the construction of Plant 2
by forming LLC-2 as provided in Section 7.5(d), subject to
the right of either Member to elect not to participate in
such construction.
(iii) If MCNIC and Crown elect to
proceed, Crown shall elect to obtain an initial sharing
ratio in LLC-2 of no less than 10% and no greater than 50%
(inclusive of the Crown Base Sharing Ratio - LLC-2) and
Crown shall make a like share of all capital contributions
to LLC-2, after first giving effect to the capital account
Crown receives as the transferee of the membership interest
Crown receives from the Company pursuant to Section
7.5(d)(i)(B). Crown's ownership interest may be different
with respect to each of LLC-2 and LLC-3.
(iv) If Crown does not elect to proceed:
(A) Its only interest in LLC-2 shall be
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52
the membership interest Crown receives from the Company
pursuant to Section 7.5(d)(i)(B) and the Crown Base Sharing
Ratio - LLC-2, and Crown shall have the Back-in Option; and
(B) MCNIC shall have the option,
exercisable until the 60th day after the Members agree that
the 30% Threshold Return has been achieved, to elect to
purchase and pay for Crown's interest in LLC-2 (including
Crown's increased interests after Plant 2 Payout under "(v)"
below but subject to Crown's Back-in Option) for an amount
equal to the Plant 2 Properties' Value. If MCNIC exercises
this option, for purposes of determining 200% Payout with
respect to the Back-in Option retained by Crown in this
circumstance, "Plant Costs" shall be deemed to include the
Plant 2 Properties' Value.
(v) Whether or not Crown elects to proceed,
upon the occurrence of Plant 2 Payout, Crown's initial
sharing ratio in LLC-2 shall be increased by ten percentage
points and MCNIC's sharing ratio in LLC-2 shall be decreased
by ten percentage points
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53
(b) Decision to Construct Plant 3.
(i) If:
(A) Plant 2 has achieved an 18%
Threshold Return; and
(B) either:
(1) the Members are in
agreement that an adequate market exists for
Products to be produced from the Initial Plant,
Plant 2 and Plant 3; or
(2) the Members have received
and each Member has approved (in its reasonable
discretion) a marketing study prepared by a
reputable third party acceptable to the Members
that demonstrates adequate markets with adequate
reasonably projected market prices for Products in
the quantities to be produced from the Initial
Plant, Plant 2 and Plant 3, to sustain Net
Operating Income from the Initial Plant, Plant 2
and Plant 3 at levels not less than those
necessary to achieve the 18% Threshold Return
pursuant to "(i)(A)";
(ii) then the Members, or either of them, may
elect to proceed with the construction of Plant 3 by forming
LLC-3 as provided in Section 7.5(d), subject to the right of
either Member to elect not to participate in such
construction.
(iii) If MCNIC and Crown elect to
proceed, Crown shall elect to obtain an initial sharing
ratio in LLC-3 of no less than 10% and no greater than 50%
(inclusive of the Crown Base Sharing Ratio LLC-3 and Crown
shall make a like share of all capital contributions to LLC-
3, after first giving effect to the capital account Crown
receives as the transferee of the membership interest Crown
receives from the Company pursuant to Section 7.5(d)(ii)(B).
Crown's ownership interest may be different with respect to
each of LLC-2 and
LLC-3.
(iv) If Crown does not elect to proceed:
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54
(A) Its only interest in LLC-3 shall be
the membership interest Crown receives from the Company
pursuant to Section 7.5(d)(ii)(B) and the Crown Base Sharing
Ratio - LLC-3, and Crown shall have the Back-in Option; and
(B) MCNIC shall have the option,
exercisable until the 60th day after Crown has elected not
to participate in Plant 3 pursuant to Section 7.5(d)(ii), to
elect to purchase and pay for Crown's interest in LLC-3
(including Crown's increased interests after Plant 3 Payout
under "(v)" below but subject to Crown's Back-in Option) for
an amount equal to the Plant 3 Properties' Value. If MCNIC
exercises this option, for purposes of determining 200%
Payout with respect to the Back-in Option retained by Crown
in this circumstance, "Plant Costs" shall be deemed to
include the Plant 3 Properties' Value.
(v) Whether or not Crown elects to proceed,
upon the occurrence of Plant 3 Payout, Crown's initial
sharing ratio in LLC-3 shall be increased by ten percentage
points and MCNIC's sharing ratio in LLC-3 shall be decreased
by ten percentage points
(c) Review of Marketing Study. If a Member does
not approve the marketing study under Section
7.5(a)(i)(B)(2) or Section 7.5(b)(i)(B)(2), the other Member
shall have the right to have the reasonableness of the non-
approving Member's determination reviewed by arbitration
pursuant to Article XVI and if the non-approving Member's
determination not to approve the marketing study is
determined not to have been reasonable, the approving Member
shall have the right to elect to proceed as provided in
Section 7.5(d) and the non-approving Member shall have no
obligation to proceed.
(d) Election to Proceed with Formation of LLC-2
and LLC-3 and Construction of Plant 2 and Plant 3.
(i) If a Member has the right to and elects
to proceed with Plant 2 pursuant to Section 7.5(a), it shall
notify the Company and the other Member and the other Member
shall notify the Company and the electing Member of its
election to participate or not to participate in Plant 2
within 90 days after receipt of such notice. If either
Member elects to proceed with the construction of Plant 2,
such Member(s) and the Company shall form a new limited
liability company ("LLC-2"), to construct and own Plant 2
pursuant to an operating agreement in form and substance
substantially the same as this Agreement with such changes
as are necessary or appropriate to reflect the terms and
conditions applicable to Plant 2 and LLC-2 as contemplated
in this Agreement. In connection and simultaneously with
the execution of the operating agreement for LLC-2, the
Company shall:
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55
(A) Convey and assign to LLC-2
that portion of the Properties and Water Rights
that the Members agree shall be transferred to LLC-
2 to permit the construction and operation of
Plant 2 in accordance with the applicable
projections and market study (the "Plant 2
Properties") which agreement shall take into
account the following factors: (1) the Company
shall have first priority to all tar sands in the
Properties and water required for the Initial
Plant to operate up to full capacity; and (2) as
between Plant 2 and Plant 3, if constructed, any
Subsequent Plant that both Members have an
ownership interest in shall have priority over any
Subsequent Plant that only one Member has an
ownership interest in, and equal priority with any
Subsequent Plant that both Members have an
ownership interest in, in each case with respect
to any tar sands not required by the Initial
Plant to operate up to full capacity. Subject to
(1) and (2) the Company shall convey and assign to
LLC-2 adequate Properties and Water Rights for
Plant 2 to operate up to full capacity for the
projected 20-year economic life of Plant 2. If
the Members are unable to agree as to what
Properties and Water Rights are to be transferred
from the Company to LLC-2 within 30 days after the
expiration of the 90-day period described in
"(i)," the Members shall submit the dispute to
arbitration pursuant to Article XVI and shall be
bound by the arbitrators' determination of which
Properties and Water Rights are to be transferred
to LLC-2 in accordance with the factors set forth
in (1) and (2) above.
(B) In exchange for the
contribution of the Plant 2 Properties to LLC-2,
the Company shall be credited with a capital
contribution to LLC-2 equal to the Plant 2
Properties' Value and the sharing ratio associated
with such membership interest shall be a fraction
whose numerator is the Plant 2 Properties' Value
and whose denominator is the aggregate capital
contribution of all members, as determined from
time to time (the "Crown Base Sharing Ratio - LLC-
2"). Immediately following the Company's receipt
of such membership interest it shall distribute
all of such interest to Crown. The Members shall
treat the foregoing in the manner provided in
Section 12.7 for tax and financial reporting
purposes. Crown shall also have such additional
interests which it elects to receive pursuant to
Section 7.5(a)(iii).
(ii) If a Member has the right to and elects
to proceed with Plant 3 pursuant to Section 7.5(b), it shall
notify the Company and the other Member and the other Member
shall notify the Company and the electing Member of its
election to participate or not to participate in Plant 3
within 90 days after receipt of such notice. If either
Member elects to proceed with the construction of Plant 3
such Member and the Company shall form a new limited
liability company ("LLC-3"), to construct and own Plant 3
pursuant to an operating agreement in form and substance
substantially the same as this Agreement with such changes
as are necessary or appropriate to reflect the terms and
#325596.v2
56
conditions applicable to Plant 3 and LLC-3 as contemplated
in this Agreement. In connection and simultaneously with
the execution of the operating agreement for LLC-3, the
Company shall:
(A) Convey and assign to LLC-3
that portion of the Properties and Water Rights
that the Members agree shall be transferred to LLC-
3 to permit the construction and operation of
Plant 3 in accordance with the applicable
projections and market study (the "Plant 3
Properties") which agreement shall take into
account the following factors: (1) the Company
shall have first priority to all tar sands in the
Properties and water required for the Initial
Plant to operate up to full capacity; and (2) as
between Plant 2 and Plant 3, if constructed, any
Subsequent Plant that both Members have an
ownership interest in shall have priority over any
Subsequent Plant that only one Member has an
ownership interest in, and equal priority with any
Subsequent Plant that both Members have an
ownership interest in, in each case with respect
to any tar sands not required by the Initial
Plant to operate up to full capacity. Subject to
(1) and (2) the Company shall convey and assign to
LLC-3 adequate Properties and Water Rights for
Plant 3 to operate up to full capacity for the
projected 20-year economic life of Plant 3. If
the Members are unable to agree as to what
Properties and Water Rights are to be transferred
from the Company to LLC-3 within 30 days after the
expiration of the 90-day period described in
"(ii)," the Members shall submit the dispute to
arbitration pursuant to Article XVI and shall be
bound by the arbitrators' determination of which
Properties and Water Rights are to be transferred
to LLC-3 in accordance with the factors set forth
in (1) and (2) above.
(B) In exchange for the
contribution of the Plant 3 Properties to LLC-3,
the Company shall be credited with a capital
contribution to LLC-3 equal to the Plant 3
Properties' Value and the sharing ratio associated
with such membership interest shall be a fraction
whose numerator is the Plant 3 Properties' Value
and whose denominator is the aggregate capital
contribution of all members, as determined from
time to time (the "Crown Base Sharing Ratio - LLC-
3"). Immediately following the Company's receipt
of such membership interest it shall distribute
all of such interest to Crown. The Members shall
treat the foregoing in the manner provided in
Section 12.7 for tax and financial reporting
purposes. Crown shall also have such additional
interests which it elects to receive pursuant to
Section 7.5(b)(iii).
(iii) If MCNIC elects to proceed with
construction of the Initial Plant for its own account
pursuant to Section 7.4(b)(iii), or MCNIC or Crown elects to
construct Plant 2 or Plant 3 for its own account pursuant to
Section 7.5(a) or 7.5(b) without the other Member's
participation:
#325596.v2
57
(A) in the case of the Initial Plant,
MCNIC shall have a 100% Sharing Ratio in the Company and
Crown shall have a 0% Sharing Ratio; and
(B) in the case of the Subsequent Plants,
the Members shall form LLC-2 or LLC-3, respectively, and (1)
if Crown is the Member electing to participate, MCNIC shall
have a 0% sharing ratio in LLC-2 or LLC-3, as the case may
be, and Crown shall have a 100% sharing ratio in LLC-2 or
LLC-3, as the case may be, and (2) if MCNIC is the Member
electing to participate, Crown shall have the Crown Base
Sharing Ratio - LLC-2 or the Crown Base Sharing Ratio -
Plant 3, as the case may be, and MCNIC shall have a sharing
ratio equal to 100% less Crown's sharing ratio. In
connection with the execution of the operating agreement for
such limited liability company and the satisfaction of the
conditions precedent to capital contributions by MCNIC and
Crown set forth herein or therein, the Company shall
perform its obligations under Section 7.5(d) with respect
to the Company, LLC-2 and LLC-3, respectively.
(iv) Independent Operations. The Members
agree that, upon the establishment of LLC-2 and LLC-3, such
additional entities shall operate as self-sufficient
entities in the exploitation of the properties owned
thereby.
(e) Agreements with New Entity. If LLC-2 or LLC-
3 is formed to construct Plant 2 or Plant 3, respectively,
pursuant to Section 7.5(a) or 7.5(b), the Company will enter
into contracts, licenses and other arrangements with such
entity as are necessary or appropriate for the construction
and operation of such Subsequent Plant. Such contracts,
licenses and other arrangements shall be under such terms
and conditions as the Management Committee determines are
appropriate, and shall include:
(i) a sublicense of the Intellectual
Property;
(ii) rights of access to or over the
Properties retained by the Company, if necessary;
(iii) an agreement for the marketing of
Products, if necessary, which agreement shall provide,
unless the Members agree otherwise, that Products produced
at the Initial Plant shall be sold first, and (b) as between
Plant 2 and Plant 3, Products produced at any Subsequent
Plant owned by a limited liability company in which both
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58
Members have a positive non-zero sharing ratio shall be sold
before any Products produced at any other Subsequent Plant
and as between Products produced at Subsequent Plants owned
by a limited liability company in which both Members have an
ownership interest in, sales of Products produced at each
Subsequent Plant shall be allocated to each Plant ratably;
(iv) an agreement allocating Environmental
Compliance costs; and
(v) such other agreements as the Management
Committee determines are appropriate.
(f) Back-in Option. The Members agree that in
the event: (x) Crown elects not to proceed with the
construction of the Initial Plant following the completion
of the Detailed Engineering and MCNIC elects to proceed; or
(y) either Member elects not to participate in the costs of
a Subsequent Plant and the other Member elects to proceed,
the following Back-in Option shall apply:
(i) The Member electing not to participate
(the "Non-Participating Member") shall have the option
("Back-in Option") to acquire an interest in the limited
liability company constructing the applicable plant such
that (1) its sharing ratio in the entity constructing the
plant before 200% Payout is zero and (2) its sharing ratio
after 200% Payout is:
(A) with respect to the Initial
Plant, if Crown has and exercises a Back-in Option
with respect to the Initial Plant, its Sharing
Ratio in the Company after 200% Payout shall be
50%;
(B) with respect to any Subsequent
Plant, if a Member has and exercises a Back-in
Option with respect to such plant, its sharing
ratio in the limited liability company
constructing such plant after 200% Payout shall be
60% in the case of Crown and 40% in the case of
MCNIC.
(ii) "200% Payout" shall mean 7:00 A.M.,
local time, on the first day of the calendar month following
the earliest calendar month during which the proceeds from
the sale of Products produced from the subject plant, after
deducting all costs and expenses to operate and maintain the
plant (including without limitation, costs for tar sands and
other inputs, excise, sales, severance and other taxes on
inputs and Products, property taxes on the plant and
#325596.v2
59
equipment and all other taxes except for income taxes)) to
produce such Products equals (A) 200% of Plant Costs, plus
(B) interest at the General Interest Rate plus 3%
(compounded quarterly) on the Plant Costs from the time each
separate portion of Plant Costs were paid.
(iii) The Member who elects to construct
the subject plant (the "Participating Member") shall provide
the Non-Participating Member with quarterly reports of the
operations, and returns from, the entity that owns the
plant. The Non-Participating Member shall have 15 days
following receipt of written notice that 200% Payout has
occurred with respect to the subject plant to give written
notice to the Participating Member of its election to
exercise the Back-in Option with respect to such plant. The
failure by the Non-Participating Member to notify the
Participating Member within such 15 day period shall be
deemed to be an election by the Non-Participating Member not
to exercise its Back-in Option with respect to such plant.
If the Non-Participating Member elects (or is deemed to
elect) not to exercise any Back-in Option with respect to
any plant, such Member shall have no further right, option
or contingent interest whatsoever in such plant or the
entity that owns such plant, and upon the request of the
Participating Member will promptly execute and deliver to
the Participating Member a release and assignment in
recordable form acknowledging the same and assigning to the
Participating Member all of the Non- Participating Member's
interest in such plant or entity. In the event a Non-
Participating Member shall elect to exercise the Back-in
Option, the Participating Member shall assign to the Non-
Participating Member the applicable portion of its sharing
ratio in the entity that owns such plant.
ARTICLE VIII.
DISTRIBUTIONS TO THE MEMBERS
8.1 Nonliquidating Distributions . To the extent
legally permissible, the Management Committee shall cause
the Company to distribute Available Cash to the Members
quarterly, within 30 days after the end of each calendar
quarter. In addition, the Company may make distributions of
Available Cash at such times and in such amounts as the
Management Committee shall determine. Except as provided in
Sections 7.5(d)(i)(B) and 7.5(d)(ii)(B), all distributions
made pursuant to this Section 8.1 shall be made among the
Members in accordance with their Sharing Ratios at the time
of distribution.
8.2 Liquidating Distributions . Except as provided in
Section 14.2(d), all distributions made in connection with
the sale or exchange of all or substantially all of the
Company's assets and all distributions made in connection
with the liquidation of the Company shall be made to the
Members in accordance with their respective Capital Account
balances at the time of distribution after taking into
account all allocations of Profit and Loss pursuant to
Article IX.
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60
8.3 Distributions in Kind . During the existence of
the Company, no Member shall be entitled to receive as
distributions from the Company any Company asset other than
money. Upon the dissolution and winding-up of the Company
the assets of the Company may be distributed to the Members
in kind in accordance with Article XIV. For purposes of
Article XIV, distribution of an asset in kind to a Members
shall be considered a distribution of an amount equal to the
asset's fair market value.
ARTICLE IX.
ALLOCATIONS OF PROFITS AND LOSSES
9.1 In General .
(a) This Article provides for the allocation
among the Members of Profit and Loss for purposes of
crediting and debiting the Capital Accounts of the Members
and Article X provides for the allocation among the Members
of taxable income and tax losses.
(b) Except as provided in Section 9.1(d) and
Section 9.2, all Losses shall be allocated among the Members
in accordance with their respective Sharing Ratios.
(c) Except as provided in Section 9.1 (e) and
Section 9.2, any Profits shall be allocated among the
Members in accordance with their respective Sharing Ratios.
(d) Except as provided in Section 9.2, all Losses
arising from or attributable to the sale, exchange or other
disposition of all or substantially all of the Company's
assets and all sales of assets in connection with the
liquidation of the Company under Article XIV shall be
allocated among the Members in the following order of
priority:
(i) First, among the Members, so as to cause
the balance in each Member's Capital Account to be in
proportion to the Members' respective Sharing Ratios. If
the Loss allocated under this Section 9.2(d)(i) is not
sufficient to cause the balances in the Members' Capital
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61
accounts to be in such proportions, then such Loss shall be
allocated among the Members in the manner that would most
nearly (on an aggregate basis) bring the balances in the
Member's Capital Accounts into proportion with their
respective Sharing Ratios; and
(ii) The balance, if any, among the Members
in accordance with their respective Sharing Ratios.
(e) Except as provided in Section 9.2, any
Profits arising from or attributable to the sale, exchange
or other disposition of all or substantially all of the
Company's assets and all sales of assets in connection with
the liquidation up of the Company under Article XIV shall be
allocated among the Members in the following order of
priority:
(i) First, if the Capital Account of any
Member has a negative balance, among the Members having
negative balances in their Capital Accounts to the extent of
such negative balances. The Profit allocated under this
Section 9.1(e)(i) shall be allocated among the Members with
negative Capital Account balances according to the ratio
that each such negative balance bears to the total of the
negative balances;
(ii) Second, among the Members, so as to
cause the balance in each Member's Capital Account to be in
proportion to the Members' respective Sharing Ratios. If
the Profit allocated under this Section 9.1(e)(i) is not
sufficient to cause the balances in the Members' Capital
Accounts to be in such proportions, then such Profit shall
be allocated among the Members in the manner that would most
nearly (on an aggregate basis) bring the balances in the
Members' Capital Accounts into proportion with their
respective Sharing Ratios; and
(iii) The balance, if any, among the
Members in accordance with their respective Sharing Ratios.
(f) For purposes of Sections 9.1(d) and 9.1(e),
the Capital Accounts of the Members shall be determined
before giving effect to distributions under Section 8.2 and
Article XIV resulting from the transactions giving rise to
the Profit or Loss and after allocating all other items of
income and loss through the date of the transactions giving
rise to the Profit or Loss.
9.2 Regulatory Allocations and Curative Provisions.
Notwithstanding Sections 9.1 and 9.3 hereof:
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62
(a) Loss Limitation. The Losses allocated
pursuant to Section 9.1 shall not exceed the maximum amount
of Losses that can be so allocated without causing any
Member to have an Adjusted Capital Account Deficit at the
end of any fiscal year. In the event some but not all of
the Members would have Adjusted Capital Account Deficits as
a consequence of an allocation of Losses pursuant to
Section 9.1, the limitation set forth in this Section 9.2(a)
shall be applied on a Member-by-Member basis so as to
allocate the maximum permissible Losses to each Member under
section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
All Losses in excess of the limitations set forth in this
Section 9.2(a) shall be allocated to the Members in
proportion to their Sharing Ratios.
(b) Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulation 1.704-2(f), if there is a
net decrease in partnership minimum gain (as defined in
Treasury Regulation 1.704-2(b)(2) and 1.704-2(d)) during
any fiscal year, each Member shall be specially allocated
items of Company income and gain for such fiscal year (and,
if necessary, subsequent fiscal years) in an amount and in
the manner required by Treasury Regulation 1.704-2(f) and
1.704-2(j)(2).
(c) Member Minimum Gain Chargeback. Except as
otherwise provided in Treasury Regulation 1.704-2(i)(4),
if there is a net decrease in Member nonrecourse debt
minimum gain (as defined in Treasury Regulation 1.704-
2(i)(2) and 1.704-2(i)(3)) attributable to a Member
nonrecourse debt (as defined in Treasury Regulation 1.704-
2(b)(4)) during any fiscal year, each Member who has a share
of the Member nonrecourse debt minimum gain attributable to
such Member's nonrecourse debt, determined in accordance
with Treasury Regulation 1.704-2(i)(5), shall be specially
allocated items of Company income and gain for such fiscal
year (and, if necessary, subsequent fiscal years) in an
amount and in the manner required by Treasury Regulation
1.704-2(i)(4) and 1.704-2(j)(2).
(d) Qualified Income Offset. In the event any
Member unexpectedly receives any adjustments, allocations,
or distributions described in Treasury Regulation 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6), items of Company income and gain shall be
specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by
the Regulations, the Adjusted Capital Account Deficit, if
any, of such Member as quickly as possible.
(e) Member Nonrecourse Deductions. Any Member
nonrecourse deductions (as defined in Treasury Regulation
1.704-2(i)(1) and 1.704-2(i)(2)) for any fiscal year
shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Member nonrecourse
debt (as defined in Treasury Regulation 1.704-2(b)(4)) to
which such Member nonrecourse deductions are attributable in
accordance with Treasury Regulation 1.704-2(i)(1).
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(f) Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Company asset is
required pursuant to Code section 732(d), Code section
734(b) or Code section 743(b), the Capital Accounts of the
Members shall be adjusted pursuant to Treasury Regulation
1.704-1(b)(2)(iv)(m).
(g) Curative Allocations. The allocations under
Sections 9.3(a) through (f) (the "Regulatory Allocations")
are intended to comply with certain requirements of the
Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain,
loss or deduction pursuant to this Article VIII. Therefore,
notwithstanding any other provision of this Article VIII
(other than the Regulatory Allocations), the Managers shall
make such offsetting special allocations of Company income,
gain, loss or deduction in whatever manner they determine
appropriate so that, after such offsetting allocations are
made, each Member's Capital Account balance is, to the
extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not
part of this Agreement and all Company items were allocated
pursuant to Section 9.1. In exercising their discretion
under this Section 9.3(g), the Managers shall take into
account future Regulatory Allocations under Sections 9.3(a)
through 9.3(g) that are likely to offset other Regulatory
Allocations previously made.
9.3 Other Allocation Rules .
(a) For purposes of determining the Profits,
Losses, or any other items allocable to any period, Profits,
Losses, and any such other items shall be determined on a
daily, monthly, or other basis, as determined by the
Managers (or the transferring Member as provided in
Section 12.3) using any permissible method under Code
section 706 and the Regulations thereunder.
(b) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities"
of the Company within the meaning of Treasury Regulation
1.752-3(a)(3), the Members' interests in Profits shall be
their Sharing Ratios.
(c) To the extent permitted by Treasury
Regulation 1.704-2(b)(3), the Manager shall treat
distributions of cash flow as having been made from the
proceeds of a nonrecourse liability (as defined in Treasury
Regulation 1.704-2(b)(3)) or a Member nonrecourse debt
only to the extent that such distributions would not cause
or increase an adjusted Capital Account deficit for any
Member.
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64
9.4 Adjustment of Sharing Ratios Upon Payout . Upon
the occurrence of Initial Plant Payout, the Sharing Ratios
of the Members shall be prospectively adjusted as follows:
(a) Crown's Sharing Ratio shall be increased by
25 percentage points; and
(b) MCNIC's Sharing Ratio shall be decreased by
25 percentage points.
ARTICLE X.
ALLOCATION OF TAXABLE INCOME AND TAX LOSSES
10.1 In General . Except as provided in Section 10.2,
each item of income, gain, loss and deduction of the Company
for federal income tax purposes shall be allocated among the
Members in the same manner as such item is allocated for
book purposes under Article IX.
10.2 Allocation of Section 704(c) Items . The Members
recognize that with respect to property contributed to the
Company by a Member and with respect to property revalued in
accordance with Treasury Regulation 1.704-1(b)(2)(iv)(f)
(referred to as "Adjusted Properties"), there will be a
difference between the agreed values or Carrying Values, as
the case may be, of such property at the time of
contribution or revaluation, as the case may be, and the
adjusted tax basis of such property at that time. All items
of tax depreciation, cost recovery, depletion, amortization
and gain or loss with respect to such contributed properties
and Adjusted Properties shall be allocated among the Members
to take into account the book-tax disparities with respect
to such properties in accordance with the provisions of
sections 704(b) and 704(c) of the Code and Treasury
Regulation 1.704-3(b)(1). Any gain or loss attributable
to a contributed property or an Adjusted Property (exclusive
of gain or loss allocated to eliminate such book-tax
disparities) shall be allocated in the same manner as such
gain or loss would be allocated for book purposes under
Article XII.
10.3 Integration With Section 754 Election . All items
of income, gain, loss, deduction and credits recognized by
the Company for federal income tax purposes and allocated to
the Members in accordance with the provisions hereof and all
basis allocations to the Members shall be determined without
regard to any election under section 754 of the Code that
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65
may be made by the Company; provided, however, such
allocations, once made, shall be adjusted as necessary or
appropriate to take into account the adjustments permitted
by sections 734 and 743 of the Code.
10.4 Allocation of Tax Credits . All tax credits with
respect to the Company's property or operations shall be
allocated among the Members in accordance with their Sharing
Ratios for the period during which the expenditures,
production, sale, or other event giving rise to the tax
credit occurred. If there is no Profit during such period,
such tax credits shall be allocated as if there had been
Profit during such Period.
ARTICLE XI.
MEMBERS
11.1 Limited Liability . The liability of each Member
shall be limited as set forth in section 48-2b-109 of the
Act. Except as permitted under this Agreement, a Member
shall take no part in the control, management, direction or
operation of the affairs of the Company and shall have no
power to bind the Company.
11.2 Quorum . A majority of the outstanding Voting
Interests, represented in person or by proxy, shall be
necessary to constitute a quorum at meetings of the Members.
Each of the Members hereby consents and agrees that one or
more Members may participate in a meeting of the Members by
means of conference telephone or similar communication
equipment by which all persons participating in the meeting
can hear each other at the same time, and such participation
shall constitute presence in person at the meeting. If a
quorum is present, the affirmative vote of the majority of
the Voting Interests represented at the meeting and entitled
to vote on the subject matter shall be the act of the
Members, unless a greater number is required by the Act. In
the absence of a quorum, those present may adjourn the
meeting for any period, but in no event shall such period
exceed 60 days.
11.3 Informal Action . Any action required or
permitted to be taken at a meeting of the Members may be
taken without a meeting if the action is evidenced by a
written consent describing the action taken, signed by each
Member entitled to vote. Action taken under this section
shall be effective when all Members entitled to vote have
signed the consent, unless the consent specifies a different
effective date.
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11.4 Meetings . Meetings of the Members for any
purpose or purposes may be called by any Manager or by
holders of not less than one-tenth of all Voting Interests.
11.5 Place of Meeting . The Managers may designate the
place for any meeting. If no designation is made, the place
of meeting shall be the principal place of business of the
Company.
11.6 Notice of Meeting . Written notice stating the
place, day and hour of the meeting, and the purpose or
purposes for which the meeting is called, shall be delivered
either personally or by mail, by or at the direction of any
Manager or other person calling the meeting, to each Member
of record entitled to vote at such Meeting. Each of the
Members hereby consents and agrees that meetings of the
Members may be called upon four days' written notice.
11.7 Proxies . At all meetings of Members, a Member
may vote in person or by proxy executed in writing by the
Member or by his duly authorized attorney-in-fact. Such
proxy shall be filed with a Manager of the Company before or
at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless
otherwise provided in the proxy.
11.8 Conduct of Meeting . At each meeting of the
Members, a chairman for that particular meeting shall be
elected. The chairman shall be the Member in attendance who
has received the vote of the majority of the Voting
Interests represented at the meeting. The Chairman shall
preside over and conduct the meeting and shall appoint
someone in attendance to make accurate minutes of the
meeting. Following each meeting, the minutes of the meeting
shall be sent to each Manager and Member.
ARTICLE XII.
ACCOUNTING AND REPORTING
12.1 Books . The Managers shall maintain complete and
accurate books of account of the Company's affairs at the
principal office of the Company. The Company's books shall
be kept in accordance with generally accepted accounting
principles, consistently applied, and on a calendar year-
accounting period.
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12.2 Capital Accounts.
(a) The Managers shall maintain a separate
capital account for each Member and such other Member
accounts as may be necessary or desirable to comply with the
requirements of applicable laws and regulations ("Capital
Accounts"). Capital Accounts shall be maintained in
accordance with the provisions of Treasury Regulations
1.704-1(b)(2)(iv) and, among other adjustments, shall be:
(i) increased by the amount of all cash capital
contributions and the net agreed value of all capital
contributions of property other than cash (with such net
agreed value determined by the Managers and the contributing
Member) made by such Member to the Company; (ii) increased
by all profit allocated to such Member pursuant to
Article IX; (iii) decreased by all items of loss allocated
to such Member pursuant to Article IX; and (iv) decreased by
the amount of all distributions of cash and the net value of
all distributions of property made to such Member pursuant
to this Agreement.
(b) Consistent with the provisions of Treasury
Regulation 1.704-1(b)(2)(iv)(e) and (f), upon an issuance
of additional interests in the Company for cash or property
(other than de minimis amounts) and prior to the actual or
deemed distribution of any Company property (other than
cash), the Capital Accounts of all Members and the Carrying
Values of all Company properties shall be adjusted upwards
or downwards to reflect any unrealized gain or unrealized
loss with respect to each Company property (as if such
unrealized gain or unrealized loss had been recognized upon
an actual sale of each such property immediately prior to
such issuance or distribution, and had been allocated among
the Members, at such times, pursuant to Article VIII). In
determining such unrealized gain or unrealized loss, the
aggregate fair market value of Company properties as of the
date of determination shall be determined by the Managers
using such method of valuation as they deem appropriate
taking into account the provisions of Treasury Regulation
1.704-1(b)(2)(iv)(f).
(c) A transferee of a Company interest shall
succeed to the Capital Account attributable to the Company
interest transferred, except that if the transfer causes a
termination of the Company under section 708(b)(1)(B) of the
Code, Treasury Regulation 1.708-1(b) as then in effect
shall apply.
12.3 Transfers During Year. In order to avoid an
interim closing of the Company's books, the allocation of
Profits and Losses under Article IX between a Member who
transfers part or all of its interest in the Company during
the Company's accounting year and his transferee may be
determined pursuant to any method chosen by the transferring
Member and agreed to by the TMP, which agreement will not be
unreasonably withheld; provided, however, that any Net
Capital Income or Loss shall be allocated to the owner of
the interest in the Company at the time such Net Capital
Income or Loss was realized.
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12.4 Reports . The Managers shall deliver to the
Members the following financial statements and reports at
the times indicated below:
(a) Monthly, within two business days after the
end of each calendar month, a statement setting forth in
reasonable detail (i) an estimate of the Company's revenues,
costs and expenses for such calendar month, and (ii) an
estimate the production of Products from the Properties and
Products produced by or at the Initial Plant, and the prices
received therefor.
(b) Monthly, within thirty business days after
the end of each calendar month, a written report which shall
include (i) a balance sheet and a statement of each Member's
Capital Account, each as of the last day of such calendar
month, (ii) statements of income and cash flows for such
calendar month, and (iii) such other information as deemed
reasonably necessary by any Member for purposes of advising
such Member properly about their investment in the Company.
(c) Written quarterly statements on the Company's
operations within 90 days after the end of each calendar
quarter. The books of account shall be closed promptly
after the end of each calendar year. As soon as practicable
thereafter, the Managers shall make a written report to each
Member, which shall include a statement of receipts,
expenditures, profits and losses for the previous year, a
statement of each Member's Capital Account as of the last
day of the previous calendar year and such additional
statements with respect to the state of the Company as are
necessary to advise the Members properly about their
investment in the Company. Such report shall consist in
part of a copy of the Company's United States income tax
return. On or before June 30, of each year, each Member
shall be provided with the information, to the extent then
in the possession of the Company, necessary to allow such
Member to file its own income tax return for the preceding
year.
(d) Such other reports, audits and financial
statements as the Managers shall determine or as a Member
shall reasonably request from time to time; provided that
the requesting Member shall bear the actual and reasonable
costs incurred by the Managers in complying with such
special request or in conducting any other special
accounting procedures for the company, other than those
expressly provided for in this Agreement. The cost of such
reporting paid to third parties shall be paid by the Company
as a Company expense except as expressly provided otherwise
above.
12.5 Section 754 Election . If requested by a Member,
the Company shall make the election provided for under
section 754 of the Code.
12.6 Independent Audit . Within 60 days after the end
of each calendar year the Managers shall provide each Member
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with audited financial reports prepared by a "Big Six"
public accounting firm selected by the Managers.
12.7 Treatment of Formation of LLC-2 and LLC-3. If the
Company contributes the Plant 2 Properties to LLC-2 or the
Plant 3 Properties to LLC-3 and distributes its resulting
membership interest in LLC-2 or LLC-3 to Crown pursuant to
Section 7.5, for federal income tax and financial reporting
purposes such matters shall be treated as if the Company
first distributed such properties to Crown and that Crown
then contributed such properties to LLC-2 or LLC-3, as the
case may be, in exchange for the membership interest in LLC-
2 or LLC-3 that Crown received as a distribution from the
Company pursuant to Section 7.5.
ARTICLE XIII.
TRANSFER OF MEMBER' S INTEREST--RIGHT
OF FIRST OFFER
13.1 Restrictions on Transfer .
(a) Additional Members shall not be admitted to
the Company without the prior written consent of all of the
Members. Neither Member shall transfer, assign, mortgage,
pledge or grant a security interest in all or any part of
its interest in the Company except as permitted by this
Article XIII.
(b) Notwithstanding any other provision of this
Agreement, no Member may dissolve and transfer its
membership interest in the Company to the Member's equity
owners prior to the date that is 13 months after the date on
which the Company was formed, except with an opinion of
counsel satisfactory in form and substance to the other
Member and from a firm acceptable to the other Member to the
effect that such dissolution and transfer would not (i)
cause the initial issuance of such membership interest
pursuant to this Agreement to be in violation of the
Securities Act of 1933 or any applicable state securities
law (the "Securities Act"), or (ii) otherwise be in
violation of such laws.
13.2 Right of First Offer.
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(a) If at any time a Member proposes to sell,
assign, or otherwise dispose of all or any part of, or to
solicit bids from any third party to purchase or otherwise
acquire, all or any portion of its interest in the Company
(other than sales or other dispositions to Affiliates of
such Member), such Member (the "Soliciting Member") shall
first notify the other Member (the "Notified Member") in
writing of such Soliciting Member's desire to sell such
interest in the Company.
(b) The Notified Member shall have 10 days to
make a first cash offer to purchase, and negotiate for the
purchase of, the interest in the Company that the Soliciting
Member desires to sell. If the Soliciting Member does not
accept a bona fide first cash offer made by the Notified
Member to purchase the Soliciting Member's interest in the
Company, the Soliciting Member shall not sell, assign or
otherwise dispose of, or enter into any binding agreement to
sell, assign or otherwise dispose of all or any part of the
Soliciting Member's interest in the Company during the 90-
day period following such 10-day first offer period, unless
the cash value of the consideration to be received by the
Soliciting Member from a third party purchaser is greater
than the cash offer made by the Notified Member. If the
Soliciting Member does not sell or enter into a binding
agreement to sell its interest in the Company within such 90-
day period, it shall again afford the Notified Member the
opportunity to make a first offer with respect to proposed
sales of the Soliciting Member's interest in the Company as
provided above.
(c) If the Notified Member does not elect to make
a first cash offer to purchase all of the Company interest
offered by the Soliciting Member during the 10-day period
provided for in Section 13.2(b), the Soliciting Member may
sell the interest within 90 days after the expiration of the
10-day period provided for in Section 13.2(b). If the
Soliciting Member does not sell or enter into a binding
agreement to sell its interest in the Company within such 90-
day period, it shall again afford the Notified Member the
opportunity to make a first offer with respect to proposed
sales of the Soliciting Member's interest in the Company as
provided in Section 13.2(a).
13.3 Tag-Along Rights . Within two business days after
entering into a binding agreement to sell all or any part of
its interest in the Company (other than sales or other
dispositions to Affiliates of such Member), the Soliciting
Member shall deliver a copy of such binding agreement to the
Notified Member and if MCNIC is the Soliciting Member, such
binding agreement shall indicate whether the purchaser
intends to retain Crown as the Operator. The Notified
Member shall have twenty business days to elect, by
providing written notice to the Soliciting Member, to
require the purchaser of the Soliciting Member's interest to
purchase a percentage of the Notified Member's interest
(determined as set forth below) in the Company on the same
terms and conditions (including, without limitation, the
same purchase price per percentage point of ownership
interest in the Company) set forth in the agreement between
the Soliciting Member and the purchaser ("Tag-Along
Rights"). For purposes of the preceding sentence, in
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connection with any proposed sale the Notified Member may
exercise Tag-Along Rights with respect to a percentage of
its membership interest equal to the product of (i) the
percentage of the Soliciting Member's membership interest to
be sold in the contemplated transfer and (ii) the Notified
Member's Sharing Ratio (e.g., if the Soliciting Member has
a 70% Sharing Ratio and is selling all of its membership
interest, 100% of the Soliciting Member's membership
interest is being sold, and the Notified Member is entitled
to sell its entire 30% membership interest (30% Sharing
Ratio multiplied by 100%)). If the payment for the
Soliciting Member's interest includes consideration other
than cash, the Soliciting Member, the Notified Member and
the purchaser shall agree upon the cash value of the sale
and all consideration paid from the purchaser to the
Notified Member for the Notified Member's interest shall be
in cash. Any disagreement between the Soliciting Member and
the Notified Member concerning the cash value of the sale
shall be resolved in accordance with Section 13.4. In the
event the Notified Member elects to exercise its Tag-Along
Rights pursuant to this Section 13.3 and the purchaser
refuses to purchase the Notified Member's interest in the
Company as provided above, the Soliciting Member shall not
sell its interest to the purchaser without the written
consent of the Notified Member, which consent may be
withheld in the sole discretion of the Notified Member.
13.4 Cash Equivalents . The cash value of any sale to
a third party shall be determined by agreement among the
Soliciting Member and the Notified Member. If they cannot
agree and such disagreement continues for a period of seven
days, either of such Members may, by five days' written
notice to the other, initiate arbitration proceedings under
Article XVI for determination of the cash equivalent of such
purchase price. The arbitrator shall determine the cash
equivalent without regard to income tax consequences to the
Soliciting Member as a result of receiving cash in lieu of
other consideration.
13.5 Direct and Indirect Transfers . The restrictions
on transfer set forth in Sections 13.1 through 13.3 shall
not apply to a transfer as a result of merger, consolidation
or similar action that results in sale of all or
substantially all of the assets of the Member, or a transfer
of an equity interest in a Member that is a corporation,
partnership or other entity if the transfer of the equity
interest does not result in a change in control of such
corporation, partnership or other entity; provided that the
restrictions on transfer set forth in Section 13.1(b) shall
apply to such transfer. A Member may transfer its interest
in the Company to an Affiliate of such Member with the
written consent of the other Members, which consent shall
not be unreasonably withheld, and such transfer shall not be
subject to Sections 13.1 through 13.3; provided that the
restrictions on transfer set forth in Section 13.1(b) shall
apply to such transfer.
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13.6 Substitution of a Member .
(a) No transferee (by conveyance, operation of
law or otherwise) of the whole or any portion of a Member's
interest in the Company shall become a substitute Member
without the written consent of all of the Members, which
consent may be withheld in the sole discretion of each
Member. A transferee of a Member who receives unanimous
consent to become a Member shall succeed to all the rights
and interest of his transferor in the Company. A transferee
of a Member who does not receive unanimous consent to become
a Member shall be entitled only to the distributions to
which his transferor would otherwise be entitled and shall
have no right to participate in the management of the
business and affairs of the Company or to become a Member.
(b) If a Member shall be dissolved, merged or
consolidated, its successor in interest shall have the same
obligations and rights to profits or other compensation that
such Member would have had if it had not been dissolved,
merged or consolidated, except that the representative or
successor shall not become a substituted Member and shall
not have any right to participate in the management of the
business and affairs of the Company without the written
consent of all of the other Members as provided in
Section 13.6(a).
(c) No transfer of any interest in the Company
otherwise permitted under this Agreement shall be effective
for any purpose whatsoever until the transferee shall have
assumed the transferor's obligations to the extent of the
interest transferred and shall have agreed to be bound by
all the terms and conditions hereof, by written instrument,
duly acknowledged, in form and substance reasonably
satisfactory to the Managers. Without limiting the
foregoing, any transferee (including but not limited to a
transferee under Sections 13.2, 13.5 and 13.6(b)) that has
not become a substituted Member shall nonetheless be bound
by the provisions of this Article XIII with respect to any
subsequent transfer. Upon admission of the transferee as a
substitute member, the transferor shall have no further
obligations under this Agreement with respect to that
portion of its interest transferred to the transferee.
13.7 Conditions to Substitution . As conditions to its
admission as a Member (a) any assignee, transferee or
successor of a Member shall execute and deliver such
instruments, in form and substance satisfactory to the
Managers, as the Managers shall deem necessary, and (b) such
assignee, transferee or successor shall pay all reasonable
expenses in connection with its admission as a substituted
Member. No person shall be admitted to the Company as a
Member unless (i) either (A) the Member interest or part
thereof acquired by such person has been registered under
the Securities Act of 1933, as amended, and any applicable
state securities laws or (B) the Company has received a
favorable opinion of the Company's legal counsel or of other
legal counsel acceptable to the Members to the effect that
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the transfer of the Member interest to such person is exempt
from registration under those laws. The Managers, however,
may waive the requirements of this Section 13.7.
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ARTICLE XIV.
DISSOLUTION AND TERMINATION
14.1 Dissolution . The Company shall be dissolved upon
the occurrence of any of the following:
(a) The consent in writing of all Members.
(b) The election of any Member by written notice
to the Company and the other Member if the other Member is
in default in the performance of any material obligation
hereunder, and such default has continued in whole or in
part for not less than 90 days after written notice thereof
given by the Company has been received by the defaulting
Member (or, if such default is not capable of being cured
during such 90-day period, the defaulting Partner has failed
to commence all reasonable curative efforts during such 90-
day period and diligently prosecuted such curative efforts
to a successful conclusion).
(c) The sale of all or substantially all of the
assets of the Company.
(d) The occurrence of any event that under the
Act causes the dissolution of a limited liability company.
(e) Unless the Members unanimously agree
otherwise, the failure of the Company to commence
construction of the Initial Plant by January 1, 1999; or if,
after commencement of construction of the Initial Plant,
MCNIC has the right to and does withhold Capital
Contributions necessary to complete construction of the
Initial Plant for a period of 24 months.
(f) In any event, January 1, 2090.
14.2 Liquidation . Upon dissolution of the Company,
the Management Committee shall appoint in writing one or
more liquidators (who may be Members) who shall have full
authority to wind up the affairs of the Company and make
final distribution as provided herein. The liquidator shall
continue to operate the Company properties with all of the
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power and authority of the Management Committee. The steps
to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution and
again after final liquidation, the liquidator shall cause a
proper accounting to be made by the Company's independent
accountants of the Company's assets, liabilities and
operations through the last day of the month in which the
dissolution occurs or the final liquidation is completed, as
appropriate.
(b) The liquidator shall pay all of the debts and
liabilities of the Company or otherwise make adequate
provision therefor (including, without limitation, the
establishment of a cash escrow fund for contingent
liabilities in such amount and for such term as the
liquidator may reasonably determine). The liquidator shall
then by payment of cash or property (at the election of each
Member and, in the case of property, valued as of the date
of termination of the Company at its fair market value by an
appraiser selected by all of the Members) distribute to the
Members such amounts as are required to distribute all
remaining amounts to the Members in accordance with
Article VIII. If a Member elects to take its distribution
in cash, and sufficient cash is not available to make the
full cash distribution to each Partner, the liquidator shall
sell at fair market value an undivided interest in the
Properties or other Company property as necessary to make
such distribution in cash. The other Member may purchase
the interest sold at its fair market value. To the extent
possible and permitted under the terms of the relevant
operating agreements, such a distribution shall be in kind.
Each Member shall have the right to designate another Person
to receive any property that otherwise would be distributed
in kind to that Member pursuant to this Section 14.2.
(c) Any real property distributed to the Members
shall be assigned by special warranty assignment and shall
be subject to the operating agreements and all encumbrances,
contracts and commitments then in effect with respect to
such property, which shall be assumed by the Members.
(d) If the Company is dissolved at any time prior
to the commencement of construction of the Initial Plant,
the Properties and the Crown Intellectual Property shall be
distributed to Crown and MCNIC shall have no right to use,
license, sell or otherwise deal with such Crown Intellectual
Property. If the Company is dissolved at any time after the
commencement of construction of the Initial Plant, the
liquidator of the Company shall not have the right to sell
the Properties and the Crown Intellectual Property as part
of the process of winding up of the Company, but the
Properties and the Crown Intellectual Property shall be
distributed in kind to Crown (valued as of the dissolution
of the Company at its fair market value), but only to the
extent of Crown's adjusted Capital Account balance after the
allocation of all profit and loss upon liquidation and
winding up of the affairs of the Company (and Crown's
Capital Account shall be reduced accordingly). In the event
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that all of the Properties are not distributed in kind to
Crown, any remaining Properties shall be distributed in kind
to MCNIC (and MCNIC's Capital Account shall be reduced
accordingly).
During the five year period following such
distribution in kind, either Member, and its successors and
assigns, may develop any such Properties distributed to it
only after having given the other Member the opportunity to
participate in such development in the same manner and on
the same terms as such Member would have been entitled to
participate in the event that such development or
exploitation of such Properties were an AMI Opportunity
within the meaning of Article VI. The rights of the Members
to participate in any such development of Properties
distributed to any Member under this Section 14.2(d) shall
survive the termination and dissolution of the Company. All
Intellectual Property of the Company shall be distributed in
kind to the Members jointly and each Member shall be free to
use, license, sell or otherwise deal with such Intellectual
Property, subject to the same rights in the other Member.
Any distribution in kind pursuant to this Section 14.2(d)
shall be treated as a distribution for purposes of Article
VIII.
(e) Except as expressly provided herein, the
liquidator shall comply with any applicable requirements of
the Act and all other applicable laws pertaining to the
winding up of the affairs of the Company and the final
distribution of its assets.
(f) The distribution of cash and/or property to
the Members in accordance with the provisions of this
Section 14.2 shall constitute a complete return to the
Members of their respective Capital Contributions and a
complete distribution to the Member's or their respective
interests in the Company and all Company property.
14.3 Waiver of Right to Court Decree of Dissolution .
The Members agree that irreparable damage would be done to
the Company if a Member brought an action in court to
dissolve the Company. Care has been taken in this Agreement
to provide what the parties believe are fair and just
payments to be made to a Member whose relationship with the
Company is terminated for any reason. Accordingly, each of
the Members accepts the provisions of this Agreement as its
sole entitlement on termination of its membership in the
Company. Each Member hereby waives and renounces its right
to seek a court decree of dissolution or to seek the
appointment by a court of a liquidator for the Company.
14.4 Articles of Dissolution . Upon the completion of
the distribution of the Company's assets as provided in this
Article XIV, the Company shall be terminated and the person
acting as liquidator shall file articles of dissolution and
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shall take such other actions as may be necessary to
terminate the Company.
ARTICLE XV.
INDEMNIFICATION
15.1 Indemnification . Crown shall indemnify MCNIC and
the Company, and MCNIC shall indemnify Crown and the Company
as follows:
(a) Crown shall defend, indemnify and save and
hold harmless MCNIC and the Company for, from and against
and shall promptly reimburse each of the indemnified parties
with respect to any and all claims, demands, causes of
action, losses, damages (including exemplary and punitive
damages), liabilities, costs (including property, ad
valorem, severance, net proceeds and other taxes) and
expenses (including attorney's, consultant's and expert's
fees and expenses and court costs) incurred by such
indemnified party with respect to the Properties which
accrue or relate to times prior to the time Crown
contributes the Properties to the Company pursuant to
Section 3.3(a)(iii).
(b) Crown shall defend, indemnify and save and
hold MCNIC and the Company harmless for, from and against
and shall promptly reimburse each of the indemnified parties
with respect to, any and all claims, demands, causes of
action, losses, damages (including exemplary and punitive
damages), liabilities, costs and expenses (including
reasonable attorney's, consultant's and expert's fees and
expenses and court costs) of any and every kind or
character, known or unknown, fixed or contingent, asserted
by any federal, state, local or other governmental entity or
other party against or incurred such indemnified party, by
reason of or arising out of (i) any violation or breach of
any Environmental Laws by Crown or Crown Parent, any of
their respective predecessors in title or their employees or
agents; (ii) any act, omission, event, condition or
circumstance existing or occurring on the Properties before
the time Crown contributes the Properties to the Company
pursuant to Section 3.3 (including, without limitation, the
use; transportation; handling; storage; treatment; removal;
actual, proposed or threatened release or emission;
generation; or presence of Hazardous Substances on or under
such Property or other property, wetlands or waterways) that
constitutes or results in a violation or breach of or
liability under any Environmental Laws; or (iii) any matter
that would constitute a breach of Crown's representations in
Section 4.6(j) applied without regard to whether such
matters are within Crown's or Crown Parent's knowledge.
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(c) Crown shall defend, indemnify and save and
hold harmless MCNIC and the Company for, from and against
and shall promptly reimburse each indemnified party with
respect to any and all claims, demands, causes of action,
losses, damages, liabilities, costs and expenses (including
reasonable attorney's, consultant's and expert's fees and
expenses and court costs) incurred by such party that result
from or are attributable to any representation or warranty
of Crown contained in this Agreement being untrue, or any
warranty, agreement or covenant of Crown or Crown Parent
contained in this Agreement being breached. Any
representation or warranty of Crown that is limited to
Crown's knowledge shall be deemed not so limited for
purposes of this Section 15.1(c) and Crown shall be deemed
in breach thereof for purposes of the indemnification and
other provisions of this Section 15.1(c) if the
representation or warranty is not true whether or not Crown
had knowledge of the facts or matters causing the
representation to be untrue.
(d) (i) The sole remedy and claim for any loss
of title to any portion of the Properties as a result of
Crown's indemnification obligation under this Section 15.1
shall be an obligation of Crown to contribute to the Company
an amount equal to the amount of all losses and damages
incurred by the Company as a result of such failure
(including reasonable attorney's, consultant's and expert's
fees and expenses and court costs), such amount not to
exceed $500,000 over the term of this Agreement, including
any contributions made by Crown to LLC-2 or LLC-3 pursuant
to the provisions required to be included in the operating
agreements for LLC-2 and LLC-3 by Section 15.1(d)(ii) below.
Such contribution, when made to the Company, shall be deemed
a contribution by Crown pursuant to Section 3.3(a)(iii) and
the Company and MCNIC shall have all of the rights set forth
in Section 3.6 with respect to enforcement of such
contribution obligation.
(ii) The operating agreement for LLC-2 and
LLC-3 shall contain provisions equivalent to Section
15.1(d)(i) providing for a similar obligation by Crown as to
title failure with respect to the Plant 2 Properties and
Plant 3 Properties. Such provisions shall limit Crown's
obligation to contribute to LLC-2 and LLC-3 to an amount no
greater than $500,000 in the aggregate over the term of such
operating agreements, including any contributions made by
Crown to the Company pursuant to Section 15.1(d)(i) above,
as a result of any loss of title to any of the Plant 2
Properties or the Plant 3 Properties, respectively, as a
result of Crown's indemnification obligation under such
operating agreements.
(e) MCNIC shall defend, indemnify and save and
hold harmless Crown, Crown Parent and the Company for, from
and against and shall promptly reimburse each indemnified
party with respect to any and all claims, demands, causes of
action, losses, damages, liabilities, costs and expenses
(including reasonable attorney's, consultant's and expert's
fees and expenses and court costs) incurred by such party
that result from or are attributable to any representation
or warranty of MCNIC contained in this Agreement being
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untrue or any warranty, agreement or covenant of MCNIC
contained in this Agreement being breached.
15.2 Implementation . The indemnification contained in
Section 15.1 shall be implemented as follows:
(a) Such indemnity shall extend to any actual
loss, cost, expense, liability, obligation or damage
("Loss") incurred or suffered by the indemnified party, its
officers, directors, shareholders, partners, members and
managers, including reasonable fees and expenses of
attorneys, technical experts and expert witnesses reasonably
incident to matters indemnified against.
(b) The amount of each payment claimed by an
indemnified party to be owing and the basis for such claim,
together with a list identifying to the extent reasonably
possible each separate item of Loss for which payment is so
claimed, shall be set forth by such party in a statement
delivered to the indemnifying party ("Claim Notice"). The
amount claimed shall be paid by such indemnifying party as
and to, and only to the extent required herein within 30
days after receipt of such statement or after the amount of
such payment has been finally established, whichever last
occurs. In the event the indemnifying party contests the
reasonableness of the payments sought, it shall be entitled
to submit such dispute to arbitration pursuant to Article
XIV.
(c) Promptly after notification to an indemnified
party with respect to any claim or legal action or other
matter that may result in a Loss for which indemnification
may be sought under this Article XV, but in any event in
time sufficient for the indemnifying party to contest any
action, claim proceeding or other matter that has become the
subject of proceedings before any court or tribunal, such
indemnified party shall give written notice of such claim,
legal action or other matter to the indemnifying party and,
at the request of such indemnifying party, shall furnish the
indemnifying party or its counsel with copies of all
pleadings and other information with respect to such claim,
legal action or other matter and shall, at the election of
the indemnifying party made within 60 days after receipt of
such notice, permit the indemnifying party to assume control
of such claim, legal action or other matter (to the extent
only that such claim, legal action or other matter relates
to a Loss for which the indemnifying party is liable),
including the determination of all appropriate actions, the
negotiation of settlements on behalf of the indemnified
party, and the conduct of litigation, through attorneys of
the indemnifying party's choice; provided, however, that no
such settlement can result in any liability or cost to the
indemnified party without its consent. In the event of such
an election by the indemnifying party to assume control, (A)
any expense incurred by the indemnified party thereafter for
investigation or defense of the matter shall be borne by the
indemnified party, and (B) the indemnified party shall give
all reasonable information and assistance, other than
pecuniary, that the indemnifying party shall deem necessary
to the proper defense of such claim, legal action, or other
matter. In the absence of such an election, the indemnified
#325596.v2
80
party will use its best efforts to defend, at the
indemnifying party's expense, any claim, legal action or
other matter to which such other party's indemnification
under this Article XV applies until the indemnifying party
assumes such defense, and, if the indemnifying party fails
to assume such defense within the time period provided
above, settle the same in the indemnified party's reasonable
discretion at the indemnifying party's expense.
ARTICLE XVI.
ARBITRATION
16.1 Submission to Arbitration . The parties hereby
submit all controversies, claims and matters of difference
arising under this Agreement to arbitration. Without
limiting the generality of the foregoing, the following
shall be considered controversies for this purpose: (a) all
questions relating to the interpretation or breach of this
Agreement, (b) all questions relating to any
representations, negotiations and other proceedings leading
to the execution hereof, and (c) all questions as to whether
the right to arbitrate any such question exists.
16.2 Initiation of Arbitration and Selection of
Arbitrators . The party desiring arbitration shall so
notify the other party, identifying in reasonable detail the
matters to be arbitrated and the relief sought. Arbitration
hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the
following categories: (1) an attorney with at least ten
years' experience in mining law; (2) an attorney with at
least ten years' experience in general commercial law,
including mining matters; and (3) a person with at least ten
years' experience in the oil and gas mining industry and at
least 10 years experience in tar sands or crude oil
processing. The AAA shall submit a list of persons meeting
the criteria outlined above for each category of arbitrator,
and the parties shall select one person from each category
in the manner established by the AAA. In the event that any
party or the arbitrators fail to select arbitrators as
required above, the AAA shall select such arbitrators. The
arbitrators shall be entitled to a fee commensurate with
their fees for professional services requiring similar time
and effort. If the arbitrators so desire they shall have
the authority to retain the services of a neutral judge or
attorney (whose fees shall be treated as an arbitrator's
fees) to assist them in administering the arbitration and
conducting any hearings and taking evidence at such hearings
or otherwise.
16.3 Arbitration Procedures . All matters arbitrated
hereunder shall be arbitrated in Denver, Colorado pursuant
to Utah law, and shall be conducted in accordance with the
Commercial Arbitration Rules of the AAA, except to the
#325596.v2
81
extent such Rules conflict with the express provisions of
this Article XVI (which shall prevail in the event of such
conflict); provided, however, that all substantive law
issues relating to the rights and obligations of the parties
under this Agreement shall be governed by Section 18.5
below. The arbitrators shall conduct a hearing no later
than 45 days after submission of the matter to arbitration,
and a decision shall be rendered by the arbitrators within
10 days of the hearing. At the hearing, the parties shall
present such evidence and witnesses as they may choose, with
or without counsel. Adherence to formal rules of evidence
shall not be required but the arbitration panel shall
consider any evidence and testimony that it determines to be
relevant, in accordance with procedures that it determines
to be appropriate. Any award entered in an arbitration
shall be made by a written opinion stating the reasons for
the award made.
16.4 Enforcement . This submission and agreement to
arbitrate shall be specifically enforceable. Arbitration may
proceed in the absence of any party if notice of the
proceedings has been given to such party. The parties agree
to abide by all awards rendered in such proceedings. Such
awards shall be final and binding on all parties to the
extent and in the manner provided by Utah law. All awards
may be filed with the clerk of one or more courts, state,
federal or foreign having jurisdiction over the party
against whom such award is rendered or its property, as a
basis of judgment and of the issuance of execution for its
collection. No party shall be considered in default
hereunder during the pendency of arbitration proceedings
specifically relating to such default.
16.5 Fees and Costs . The arbitrators' fees and other
costs of the arbitration and the reasonable attorney fees,
expert witness fees and costs of the prevailing party shall
be borne by the non-prevailing party. In its written
opinion, the arbitration panel shall, after comparing the
respective positions asserted in the arbitration claim and
answer thereto, declare as the prevailing party the party
whose position was closest to the arbitration award (not
necessarily the party in favor of which the award on the
arbitration claim is rendered) and declare the other party
to be the non-prevailing party. The arbitration award shall
include an award of the fees and costs provided by this
Section 16.5 against the non-prevailing party.
16.6 Capital Contributions . Except as otherwise set
forth in Section 5.3, the obligation of the Members to make
capital contributions to the Company under Article III shall
not be required to be submitted to arbitration, but the
Company or any Non-Defaulting Member may elect to submit the
matter to arbitration pursuant to this Article XVI or may
elect to pursue throughout litigation any other remedy
provided in Article III or available at law or in equity to
enforce such obligations.
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ARTICLE XVII.
NOTICES
17.1 Method of Notices . All notices required or
permitted by this Agreement shall be in writing and shall be
hand delivered or sent by registered or certified mail
addressed as set forth below (except that any Member may
from time to time give notice changing his address for that
purpose), or by facsimile if confirmed by return facsimile,
and shall be effective when personally delivered, or, if
mailed, on the date set forth on the receipt of registered
or certified mail, or if sent by facsimile, upon receipt of
confirmation:
#325596.v2
83
If to MCNIC:
MCNIC Pipeline & Processing Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
MCN Energy Group
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Crown:
Crown Asphalt Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Crown Parent:
Crown Energy Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
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84
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
17.2 Computation of Time . In computing any period of
time under this Agreement, the day of the act, event or
default from which the designated period of time begins to
run shall not be included. The last day of the period so
computed shall be included, unless it is a Saturday, Sunday
or legal holiday, in which event the period shall run until
the end of the next day which is not a Saturday, Sunday or
legal holiday.
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85
ARTICLE XVIII.
GENERAL PROVISIONS
18.1 Confidentiality . Each Member and Manager will
keep confidential and not use, reveal, provide or transfer
to any third party any Confidential Information it obtains
or has obtained concerning the Company, except (a) to the
extent that disclosure to a third party is required by
applicable law or regulation; (b) information which, at the
time of disclosure, is generally available to the public
(other than as a result of a breach of this Agreement or any
other confidentiality agreement to which such person is a
party or of which it has knowledge), as evidenced by
generally available documents or publications; (c)
information that was in its possession prior to disclosure
(as evidenced by appropriate written materials) and was not
acquired directly or indirectly from the Company; (d) to the
extent disclosure is necessary or advisable, to its
employees, consultants or advisors for the purpose of
carrying out their duties hereunder; (e) to banks or other
financial institutions or agencies or any independent
accountants or legal counsel or investment advisors employed
by the Company or the Members, to the extent disclosure is
necessary or advisable to obtain financing; (f) to the
extent necessary, disclosure to third parties to enforce
this Agreement, or (g) to a Member, Manager, or their
Affiliates; provided, however, that in each case of
disclosure pursuant to (a), (d), (e) or (g), the persons to
whom disclosure is made agree to be bound by this
confidentiality provision. The obligation of each Member and
Manager not to disclose Confidential Information except as
provided herein shall not be affected by the termination of
this Agreement or the replacement of either of the Members.
As used in this paragraph, the term "Confidential
Information" shall mean information concerning the
properties, operations, business, trade secrets, technical
know-how and other non-public information and data of or
relating to the Company, the Properties and any technical
information with respect to any project of the Company;
provided that nothing contained in this Section 18.1 shall
restrict or impair any Member's right to use or otherwise
benefit from the Intellectual Property, including without
limitation the Crown Intellectual Property, in the manner
contemplated in this Agreement, whether before or after the
termination of this Agreement.
18.2 Public Announcements . Except as required by Law
or regulation, neither Member shall make any press release
or other public announcement or public disclosure relating
to this Agreement, the subject matter of this Agreement or
the activities of the Company without the written consent of
the other Members, which consent shall not be unreasonably
withheld.
18.3 Entire Agreement . This Agreement embodies the
entire understanding and agreement among the parties
concerning the Company and supersedes any and all prior
negotiations, understandings or agreements in regard
thereto.
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86
18.4 Amendment . This Agreement may not be amended
except by an instrument in writing signed by all the
Members, nor may any rights hereunder be waived except by an
instrument in writing signed by the party sought to be
charged with such waiver.
18.5 Applicable Law . This Agreement shall be
construed in accordance with and governed by the laws of the
State of Utah, excluding its conflict of laws rules.
18.6 Pronouns . References to a Member, including by
use of a pronoun, shall be deemed to include masculine,
feminine, singular, plural, individuals, partnerships or
corporations where applicable.
18.7 U.S. Dollars . References herein to "Dollars" or
"$" shall refer to U.S. dollars and all payments and all
calculations of amount hereunder shall be made in Dollars.
18.8 Counterparts . This instrument may be executed in
any number of counterparts each of which shall be considered
an original.
18.9 Additional Documents . The Members hereto
covenant and agree to execute such additional documents and
to perform additional acts as are or may become necessary or
convenient to carry out the purposes of this Agreement.
18.10 Written Consents . All consents or approvals
required or permitted under this Agreement shall be in
writing.
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87
IN WITNESS WHEREOF the parties have executed this
Agreement on the dates stated below their signatures.
MCNIC PIPELINE & PROCESSING COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
Date: September 3, 1997
CROWN ASPHALT CORPORATION
By: /s/▇▇▇ ▇▇▇▇▇▇
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President
Date: September 3, 1997
#325596.v2
Schedule 2.1
Crown Intellectual Property
That certain License Agreement dated January 20, 1989
between Park ▇▇▇▇▇▇ Enterprises and Crown Asphalt
Corporation (formerly BuenaVentura Resources Corporation)
for the Territory covering the state of Utah relating to the
solvent/surfactant wash process for extraction of bitumen
from tar sands.
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90
Schedule 2.2
Detailed Engineering
I. Engineering
A. Complete PFD
B. Complete equipment data sheets for equipment and bid
long lead equipment
C. Complete soils testing and foundation design
D. Select plant site and establish elevations for
equipment layout
E. Complete technical/location issues for utilities
F. Complete and "freeze" P&ID for process facility
G. Obtain firm quote for EPC Contract
II. Reserve Verification
A. Complete a core hole twin to prior SOHIO core hole
and test oil saturation to verify prior reserve
data. (If correlation does not verify prior data,
drill additional core holes).
B. Award contract for mine plan development
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Schedule 2.3
Existing Data
1. Reserve Report prepared by SOHIO for Asphalt Ridge
2. Report of the Initial Production Facility prepared by
SWACO Geologaph
3. Mine Pre-feasibility Study prepared by ▇▇▇▇
International Mining Consultants
4. Opinion of Probable Costs prepared by ▇▇▇▇ Engineering
5. Copies of Permits
Utah Division of Oil, Gas and Mining
Utah Division of Air Quality
Utah Division of Water Quality (Permit-by-Rule letter)
Uintah County, Utah Conditional Use Permit
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Schedule 3.3(a)(i)
Leased Equipment
The equipment necessary for Mining operations at the Project
which generally includes the following (the actual equipment
is subject to change upon completion of a detailed mine
plan):
Item Manufacturer Model X
Sand Loader O & K 40D
Haul Trucks (3) Caterpillar 769C (40 ton)
Tractor Truck Dump Caterpillar D8N
Loader Sand Dump Caterpillar 938F
Crusher ▇▇▇▇▇▇▇▇▇ Industries FB50-72-2
Conveyor - Tailings Continental Conveyor 30"X1,400'
@ 150 tph
Truck Mech Hvd Duty Ford/Chevrolet F60C
Pick Ups Ford/Chevrolet 3/4 T 4X4
Welder Mobile 400 Amp
Light Towers20-30 KW
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Schedule 4.2
Litigation
NONE
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93
Schedule 4.3
Compliance Matters
NONE
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Schedule 4.6
Project Area
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Schedule 4.6(a)(i)
Fee & Titled Interests
Crown and BVRC owns no fee titled interests, patented mining
claims, patented millsites or severed or reserved mineral
interest relating to the Properties.
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Schedule 4.6(a)(ii)
Leases
Lease
Number Lessor Description
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇, ▇. L.
B. & M.
ML-44027 Section 30: NE/4SE/4
Section 31: ▇▇▇▇ ▇, ▇, ▇/▇▇▇/▇, ▇▇/▇▇▇/▇
▇▇▇-▇▇▇ USITLA Township 5 South, Range 20 East, S. L.
B. & M.
ML-44028 Section 1: ▇▇▇▇ ▇, ▇, ▇/▇▇▇/▇
▇▇▇-▇▇▇ USITLA Township 5 South, Range 21 East, S. L.
B. & M.
ML-44155 Section 5: ▇▇▇▇ ▇, ▇, ▇▇, ▇▇
▇▇▇▇▇▇▇ 6: ▇▇▇▇ ▇, ▇, ▇, ▇, ▇/▇▇/▇, ▇▇/▇
Section 8: ▇▇▇▇ ▇, ▇, ▇, ▇, ▇/▇▇▇/▇,
▇/▇▇▇/▇, ▇▇/▇
Section 18: ▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 21 East, S. L.
B. & M.
ML-44156 Section 19: ▇▇▇▇ ▇, ▇, ▇, ▇, ▇/▇▇▇/▇,
▇/▇▇▇/▇, ▇/▇▇▇/▇▇▇/▇
BVR-005 USITLA Township 4 South, Range 20 East, S. L.
B. & M.
ML-44428 Section 24: ▇▇▇▇ ▇, ▇, ▇/▇▇▇/▇
#325596.v2
▇▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 20 East, S. L.M.
ML-44590 Section 24: S/2SW/4
Section 25: ▇▇▇▇ ▇, ▇, ▇/▇, ▇/▇▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇, ▇. L.M.
ML-44591 Section 30: N/2NE/4, ▇▇/▇▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 21 East, S. L.
B. & M.
ML-44597 Section 31: ▇▇▇▇ ▇, ▇, ▇, ▇, ▇/▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ Township 4 South, Range 21 East, S. L.M.
FEE Section 30: W/2SE/4, SE/4SE/4
Section 31: W/2NE/4, SE/4NE/4, SE/4,
NE/4NE/4
Section 32: ▇▇/▇
▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇, ▇. L.M.
Section 23: S/2NE/4, N/2SE/4
Section 24: S/2NW/4, N/2SW/4
Reserving and excepting from Lease BVR-010 an amount
equal to $134,450.12 which represents the advanced
#325596.v2
98
minimum royalty paid by Crown through the Effective
Date pursuant to the lease terms. Royalties will be
paid directly to Crown until the full amount is
recouped after which royalties will be paid to the
Lessors in accordance with the lease terms.
Lease
Number Lessor Description
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇, ▇. L.M.
ML-46289 Section 31: LOTS 3,4, NE/4SW/4
Section 32: ▇/▇▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 21 East, S. L.
B. & M.
ML-46672 Section 19: ▇▇▇▇ ▇, ▇, ▇, ▇, ▇/▇▇▇/▇,
▇/▇▇▇/▇, ▇/▇▇▇/▇▇▇/▇
Section 32: W/2NW/4, ▇▇/▇▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 21 East, S. L.
B. & M.
ML-46673 Section 10: SW/4SW/4
Section 23: LOTS 9 & 10, W/2SE/4
Section 25: ▇▇▇ ▇▇
▇▇▇▇▇▇▇ ▇▇: ▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 22 East, S. L.
B. & M.
ML-46803 Section 30: ▇▇▇ ▇, ▇▇/▇▇▇/▇
▇▇▇▇▇▇▇ ▇▇: ▇▇▇▇ ▇, ▇, ▇, ▇/▇▇▇/▇, ▇▇/▇
▇▇▇-▇▇▇ USITLA Township 6 South, Range 22 East, S. L.
B. & M.
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99
ML-46905 Section 5: LOT 1, S/2
Section 6: ▇▇▇▇ ▇, ▇, ▇, ▇, ▇/▇▇▇/▇,
▇▇/▇, ▇/▇▇▇/▇
▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇, ▇. L.M.
ML-47446--OBA Section 35: ALL
Section 36: ALL
▇▇▇-▇▇▇ ▇.▇.▇. ▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇ 20 East S.L.M
(Option to Lease) Section 25: NE/4
Township 4 South, Range ▇▇ ▇▇▇▇ ▇.▇.▇
▇▇▇▇▇▇▇ 30: NW/4
Township 5 South, Range ▇▇ ▇▇▇▇ ▇.▇.▇
▇▇▇▇▇▇▇ 4: SW/4NW/4, NW/4SW/4, E/2SW/4
Section 15: ▇/▇▇▇/▇, ▇▇/▇▇▇/▇, ▇▇/▇▇▇/▇
Section 25: W/2, SE/4
1. Township 5 South Range 22 East S.L.M
Section 31: SE/4, NW/4SW/4, E/2SW/4
Section 32: SW/4
A lease document for this option with
final terms has not been executed. The option expires
September 15, 1997.
#325596.v2
100
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101
Schedule 4.6(a)(iii)
Unpatented Mining Claims
Enterprise #1 Unpatented Placer Mining Claim UMC 266760
Township 4 South Range 20 East
Section 31: SE/4
This unpatented claim was leased to the Company from
Wembco, Inc. by the Oil, Gas and Minerals Lease (#010)
described in Schedule 4.6(a)(ii).
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102
Schedule 4.6(a)(iv)
Water Rights
Two second feet of water which was segregated from the Utah
Division of Water Rights Water Application No. 29105 (49-
219) and assigned to Wembco, Inc. from Standard Oil
Alternate Development Company on August 8, 1986. This water
right was leased to the Company from Wembco, Inc. by the
Oil, Gas and Minerals Lease (#010) described in Schedule
4.6(a)(ii).
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103
Schedule 4.6(h)(i)
Permits
Agency Permit
Division of Air Quality Notice of Intent (NOI)*
Division of Oil, Gas and Mining NOI - Large
Mining Operations*
Division of Water Quality Ground Water
Discharge Permit*
Utah Pollutant Discharge
Elimination System Permit
(UPDES)**
Division of Water Rights Water Appropriation
Division of State History Jurisdiction of State
Historic Preservation
Officer
Uintah County Conditional Use Permit*
Building Permits
Sanitary Waste Permit (if
necessary)
U. S. Environmental
Protection Agency Spill Prevention Control
and Countermeasures Plan**
U. S. Department of the Treasury Explosives Permit
(if necessary)
Department of Labor
MSHA Legal Identity Report
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104
* Approval received
** Approval upon filing
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105
Schedule 4.6(h)(ii)
Compliance Expenditure Obligations
There are no outstanding material commitments to federal,
state or local governmental authorities that require Crown
to expend funds.
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Schedule 4.6(l)
Material Contracts
I. A Joint Venture Agreement dated December 31, 1995
between Crown, formerly BuenaVentura Resources
Corporation (BVRC), and Eagle Bay Resources, Inc. for
the manufacture and sale of pre-packaged road repair
and surfacing products. MCNIC has received a full copy
of the agreement and all amendments.
II. A Tar Sands Supply and Mining Agreement dated May 15,
1996 between Crown, formerly BVRC, and Uintah County
which provides for the expansion of Uintah County's
mine and removal of overburden in return for the
dedication of tar sands ore to Uintah County. MCNIC
has received a full copy of the agreement and all
amendments.
III. A Participation Agreement dated March 28, 1994 between
Crown, formerly BVRC, and Asphalt Ridge Limited
Partnership Net Profits Agreement with Asphalt Ridge
Limited Partnership (ARLP) wherein ARLP is entitled to
a 2.5% net profits interest, proportionately reduced
upon certain conditions. MCNIC has received a full
copy of the agreement and all amendments.
IV. A License Agreement dated January 20, 1989 between Park
▇▇▇▇▇▇ Enterprises, Inc. and Crown, formerly BVRC,
amended effective July 1, 1993 and July 1, 1996,
licensing the use of certain process technology to
remove bitumen from tar sands. The agreement provides
for a 2% Production Royalty on Net Returns to the
Licensor. MCNIC has received a full copy of the
agreement and all amendments.
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Schedule 4.6(m)
Crown Parent Financial Statements
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