ROCKY MOUNTAIN MINERAL LAW FOUNDATION
(Model Form 5A LLC / 1998)
Exploration, Development and Mining
Limited Liability Company
Part I Members' Agreement
between
Nevada Gold Exploration Solutions, LLC and Battle
Mountain Gold Exploration Inc
Part II Operating Agreement
of
Pediment Gold LLC
TABLE OF CONTENTS
PART I MEMBERS' AGREEMENT--------------------------------------------13
ARTICLE I DEFINITIONS AND CROSS-REFERENCES 13
1.1 Definitions----------------------------------------------------------13
1.2 Cross References----------------------------------------------------13
ARTICLE II CERTAIN MATTERS CONCERNING CONTRIBUTIONS BY MEMBERS 14
2.1 Certain Obligations of NGXS During Period of Its Initial
Contributions--------------------------------------------------------14
2.2 Additional Contributions--------------------------------------------14
2.3 Emergency or Unexpected Expenditures------------------------------14
ARTICLE III REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES 15
3.1 Representations and Warranties of the Members-------------------15
3.2 Representations and Warranties of NGXS---------------------------15
3.3 Disclosures----------------------------------------------------------17
3.4 Loss of Title------------------------------------------------------17
3.5 Limitation of Liability--------------------------------------------18
3.6 Indemnification------------------------------------------------------18
ARTICLE IV INTERESTS OF MEMBERS 19
4.1 Continuing Liabilities Upon Adjustments of Ownership Interests 19
4.2 Continuing Obligations and Environmental Liabilities-------------19
4.3 Grant of Lien and Security Interest-----------------------------20
4.4 Subordination of Interests-----------------------------------------20
ARTICLE V RELATIONSHIP OF THE MEMBERS 20
5.1 Transfer or Termination of Rights--------------------------------20
5.2 Abandonment and Surrender of Properties--------------------------20
5.3 Supplemental Business Arrangement----------------------------------21
5.4 Implied Covenants---------------------------------------------------21
5.5 No Third Party Beneficiary Rights--------------------------------21
ARTICLE VI ACQUISITIONS WITHIN AREA OF INTEREST 21
6.1 General--------------------------------------------------------------21
6.2 Notice to Non-Acquiring Member------------------------------------21
6.3 Option Exercised----------------------------------------------------22
6.4 Option Not Exercised-----------------------------------------------22
6.5 Non-Compete Covenants-----------------------------------------------22
ARTICLE VII DISPUTES 22
7.1 Governing Law-------------------------------------------------------22
7.2 Forum Selection-----------------------------------------------------22
7.3 Arbitration----------------------------------------------------------23
7.4 Dispute Resolution--------------------------------------------------23
ARTICLE VIII GENERAL PROVISIONS 23
8.1 Notices--------------------------------------------------------------23
8.2 Gender---------------------------------------------------------------24
8.3 Currency-------------------------------------------------------------24
8.4 Headings-------------------------------------------------------------24
8.5 Waiver---------------------------------------------------------------24
8.6 Modification---------------------------------------------------------24
8.7 Force Majeure-------------------------------------------------------24
8.8 Rule Against Perpetuities------------------------------------------25
8.9 Further Assurances--------------------------------------------------25
8.10 Entire Agreement; Successors and Assigns------------------------25
8.11 Counterparts--------------------------------------------------------25
PART II OPERATING AGREEMENT 28
ARTICLE I DEFINITIONS AND CROSS-REFERENCES 28
1.1 Definitions----------------------------------------------------------28
1.2 Cross References----------------------------------------------------28
ARTICLE II NAME, PURPOSES AND TERM 28
2.1 Formation------------------------------------------------------------28
2.2 Name-----------------------------------------------------------------29
2.3 Purposes-------------------------------------------------------------29
2.4 Limitation-----------------------------------------------------------29
2.5 Term-----------------------------------------------------------------29
2.6 Resident Agent; Offices--------------------------------------------29
ARTICLE III CONTRIBUTIONS BY MEMBERS 30
3.1 Members' Initial Contributions-------------------------------------30
3.2 Failure to Make Initial Contribution-----------------------------31
3.3 Record Title--------------------------------------------------------31
ARTICLE IV INTERESTS OF MEMBERS 31
4.1 Initial Ownership Interests----------------------------------------31
4.2 Changes in Ownership Interests------------------------------------31
4.3 Admission of New Members------------------------------------------32
4.4 Elimination of Minority Interest----------------------------------32
4.5 Documentation of Adjustments to Ownership Interests-------------33
ARTICLE V RELATIONSHIP OF THE MEMBERS 33
5.1 Limitation on Authority of Members-------------------------------33
5.2 Federal Tax Elections and Allocations----------------------------33
5.3 State Income Tax---------------------------------------------------34
5.4 Tax Returns---------------------------------------------------------34
5.5 Other Business Opportunities---------------------------------------34
5.6 Waiver of Rights to Partition or Other Division of Assets------34
5.7 Bankruptcy of a Member--------------------------------------------34
5.8 Implied Covenants---------------------------------------------------34
5.9 No Certificate------------------------------------------------------34
5.10 Disposition of Production------------------------------------------34
5.11 Limitation of Liability--------------------------------------------34
5.12 Indemnities----------------------------------------------------------35
5.13 No Third Party Beneficiary Rights--------------------------------35
ARTICLE VI REPRESENTATIONS AND WARRANTIES 35
ARTICLE VII TRANSFER OF INTEREST; PREEMPTIVE RIGHT 35
7.1 General--------------------------------------------------------------35
7.2 Limitations on Free Transferability-------------------------------35
7.3 Preemptive Right----------------------------------------------------37
ARTICLE VIII MANAGEMENT COMMITTEE 38
8.1 Organization and Composition---------------------------------------38
8.2 Decisions------------------------------------------------------------38
8.3 Meetings-------------------------------------------------------------38
8.4 Action Without Meeting in Person---------------------------------39
8.5 Matters Requiring Approval-----------------------------------------39
ARTICLE IX MANAGER 39
9.1 Appointment----------------------------------------------------------39
9.2 Powers and Duties of Manager-------------------------------------39
9.3 Standard of Care---------------------------------------------------44
9.4 Resignation; Deemed Offer to Resign------------------------------44
9.5 Payments To Manager------------------------------------------------45
9.6 Transactions With Affiliates---------------------------------------46
9.7 Activities During Deadlock-----------------------------------------46
ARTICLE X PROGRAMS AND BUDGETS 46
10.1 Initial Program and Budget---------------------------------------46
10.2 Operations Pursuant to Programs and Budgets--------------------46
10.3 Presentation of Programs and Budgets----------------------------46
10.4 Review and Adoption of Proposed Programs and Budgets---------47
10.4 Review and Adoption of Proposed Programs and Budgets---------47
10.6 Recalculation or Restoration of Reduced Interest Based on Actual
Expenditures-------------------------------------------------------48
10.7 Pre-Feasibility Study Program and Budgets-----------------------49
10.8 Completion of Pre-Feasibility Studies and Selection of Approved
Alternatives--------------------------------------------------------50
10.9 Programs and Budgets for Feasibility Study---------------------52
10.10 Development Programs and Budgets; Project Financing------------52
10.11 Expansion or Modification Programs and Budgets-----------------53
10.12 Budget Overruns; Program Changes---------------------------------53
10.13 Supplemental Business Arrangement---------------------------------53
ARTICLE XI ACCOUNTS AND SETTLEMENTS 53
11.1 Monthly Statements-------------------------------------------------53
11.2 Cash Calls---------------------------------------------------------53
11.3 Failure to Meet Cash Calls--------------------------------------54
11.4 Cover Payment------------------------------------------------------54
11.5 Remedies------------------------------------------------------------54
11.6 Audits--------------------------------------------------------------57
ARTICLE XII PROPERTIES 58
12.1 Royalties, Production Taxes and Other Payments Based on
Production----------------------------------------------------------58
12.2 Abandonment and Surrender-----------------------------------------58
ARTICLE XIII CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE OF
INFORMATION 58
13.1 Business Information-----------------------------------------------58
13.2 Member Information-------------------------------------------------58
13.3 Permitted Disclosure of Confidential Business Information------59
13.4 Disclosure Required By Law---------------------------------------59
13.5 Public Announcements-----------------------------------------------60
ARTICLE XIV RESIGNATION AND DISSOLUTION 60
14.1 Events of Dissolution---------------------------------------------60
14.2 Resignation---------------------------------------------------------60
14.3 Disposition of Assets on Dissolution----------------------------61
14.4 Filing of Certificate of Cancellation---------------------------61
14.5 Right to Data After Dissolution---------------------------------61
14.6 Continuing Authority-----------------------------------------------61
ARTICLE XV DISPUTES 61
15.1 Governing Law------------------------------------------------------61
15.2 Forum Selection----------------------------------------------------62
15.3 Arbitration---------------------------------------------------------62
15.4 Dispute Resolution-------------------------------------------------62
ARTICLE XVI GENERAL PROVISIONS 62
16.1 Notices-------------------------------------------------------------62
16.2 Gender--------------------------------------------------------------63
16.3 Currency------------------------------------------------------------63
16.4 Headings------------------------------------------------------------63
16.5 Waiver--------------------------------------------------------------63
16.6 Modification--------------------------------------------------------63
16.7 Force Majeure------------------------------------------------------63
16.8 Rule Against Perpetuities-----------------------------------------64
16.9 Further Assurances-------------------------------------------------64
16.10 Entire Agreement; Successors and Assigns------------------------64
16.11 Counterparts--------------------------------------------------------64
EXHIBIT A ASSETS AND AREA OF INTEREST 66
1.1 Properties and Title Exceptions-----------------------------------66
1.2 Area of Interest---------------------------------------------------66
EXHIBIT B ACCOUNTING PROCEDURES 67
ARTICLE I GENERAL PROVISIONS 67
1.1 General Accounting Records-----------------------------------------67
1.2 Cash Management Accounts-------------------------------------------67
1.3 Statements and ▇▇▇▇▇▇▇▇--------------------------------------------68
ARTICLE II CHARGES TO BUSINESS ACCOUNT 68
2.1 Property Acquisition Costs, Rentals, Royalties and Other
Payments-------------------------------------------------------------68
2.2 Labor and Employee Benefits---------------------------------------68
2.3 Materials, Equipment and Supplies---------------------------------69
2.4 Equipment and Facilities Furnished by Manager-------------------69
2.5 Transportation-------------------------------------------------------69
2.6 Contract Services and Utilities-----------------------------------69
2.7 Insurance Premiums--------------------------------------------------69
2.8 Damages and Losses-------------------------------------------------69
2.9 Legal and Regulatory Expense--------------------------------------70
2.10 Audit----------------------------------------------------------------70
2.11 Taxes----------------------------------------------------------------70
2.12 Field Supervision and Camp Expenses------------------------------70
2.13 Administrative Charge-----------------------------------------------70
2.14 Environmental Compliance Fund--------------------------------------72
2.15 Other Expenditures--------------------------------------------------72
ARTICLE III BASIS OF CHARGES TO BUSINESS ACCOUNT 72
3.1 Purchases------------------------------------------------------------72
3.2 Material Furnished by a Member for Use in the Business------72
3.3 Premium Prices------------------------------------------------------73
3.4 Warranty of Material Furnished by the Manager or Members------73
ARTICLE IV DISPOSAL OF MATERIAL 73
4.1 Disposition Generally-----------------------------------------------73
4.2 Distribution to Members--------------------------------------------74
4.3 Sales----------------------------------------------------------------74
ARTICLE V INVENTORIES 74
5.1 Periodic Inventories, Notice and Representations-----------------74
5.2 Reconciliation and Adjustment of Inventories---------------------74
EXHIBIT C TAX MATTERS 75
ARTICLE I EFFECT OF THIS EXHIBIT 75
ARTICLE II TAX MATTERS PARTNER 75
2.1 Designation of Tax Matters Partner-------------------------------75
2.2 Notice---------------------------------------------------------------75
2.3 Inconsistent Treatment of Tax Item-------------------------------76
2.4 Extensions of Limitation Periods----------------------------------76
2.5 Requests for Administrative Adjustments---------------------------76
2.6 Judicial Proceedings------------------------------------------------76
2.7 Settlements----------------------------------------------------------76
2.8 Fees and Expenses--------------------------------------------------76
2.9 Survival-------------------------------------------------------------77
ARTICLE III TAX ELECTIONS AND ALLOCATIONS 77
3.1 Company Election----------------------------------------------------77
3.2 Tax Elections-------------------------------------------------------77
3.3 Allocations to Members---------------------------------------------78
3.4 Regulatory Allocations----------------------------------------------80
3.5 Curative Allocations------------------------------------------------81
3.6 Tax Allocations-----------------------------------------------------81
ARTICLE IV CAPITAL ACCOUNTS; LIQUIDATION 82
4.1 Capital Accounts----------------------------------------------------82
4.2 Liquidation----------------------------------------------------------84
4.3 Deemed Terminations-------------------------------------------------85
ARTICLE V SALE OR ASSIGNMENT 85
EXHIBIT D DEFINITIONS 86
EXHIBIT E NET SMELTER ROYALTY CALCULATION 92
ARTICLE I MEANING OF TERMS 92
1.1 Commercial Production-----------------------------------------------92
1.2 Grantee--------------------------------------------------------------92
1.3 Grantor--------------------------------------------------------------92
1.4 Net Smelter Return-------------------------------------------------93
1.5 Ore------------------------------------------------------------------93
1.6 Production-----------------------------------------------------------93
ARTICLE II TERM 93
ARTICLE III PRODUCTION ROYALTY 94
3.1 Calculation of NSR-------------------------------------------------94
3.2 Insurance Proceeds--------------------------------------------------94
3.3 Time and Manner; In-Kind or Cash Payment-----------------------94
3.4 Payment Accounting; Interim Settlements; Late Charges-----------95
3.5 Hedging Transactions; Futures, Options and Other Trading-------95
3.6 Commingling----------------------------------------------------------95
ARTICLE IV BOOKS; RECORDS; INSPECTIONS; CONFIDENTIALITY 96
4.1 Books----------------------------------------------------------------96
4.2 Reports--------------------------------------------------------------96
4.3 Inspections----------------------------------------------------------96
4.4 Investor Tours------------------------------------------------------96
4.5 Confidentiality------------------------------------------------------97
ARTICLE V COMPLIANCE WITH LAWS, RECLAMATION, ENVIRONMENTAL
IOBLIGATIONS AND INDEMNITIES----------------------------------97
5.1 Compliance with Laws-----------------------------------------------97
5.2 Reclamation, Environmental Obligations and Indemnities-----------97
ARTICLE VI STOCKPILING 98
ARTICLE VII TAILINGS AND RESIDUE 98
ARTICLE VIII TITLE MAINTENANCE, MAINTENANCE AND TAXES, ABANDONMENT,;
CONVERSION AND EXCHANGE RIGHTS 98
8.1 Title Maintenance and Taxes---------------------------------------98
8.2 Assessment Work-----------------------------------------------------98
8.3 Abandonment----------------------------------------------------------99
8.4 Conversion and Exchange Rights------------------------------------99
ARTICLE IX INSURANCE 99
9.1 ▇▇▇▇▇▇▇'▇ Compensation Insurance-----------------------------------99
9.2 General Liability---------------------------------------------------99
ARTICLE X GENERAL PROVISIONS 100
10.1 Arbitration--------------------------------------------------------100
10.2 Conflict-----------------------------------------------------------100
10.3 Additional Documents----------------------------------------------100
10.4 Covenant Running With Land; Binding Effect--------------------100
10.5 No Partnership----------------------------------------------------100
10.6 Governing Law-----------------------------------------------------100
10.7 Attorney Fees-----------------------------------------------------100
10.8 Notices------------------------------------------------------------100
10.9 Time of Essence--------------------------------------------------100
10.10 Entire Agreement--------------------------------------------------100
EXHIBIT F INSURANCE 101
EXHIBIT G INITIAL PROGRAM AND BUDGET 102
EXHIBIT H PREEMPTIVE RIGHTS 103
1.1 Preemptive Rights--------------------------------------------------103
1.2 Exceptions to Preemptive Right-----------------------------------103
EXHIBIT I SCHEDULE OF BMGE INITIAL CONTRIBUTIONS, OWNERSHIP INTEREST
CALCULATIONS AND FAILURE TO MAKE CONTRIBUTIONS
DILUTION SCHEDULE 105
1.1 Field Examination Stage----------------------------------------------105
1.2 Land Acquisition Stage-----------------------------------------------105
1.3 Dilution---------------------------------------------------------------105
1.4 Water Plume Definition Stage----------------------------------------106
1.5 Water Plume Drilling Stage------------------------------------------106
1.6 Discovery Drilling Stage---------------------------------------------106
1.7 Escrowed Funds Procedure---------------------------------------------106
1.8 Failure to Make Contributions---------------------------------------107
1.9 Ownership Interest at Completion of Program-----------------------107
1.10 Properties Identified, but Not Acquired by NGXS Program and Budget 107
1.11 Formation of PGL-----------------------------------------------------108
1.12 Right to Earn Additional Interest----------------------------------108
1.13 Non-Refundable Pre-Payment of Initial Contribution-----------------108
EXHIBIT J SCHEDULE OF BMGE STOCK GRANTED TO NGXS 109
1.1 Delivery Date of BMGE Stock----------------------------------------109
1.2 Restrictions on BMGE Stock------------------------------------------109
1.3 Representations and Warranties---------------------------------------109
EXHIBIT K NET PROFITS CALCULATION 110
ARTICLE I MEANING OF TERMS 110
1.1 Commercial Production----------------------------------------------110
1.2 Grantee-------------------------------------------------------------110
1.3 Grantor-------------------------------------------------------------110
1.4 Net Profit---------------------------------------------------------111
1.5 Ore-----------------------------------------------------------------112
1.6 Production----------------------------------------------------------112
ARTICLE II TERM 112
ARTICLE III PRODUCTION ROYALTY 113
3.1 Calculation of NPI------------------------------------------------113
3.2 Insurance Proceeds-------------------------------------------------113
3.3 Time and Manner of Payment of NPI-----------------------------113
3.4 Payment Accounting; Interim Settlements; Late Charges----------113
3.5 Hedging Transactions; Futures, Options and Other Trading------114
3.6 Commingling---------------------------------------------------------114
ARTICLE IV BOOKS; RECORDS; INSPECTIONS; CONFIDENTIALITY 114
4.1 Books---------------------------------------------------------------114
4.2 Reports-------------------------------------------------------------115
4.3 Inspections---------------------------------------------------------115
4.4 Investor Tours-----------------------------------------------------115
4.5 Confidentiality-----------------------------------------------------115
ARTICLE V COMPLIANCE WITH LAWS; RECLAMATION, ENVIRONMENTAL
OBLIGATIONS, AND INDEMNITIES 116
5.1 Compliance with Laws----------------------------------------------116
5.2 Reclamation, Environmental Obligations, and Indemnities---------116
ARTICLE VI STOCKPILING 116
ARTICLE VII TAILINGS AND RESIDUES 117
ARTICLE VIII TITLE MAINTENANCE AND TAXES; ASSESSMENT WORK; ABANDONMENT;
CONVERSION AND EXCHANGE RIGHTS 117
8.1 Title Maintenance and Taxes--------------------------------------117
8.2 Assessment Work----------------------------------------------------117
8.3 Abandonment---------------------------------------------------------117
8.4 Conversion and Exchange Rights-----------------------------------117
ARTICLE IX INSURANCE 118
9.1 ▇▇▇▇▇▇▇'▇ Compensation Insurance----------------------------------118
9.2 General Liability--------------------------------------------------118
ARTICLE X GENERAL PROVISIONS 118
10.1 Arbitration--------------------------------------------------------118
10.2 Conflict-----------------------------------------------------------118
10.3 Additional Documents----------------------------------------------119
10.4 Covenant Running With Land; Binding Effect--------------------119
10.5 No Partnership----------------------------------------------------119
10.6 Governing Law-----------------------------------------------------119
10.7 Attorney Fees-----------------------------------------------------119
10.8 Notices------------------------------------------------------------119
10.9 Time of Essence--------------------------------------------------119
10.10 Entire Agreement--------------------------------------------------119
EXHIBIT L GROSS BULLION ROYALTY CALCULATION 120
ARTICLE I MEANING OF TERMS. 120
1.1 Commercial Production----------------------------------------------120
1.2 Grantee-------------------------------------------------------------120
1.3 Grantor-------------------------------------------------------------120
1.4 Gross Bullion Royalty---------------------------------------------121
1.5 Ore-----------------------------------------------------------------121
1.6 Production----------------------------------------------------------121
ARTICLE II TERM 121
ARTICLE III PRODUCTION ROYALTY 122
3.1 Calculation of GBR------------------------------------------------122
3.2 Insurance Proceeds-------------------------------------------------122
3.3 Time and Manner; In-Kind or Cash Payment----------------------122
3.4 Payment Accounting; Interim Settlements; Late Charges----------123
3.5 Hedging Transactions; Futures, Options and Other Trading------123
3.6 Commingling---------------------------------------------------------123
ARTICLE IV BOOKS; RECORDS; INSPECTIONS; CONFIDENTIALITY 124
4.1 Books---------------------------------------------------------------124
4.2 Reports-------------------------------------------------------------124
4.3 Inspections---------------------------------------------------------124
4.4 Investor Tours-----------------------------------------------------124
4.5 Confidentiality-----------------------------------------------------125
ARTICLE V COMPLIANCE WITH LAWS; RECLAMATION, ENVIRONMENTAL
OBLIGATIONS, AND INDEMNITIES 125
5.1 Compliance with Laws----------------------------------------------125
5.2 Reclamation, Environmental Obligations, and Indemnities---------125
ARTICLE VI STOCKPILING 126
ARTICLE VII TAILINGS AND RESIDUES 126
ARTICLE VIII TITLE MAINTENANCE AND TAXES; ASSESSMENT WORK; ABANDONMENT;
CONVERSION AND EXCHANGE RIGHTS 126
8.1 Title Maintenance and Taxes--------------------------------------126
8.2 Assessment Work----------------------------------------------------126
8.3 Abandonment---------------------------------------------------------127
8.4 Conversion and Exchange Rights-----------------------------------127
ARTICLE IX INSURANCE 127
9.1 ▇▇▇▇▇▇▇'▇ Compensation Insurance----------------------------------127
9.2 General Liability--------------------------------------------------127
ARTICLE X GENERAL PROVISIONS 128
10.1 Arbitration--------------------------------------------------------128
10.2 Conflict-----------------------------------------------------------128
10.3 Additional Documents----------------------------------------------128
10.4 Covenant Running With Land; Binding Effect--------------------128
10.5 No Partnership----------------------------------------------------128
10.6 Governing Law-----------------------------------------------------128
10.7 Attorney Fees-----------------------------------------------------128
10.8 Notices------------------------------------------------------------128
10.9 Time of Essence--------------------------------------------------128
10.10 Entire Agreement---------------------------------- ---------------128
PART I MEMBERS' AGREEMENT
OF THE MEMBERS OF
PEDIMENT GOLD LLC
A NEVADA LIMITED LIABILITY COMPANY
This Members' Agreement (the "Agreement") is made as of June , 2004
----
("Effective Date") between Battle Mountain Gold Exploration, Inc., a Nevada
corporation ("BMGE"), the address of which is ▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ and Nevada Gold Exploration Solutions, LLC, a Nevada
limited liability company ("NGXS"), the address of which is ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇.
RECITAL OF MEMBERS' AGREEMENT OF PEDIMENT GOLD LLC
A. NGXS owns or controls certain "INTELLECTUAL PROPERTIES" in Nevada,
-----------------------
which are described in EXHIBIT A.
----------
B. BMGE wishes to participate with NGXS in the exploration, evaluation and, if
justified, the development and mining of mineral resources within the
Properties.
C. NGXS and BMGE wish to form and operate a limited liability company under
the Nevada Limited Liability Company Act, under Chapter 86 of the Nevada
Revised Statutes (the "ACT"), to own the Properties and conduct the
---
operations thereon contemplated by RECITAL OF THE OPERATING AGREEMENT OF
-------------------------------------
PEDIMENT GOLD LLC. The name of the limited liability company shall be
-------------------
Pediment Gold LLC ("PGL") and its affairs shall be governed by that certain
Operating Agreement ("OA") of Pediment Gold LLC, dated as of June ,
----
2004.
NOW THEREFORE, in consideration of the covenants and conditions contained
herein, NGXS and BMGE agree as follows:
ARTICLE I DEFINITIONS AND CROSS-REFERENCES
1.1 DEFINITIONS. The terms defined herein shall have the defined meaning
wherever used in this Agreement. Capitalized terms used but not defined in this
Agreement shall have the meanings given thereto in the OA.
1.2 CROSS REFERENCES. References to exhibits are to Exhibits of the OA.
References to "Articles," "Sections" and "Subsections" refer to Articles,
Sections and Subsections of this Agreement unless indicated otherwise.
References to "Paragraphs" and "Subparagraphs" refer to paragraphs and
subparagraphs of the referenced Exhibits.
ARTICLE II CERTAIN MATTERS CONCERNING CONTRIBUTIONS BY MEMBERS
2.1 CERTAIN OBLIGATIONS OF BMGE DURING PERIOD OF ITS INITIAL
CONTRIBUTIONS.
(a) During the period when NGXS conducts Operations pursuant to SECTION
-------
3.1(C) of the OA, BMGE shall provide for accrual of reasonably
-----
anticipated Environmental Compliance expenses, which shall constitute
Qualifying Expenses, and upon completion of its Initial Contribution,
BMGE shall transfer any accrued but unexpended amounts to the
Environmental Compliance Fund established under PARAGRAPH 2.14 OF
-----------------
EXHIBIT B.
-----------
(b) In the event of resignation by BMGE pursuant to SUBSECTION 3.2(A) of
----------------
the OA, BMGE shall indemnify NGXS for any costs or losses related to
contractual obligations of the Company to third parties for Operations
existing at the time of such resignation. In addition, BMGE shall
indemnify NGXS for BMGE's share of liabilities to third parties
(regardless of whether such liabilities accrue before or after such
resignation), including Environmental Liabilities, Continuing
Obligations and Environmental Compliance, arising prior to BMGE's
resignation from Operations conducted by BMGE, which responsibility
shall be based on BMGE's initial Ownership Interest.
(c) In the event of resignation by BMGE pursuant to SUBSECTION 3.2(B) of
----------------
the OA, BMGE shall be obligated to fund Operations up to the amount of
BMGE's agreed contribution to the then currently adopted Program and
Budget Stage. In addition, BMGE shall indemnify NGXS for BMGE's share
of liabilities to third parties (regardless of whether such
liabilities accrue before or after such resignation), including
Environmental Liabilities, Continuing Obligations and Environmental
Compliance, arising out of Operations conducted by BMGE after the
Effective Date and prior to its resignation. BMGE shall fund and
satisfy one hundred percent (100%) of such liabilities only until it
has contributed the full amount of its agreed contribution to the then
currently adopted Program and Budget Stage.
(d) BMGE shall deliver the shares of BMGE described in Exhibit J attached
---------
to the OA.
2.2 ADDITIONAL CONTRIBUTIONS. At such time as BMGE has contributed the full
amount of its Initial Contribution, the Members, subject to any election
permitted by SUBSECTION 10.5(A) of the OA, shall be obligated to contribute
-------------------
funds to the Company to fund adopted Programs and Budgets in proportion to their
respective Ownership Interests Except as otherwise provided by EXHIBIT I.
----------
2.3 EMERGENCY OR UNEXPECTED EXPENDITURES. In case of emergency, the Manager
may take any reasonable action it deems necessary to protect life or property,
to protect the Assets or to comply with Laws. The Manager may make reasonable
expenditures on behalf of the Members for unexpected events that are beyond its
reasonable control and that do not result from a breach by it of its standard of
care. The Manager shall promptly notify the Members of the emergency or
unexpected expenditure, and the Manager shall be reimbursed for all resulting
costs by the Members in proportion to their respective Ownership Interests.
ARTICLE III REPRESENTATIONS AND WARRANTIES;
TITLE TO ASSETS;
INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE MEMBERS. As of the Effective
Date, each Member warrants and represents to the other that:
(a) BMGE is a corporation and NGXS is a limited liability company both
duly organized and in good standing in its state of formation and is
qualified to do business and is in good standing in those states where
necessary in order to carry out the purposes of this Agreement;
(b) it has the capacity to enter into and perform this Agreement and all
transactions contemplated herein and that all corporate, board of
directors, shareholder, surface and mineral rights owner, lessor,
lessee and other actions and consents required to authorize it to
enter into and perform this Agreement have been properly taken;
(c) it will not breach any other agreement or arrangement by entering into
or performing this Agreement;
(d) it is not subject to any governmental order, judgment, decree,
debarment, sanction or Laws that would preclude the permitting or
implementation of Operations under this Agreement; and
(e) this Agreement has been duly executed and delivered by it and is valid
and binding upon it in accordance with its terms.
3.2 REPRESENTATIONS AND WARRANTIES OF NGXS. As of the Effective Date, NGXS
makes the following representations and warranties to BMGE:
(a) With respect to those Properties NGXS owns in fee simple, if any, NGXS
is in exclusive possession of and owns such Properties free and clear
of all Encumbrances or defects in title except those specifically
identified in PARAGRAPH 1.1 OF EXHIBIT A.
-------------------------------
(b) With respect to those Properties in which NGXS holds an interest under
leases or other contracts: (i) NGXS is in exclusive possession of such
Properties;(ii) NGXS has not received any notice of default of any of
the terms or provisions of such leases or other contracts; (iii) NGXS
has the authority under such leases or other contracts to perform
fully its obligations under this Agreement; (iv) to NGXS's knowledge,
such leases and other contracts are valid and are in good standing;
(v) NGXS has no knowledge of any act or omission or any condition on
the Properties which could be considered or construed as a default
under any such lease or other contract; and (vi) to NGXS's knowledge,
such Properties are free and clear of all Encumbrances or defects in
title except for those specifically identified in PARAGRAPH 1.1 OF
-----------------
EXHIBIT A.
-----------
(c) NGXS has delivered to or made available for inspection by BMGE all
Existing Data in its possession or control, and true and correct
copies of all leases or other contracts relating to the Properties.
(d) With respect to unpatented mining claims and millsites located by NGXS
that are included within the Properties, except as provided in
PARAGRAPH 1.1 OF EXHIBIT A and subject to the paramount title of the
----------------------------
United States: (i) the unpatented mining claims were properly laid out
and monumented; (ii) all required location and validation work was
properly performed; (iii) location notices and certificates were
properly recorded and filed with appropriate governmental agencies;
(iv) all assessment work required to hold the unpatented mining claims
has been performed and all Governmental Fees have been paid in a
manner consistent with that required of the Manager pursuant to
SUBSECTION 9.2(K) of the OA in order to maintain those claims through
-----------------
the assessment year ending September 1, 2004; (v) 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; (vi) the claims are free and clear of Encumbrances or
defects in title; and (vii) NGXS has no knowledge of conflicting
mining claims. Nothing in this Subsection, however, shall be deemed to
be a representation or a warranty that any of the unpatented mining
claims contains a valuable mineral deposit.
(e) With respect to unpatented mining claims and millsites not located by
NGXS but which are included within the Properties, except as provided
in PARAGRAPH 1.1 OF EXHIBIT A 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 paid in a manner consistent with that required of the
Manager pursuant to SUBSECTION 9.2(K) of the OA in order to maintain
----------------
those claims through the assessment year ending September 1, 2004;
(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) NGXS has no knowledge of
conflicting mining claims. Nothing in this Subsection, however, shall
be deemed to be a representation or a warranty that any of the
unpatented mining claims contains a valuable discovery of minerals.
(f) With respect to the Properties, to NGXS's knowledge, there are no
pending or threatened actions, suits, claims or proceedings, and there
have been no previous transactions affecting its interests in the
Properties which have not been for fair consideration.
(g) Except as to matters otherwise disclosed in writing to BMGE prior to
the Effective Date, (i) to NGXS's knowledge, the conditions existing
on or with respect to the Properties and its ownership and operation
of the Properties are not in violation of any Laws (including without
limitation any Environmental Laws) nor causing or permitting any
damage (including Environmental Damage, as defined below) or
impairment to the health, safety, or enjoyment of any person at or on
the Properties or in the general vicinity of the Properties; (ii) to
NGXS's knowledge, there have been no past violations by it or by any
of its predecessors in title of any Environmental Laws or other Laws
affecting or pertaining to the Properties, nor any past creation of
damage or threatened damage to the air, soil, surface waters,
groundwater, flora, fauna, or other natural resources on, about or in
the general vicinity of the Properties ("ENVIRONMENTAL DAMAGE"); and
(iii) NGXS has not received inquiry from or notice of a pending
investigation from any governmental agency or of any administrative or
judicial proceeding concerning the violation of any Laws.
The representations and warranties set forth above shall survive the
execution and delivery of any documents of Transfer provided under this
Agreement. 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.
3.3 DISCLOSURES. Each of the Members represents and warrants that it is
unaware of any material facts or circumstances that have not been disclosed in
this Agreement or the OA which should be disclosed to the other Member in order
to prevent the representations and warranties in this Article or ARTICLE VI of
----------
the OA from being materially misleading. NGXS has disclosed to BMGE all
information it believes to be relevant concerning the Assets and has provided to
or made available for inspection by BMGE all such information, but does not make
any representation or warranty, express or implied, as to the accuracy or
completeness of the information (except as provided in SECTION 3.2) or as to the
------------
boundaries or value of the Assets. Each Member represents to the other that in
negotiating and entering into this Agreement and the OA it has relied solely on
its own appraisals and estimates as to the value of the Assets and upon its own
geologic and engineering interpretations related thereto.
3.4 LOSS OF TITLE. Any failure or loss of title to the Assets, and all
costs of defending title, shall be charged to the Business Account, except that
in the event of costs or losses arising out of or resulting from any breach of
the representations and warranties of NGXS or BMGE as to title, the breaching
Member shall indemnify the non-breaching Member for such costs and losses.
3.5 LIMITATION OF LIABILITY. The Members shall not be required to make any
contribution to the capital of the Company except as otherwise provided in this
Agreement, nor shall the Members in their capacity as Members or Manager be
bound by, or liable for, any debt, liability or obligation of the Company
whether arising in contract, tort, or otherwise. The foregoing shall not limit
any obligation of a Member to indemnify the other Member as expressly provided
by this Agreement. The Members shall be under no obligation to restore a deficit
Capital Account upon the dissolution of the Company or the liquidation of any of
their Ownership Interests. Any obligation herein to contribute capital to the
Company may be compromised by the Members, including by payments by an obligated
Member directly to the other Member.
3.6 INDEMNIFICATION.
(a) Each Member shall indemnify the other Member, its directors, officers,
employees, agents and attorneys, and Affiliates (collectively "INDEMNIFIED
PARTY") from and against the entire amount of any Material Loss. A
"MATERIAL LOSS" shall mean all direct and indirect costs, expenses, damages
or liabilities, including attorneys' fees and other costs of litigation
(either threatened or pending) arising out of or based on a breach by a
Member ("INDEMNIFYING PARTY") of any representation, warranty or covenant
contained in this Agreement or the OA, including without limitation: (i)
any action taken for or obligation or responsibility assumed on behalf of
the Company or another Member by a Member or any of its directors,
officers, employees, agents and attorneys, or Affiliates, in violation of
SECTION 5.1 of the OA; (ii) failure of a Member or its Affiliates to comply
-----------
with the non-compete or Area of Interest provisions of ARTICLE VI hereof;
----------
(iii) any Transfer that causes termination of the tax partnership
established by SECTION 5.2 of the OA, against which the transferring Member
-----------
shall indemnify the non-transferring Member as provided in SUBSECTION
----------
7.2(E) of the OA and ARTICLE V OF EXHIBIT C; and (iv) failure of a Member
------ ----------------------
or its Affiliates to comply with the preemptive right under SECTION 7.3 of
-----------
the OA and EXHIBIT H. A Material Loss shall not be deemed to have occurred
---------
until an Indemnified Party incurs losses, costs, damages or liabilities in
excess of ten thousand Dollars ($10,000) relating to breaches of
warranties, representations and covenants contained in this Agreement and
the OA, in the aggregate. NGXS's aggregate liability to all Indemnified
Parties under this Section for breaches of the representations in
SUBSECTION 3.2(G) hereof shall not, however, exceed one thousand Dollars
------------------
($1,000).
(b) If any claim or demand is asserted against an Indemnified Party in respect
of which such Indemnified Party may be entitled to indemnification under
this Agreement, written notice of such claim or demand shall promptly be
given to the Indemnifying Party. The Indemnifying Party shall have the
right, but not the obligation, by notifying the Indemnified Party within
thirty (30) days after its receipt of the notice of the claim or demand, to
assume the entire control of (subject to the right of the Indemnified Party
to participate, at the Indemnified Party's expense and with counsel of the
Indemnified Party's choice), the defense, compromise, or settlement of the
matter, including, at the Indemnifying Party's expense, employment of
counsel of the Indemnifying Party's choice. Any damages to the assets or
business of the Indemnified Party caused by a failure by the Indemnifying
Party to defend, compromise, or settle a claim or demand in a reasonable
and expeditious manner requested by the Indemnified Party, after the
Indemnifying Party has given notice that it will assume control of the
defense, compromise, or settlement of the matter, shall be included in the
damages for which the Indemnifying Party shall be obligated to indemnify
the Indemnified Party. Any settlement or compromise of a matter by the
Indemnifying Party shall include a full release of claims against the
Indemnified Party which have arisen out of the indemnified claim or demand.
ARTICLE IV INTERESTS OF MEMBERS
4.1 CONTINUING LIABILITIES UPON ADJUSTMENTS OF OWNERSHIP INTERESTS. Any
reduction or elimination of either Member's Ownership Interest under SECTION 4.2
-----------
of the OA shall not relieve such Member of its share of any liability,
including, without limitation, Continuing Obligations, Environmental Liabilities
and Environmental Compliance, whether arising, before or after such reduction or
elimination, out of acts or omissions occurring or conditions existing prior to
the Effective Date, or out of Operations conducted during the term of this
Agreement but prior to such reduction or elimination, regardless of when any
funds may be expended to satisfy such liability. For purposes of this Section,
such Member's share of such liability shall be equal to its Ownership Interest
at the time the act or omission giving rise to the liability occurred, after
first taking into account any prior reduction, readjustment and restoration of
Ownership Interests under SECTIONS 4.4, 10.5, 10.6 and 11.5 of the OA (or, as to
---------------------------------
such liability arising out of acts or omissions occurring or conditions existing
prior to the Effective Date, equal to such Member's initial Ownership Interest).
Should the cumulative cost of satisfying Continuing Obligations be in excess of
cumulative amounts accrued or otherwise charged to the Environmental Compliance
Fund as described in PARAGRAPH 2.14 OF EXHIBIT B, each of the Members shall be
---------------------------
liable for its proportionate share (i.e., Ownership Interest at the time of the
act or omission giving rise to such liability occurred), after first taking into
account any reduction, readjustment and restoration of Ownership Interests under
SECTIONS 4.4, 10.5, 10.6 and 11.5 of the OA, of the cost of satisfying such
--------------------------------------
Continuing Obligations, notwithstanding that either Member has previously
resigned from the Company or that its Ownership Interest has been reduced or
converted to an interest in "NET PROCEEDS" pursuant to SUBSECTION 4.4(A) of the
------------ -----------------
OA.
4.2 CONTINUING OBLIGATIONS AND ENVIRONMENTAL LIABILITIES. On dissolution of
the Company under SECTION 14.1 of the OA, each Member shall remain liable for
------------
its respective share of liabilities to third parties (whether such arises before
or after such dissolution), including Environmental Liabilities and Continuing
Obligations. In the event of the resignation of a Member pursuant to SECTION
14.2 of the OA, the resigning Member's share of such liabilities shall be equal
to its Ownership Interest at the time such liability was incurred, after first
taking into account any reduction, readjustment, and restoration of Ownership
Interests under SECTIONS 4.4, 10.5, 10.6 and 11.5 of the OA (or, as to
--------------------------------------
liabilities arising prior to the Effective Date, its initial Ownership
Interest).
4.3 GRANT OF LIEN AND SECURITY INTEREST.
(a) Subject to SECTION 4.4 hereof, each Member grants to the other Member
a lien upon and a security interest in its Ownership Interest,
including all of its right, title and interest in the Assets, whenever
acquired or arising, and the proceeds from and accessions to the
foregoing.
(b) The liens and security interests granted by SUBSECTION 4.3(A) hereof
----------------
shall secure every obligation or liability of the Member granting such
lien or security interest to the other Member created under this
Agreement or the OA, including the obligation to repay a Cover Payment
in accordance with SECTION 11.4 of the OA. Each Member hereby agrees
------------
to take all action necessary to perfect such lien and security
interest and hereby appoints the other Member its attorney-in-fact to
execute, file and record all financing statements and other documents
necessary to perfect or maintain such lien and security interest.
4.4 SUBORDINATION OF INTERESTS. Each Member shall, from time to time, take
all necessary actions, including execution of appropriate agreements, to pledge
and subordinate its Ownership Interest, any liens it may hold which are created
under this Agreement other than those created pursuant to SECTION 4.3 hereof,
-----------
and any other right or interest it holds with respect to the Company and the
Assets (other than any statutory lien of the Manager) to any secured borrowings
for Operations approved by the Management Committee, including any secured
borrowings relating to Project Financing, and any modifications or renewals
thereof.
ARTICLE V RELATIONSHIP OF THE MEMBERS
5.1 TRANSFER OR TERMINATION OF RIGHTS. Neither Member shall Transfer all or
any part of its rights or obligations under this Agreement, except in
conjunction with a transfer or termination of the Member's Ownership Interest
permitted by the OA. Any such permitted assignment shall be subject to the
consent requirements of SECTION 7.2 of the OA. Nothing in this SECTION 5.1
------------
requires that a Member's rights and obligations under this Agreement be assigned
in connection with the transfer of its Ownership Interest.
5.2 ABANDONMENT AND SURRENDER OF PROPERTIES. The Member that desires to
abandon or surrender all or part of the Properties pursuant to SECTION 12.2 of
------------
the OA shall remain liable to the other Member for its share (determined by its
Ownership Interest as of the date of such abandonment, after first taking into
account any reduction, readjustment, and restoration of Ownership Interests
under SECTIONS 4.4, 10.5, 10.6 and 11.5 of the OA) of any liability with respect
to such Properties, including, without limitation, Continuing Obligations,
Environmental Liabilities and Environmental Compliance, whether accruing before
or after such abandonment, arising out of activities prior to the Effective Date
and out of Operations conducted prior to the date of such abandonment,
regardless of when any funds may be expended to satisfy such liability.
5.3 SUPPLEMENTAL BUSINESS ARRANGEMENT. The Members hereby agree that in the
event of a Supplemental Business Arrangement pursuant to SECTION 10.13 of the
OA, this Agreement shall apply mutatis mutandis to such business in the same
manner as to the OA.
5.4 IMPLIED COVENANTS. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
5.5 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement shall be construed to
benefit the Members and their respective successors and assigns only, and shall
not be construed to create third party beneficiary rights in any other party,
expressly including the Company, or in any governmental organization or agency,
except to the extent required to permit indemnification of a non-Member's
Indemnified Party pursuant to SUBSECTION 3.6(A) hereof.
ARTICLE VI ACQUISITIONS WITHIN AREA OF INTEREST
6.1 GENERAL. Any interest or right to acquire any interest in real property
or water rights related thereto within the Area of Interest either acquired or
proposed to be acquired during the term of this Agreement by or on behalf of
either Member ("ACQUIRING MEMBER") or any Affiliate of such Member shall be
subject to the terms and provisions of this Agreement and the OA. BMGE and NGXS
and their respective Affiliates for their separate account shall be free to
acquire lands and interests in lands outside the Area of Interest and to locate
mining claims outside the Area of Interest. Failure of any Affiliate of either
Member to comply with this Article shall be a breach by such Member of this
Agreement.
6.2 NOTICE TO NON-ACQUIRING MEMBER. Within thirty (30) days after the
acquisition or proposed acquisition, as the case may be, of any interest or the
right to acquire any interest in real property or water rights wholly or
partially within the Area of Interest (except real property acquired by the
Manager pursuant to a Program), the Acquiring Member shall notify the other
Member of such acquisition by it or its Affiliate; provided that if the
acquisition of any interest or right to acquire any interest pertains to real
property or water rights partially within the Area of Interest, then all such
real property (i.e., the part within the Area of Interest and the part outside
the Area of Interest) shall be subject to this Article. The Acquiring Member's
notice shall describe in detail the acquisition, 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 reasons why the Acquiring Member
believes that the acquisition (or proposed acquisition) of the interest is in
the best interests of the Members under this Agreement. In addition to such
notice, the Acquiring Member shall make any and all information concerning the
relevant interest available for inspection by the other Member.
6.3 OPTION EXERCISED. Within thirty (30) days after receiving the Acquiring
Member's notice, the other Member may notify the Acquiring Member of its
election to accept a proportionate interest in the acquired interest equal to
its Ownership Interest. Promptly upon such notice, the Acquiring Member shall
convey or cause its Affiliate to convey to the Members in proportion to their
respective Ownership Interests or to the Company (as agreed by the Members), by
special warranty deed all of the Acquiring Member's (or its Affiliate's)
interest in such acquired interest, free and clear of all Encumbrances arising
by, through or under the Acquiring Member (or its Affiliate) other than those to
which both Members have agreed. Immediately upon such notice, the acquired
interest either shall be subject to a Supplemental Business Arrangement, or if
conveyed to the Company, shall become a part of the Properties for all purposes
of this Agreement and the OA. The other Member shall promptly pay to the
Acquiring Member its proportionate share of the latter's actual out-of-pocket
acquisition costs.
6.4 OPTION NOT EXERCISED. If the other Member does not give such notice
within the thirty (30) day period set forth in SECTION 6.3 hereof, it shall have
no interest in the acquired interests, and the acquired interests shall not be a
part of the Assets or continue to be subject to this Agreement or the OA.
6.5 NON-COMPETE COVENANTS. Neither a Member that resigns pursuant to
SECTION 14.2 of the OA, or is deemed to have resigned pursuant to SECTIONS 3.2,
4.4 or 11.5 of the OA, nor any Affiliate of such a Member, shall directly or
indirectly acquire any interest or right to explore or mine, or both, on any
property any part of which is within the Area of Interest for sixty (60) months
after the effective date of resignation. If a resigning Member, or the Affiliate
of a resigning Member, breaches this Section, such Member shall be obligated to
offer to convey to the non-resigning Member, without cost, any such property or
interest so acquired (or ensure its Affiliate offers to convey the property or
interest to the non-resigning Member, if the acquiring party is the resigning
Member's Affiliate). Such offer shall be made in writing and can be accepted by
the non-resigning Member at any time within ten (10) days after the offer is
received by such non-resigning Member. Failure of a Member's Affiliate to comply
with this Section shall be a breach by such Member of this Agreement.
ARTICLE VII DISPUTES
7.1 GOVERNING LAW. Except for matters of title to the Properties or their
Transfer, which shall be governed by the law of their situs, this Agreement
shall be governed by and interpreted in accordance with the laws of the State of
Nevada, without regard for any conflict of laws or choice of laws principles
that would permit or require the application of the laws of any other
jurisdiction.
7.2 FORUM SELECTION. The parties submit to the jurisdiction of the Second
Judicial Court of the State of Nevada, Washoe County, Nevada, and the United
States District Court for the District of Nevada. The parties waive any
objections to the jurisdiction of such courts and venue of any actions or
proceedings in such courts arising from or relating to this Agreement.
7.3 ARBITRATION. All disputes arising from or relating to this Agreement,
including any dispute concerning the enforcement or construction of this
Agreement, shall be decided and determined by arbitration in accordance with the
provision of Chapter 30 of the Nevada Revised Statutes and, as applicable, the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be administered by and conducted before a single arbitrator
who must be an independent attorney licensed to practice law or an independent
geologist or mining engineer who is recognized as having experience and
knowledge of mining contract law and mining industry customs and practices. No
person having a prior or existing attorney-client, business or family
relationship with any of the parties or their principals shall be qualified to
act as an arbitrator. The arbitration shall be held in Reno, Nevada.
7.4 DISPUTE RESOLUTION. All disputes arising under or in connection with
this Agreement which cannot be resolved by agreement between the Members shall
be resolved in accordance with applicable Law. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or substantially prevailing
Member shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
ARTICLE VIII GENERAL PROVISIONS
8.1 NOTICES. All notices, payments and other required or permitted
communications ("Notices") to either Member shall be in writing, and shall be
addressed respectively as follows:
If to BMGE:
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Mailing Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇▇.▇▇.▇▇
With a Copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Mailing Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
E-Mail: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
If to NGXS:
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Mailing Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: 775-359-7722
E-Mail: ▇▇▇▇▇@▇▇▇.▇▇▇
With a Copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Mailing Address: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇
All Notices shall be given (a) by personal delivery to the Member; (b) by
electronic communication, capable of producing a printed transmission, (c) by
registered or certified mail return receipt requested; or (d) by overnight or
other express courier service. All Notices shall be effective and shall be
deemed given on the date of receipt at the principal address if received during
normal business hours, and, if not received during normal business hours, on the
next business day following receipt, or if by electronic communication, on the
date of such communication. Either Member may change its address by Notice to
the other Member.
8.2 GENDER. The singular shall include the plural, and the plural the
singular wherever the context so requires, and the masculine, the feminine, and
the neuter genders shall be mutually inclusive.
8.3 CURRENCY. All references to "dollars" or "$" herein shall mean lawful
currency of the United States of America.
8.4 HEADINGS. The subject headings of the Sections and Subsections of this
Agreement and the Paragraphs and Subparagraphs of the Exhibits to this Agreement
are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
8.5 WAIVER. The failure of either Member to insist on the strict
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit such Member's right thereafter to enforce any provision
or exercise any right.
8.6 MODIFICATION. No modification of this Agreement shall be valid unless
made in writing and duly executed by both Members.
8.7 FORCE MAJEURE. Except for the obligation to make payments when due
hereunder, the obligations of a Member shall be suspended to the extent and for
the period that performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without limitation,
labor disputes (however arising and whether or not employee demands are
reasonable or within the power of the Member to grant); acts of God; Laws,
instructions or requests of any government or governmental entity; judgments or
orders of any court; inability to obtain on reasonably acceptable terms any
public or private license, permit or other authorization; curtailment or
suspension of activities to remedy or avoid an actual or alleged, present or
prospective violation of Environmental Laws; action or inaction by any federal,
state or local agency that delays or prevents the issuance or granting of any
approval or authorization required to conduct Operations beyond the reasonable
expectations of the Member seeking the approval or authorization (including,
without limitation, a failure to complete any review and analysis required by
the National Environmental Policy Act or any similar state law within two (2)
months of initiation of that process); acts of war or conditions arising out of
or attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse weather condition; delay or failure by suppliers
or transporters of materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to obtain, labor,
transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities; actions by
native rights groups, environmental groups, or other similar special interest
groups; or any other cause whether similar or dissimilar to the foregoing. The
affected Member shall promptly give notice to the other Member of the suspension
of performance, stating therein the nature of the suspension, the reasons
therefore, and the expected duration thereof. The affected Member shall resume
performance as soon as reasonably possible. During the period of suspension the
obligations of both Members to advance funds pursuant to ARTICLE II hereof shall
be reduced to levels consistent with then current Operations.
8.8 RULE AGAINST PERPETUITIES. The Members do not intend that there shall
be any violation of the Rule Against Perpetuities, the Rule Against Unreasonable
Restraints on the Alienation of Property, or any similar rule. Accordingly, if
any right or option to acquire any interest in the Properties, in an Ownership
Interest, in the Assets, or in any real property exists under this Agreement,
such right or option must be exercised, if at all, so as to vest such interest
within time periods permitted by applicable rules. If, however, any such
violation should inadvertently occur, the Members hereby agree that a court
shall reform that provision in such a way as to approximate most closely the
intent of the Members within the limits permissible under such rules.
8.9 FURTHER ASSURANCES. Each of the Members shall take, from time to time
and without additional consideration, such further actions and execute such
additional instruments as may be reasonably necessary or convenient to implement
and carry out the intent and purpose of this Agreement or as may be reasonably
required by lenders in connection with Project Financing.
8.10 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement contains the
entire understanding of the Members and supersedes all prior agreements and
understandings between the Members relating to the subject matter hereof;
provided that nothing in this SECTION 8.10 modifies or affects the OA and the
Members' obligations there under. This Agreement shall be binding upon and inure
to the benefit of the respective successors and permitted assigns of the
Members.
8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and it shall not be necessary that the signatures of both Members
be contained on any counterpart. Each counterpart shall be deemed an original,
but all counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
BMGE
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
NGXS
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
ROCKY MOUNTAIN MINERAL LAW FOUNDATION
(Model Form 5A LLC / 1998)
Exploration, Development and Mining
Limited Liability Company
Part II
Operating Agreement
of
PEDIMENT GOLD LLC
A Nevada Limited Liability Company
PART II OPERATING AGREEMENT
OF
PEDIMENT GOLD LLC
A NEVADA LIMITED LIABILITY COMPANY
This Limited Liability Company Operating Agreement is made as of June ,
----
2004 ("Effective Date") between Battle Mountain Gold Exploration Inc. ("BMGE"),
a Nevada corporation, the address of which is 6th Floor, ▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ and Nevada Gold Exploration Solutions, LLC ("NGXS"), a
Nevada Limited Liability Company, the address of which is ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇.,
▇▇▇▇, ▇▇ ▇▇▇▇▇.
RECITAL OF OPERATING ARGEEMENT OF BATTLE MOUNTAIN GOLD LLC
A. NGXS also controls certain intellectual property in Nevada, which is
described in EXHIBIT A and defined in EXHIBIT D.
---------- ----------
B. BMGE wishes to participate with NGXS in the exploration, evaluation and, if
justified, the development and mining of mineral resources using the
"INTELLECTUAL PROPERTIES".
------------------------
C. NGXS and BMGE wish to form and operate a limited liability company under
the Nevada Limited Liability Company Act, under Chapter 86 of the Nevada
Revised Statutes (the "ACT"), to utilize on an exclusive basis and conduct
---
the operations thereon contemplated by SECTION 2.3.
-------------
NOW THEREFORE, in consideration of the covenants and conditions contained
herein, NGXS and BMGE agree as follows:
ARTICLE I DEFINITIONS AND CROSS-REFERENCES
1.1 DEFINITIONS. The terms defined in EXHIBIT D and elsewhere herein shall
have the defined meaning wherever used in this Agreement, including in Exhibits.
1.2 CROSS REFERENCES. References to "Exhibits," "Articles," "Sections" and
"Subsections" refer to Exhibits, Articles, Sections and Subsections of this
Agreement. References to "Paragraphs" and "Subparagraphs" refer to paragraphs
and subparagraphs of the referenced Exhibits.
ARTICLE II NAME, PURPOSES AND TERM
2.1 FORMATION. The Company has been duly organized pursuant to the "ACT"
and the provisions of this Agreement as a Nevada limited liability company by
the filing of its Articles of Organization (as defined in the "ACT") in the
----
Office of the Secretary of the State of Nevada effective as of the June ,
----
2004.
2.2 NAME. The name of the Company is "PEDIMENT GOLD LLC" ("PGL") and such
other name or names complying with the "ACT" as the Manager shall determine. The
Manager shall accomplish any filings or registrations required by jurisdictions
in which the Company conducts its Business.
2.3 PURPOSES. The Company is formed for the following purposes and for no
others, and shall serve as the exclusive means by which each of the Members
accomplishes such purposes:
(a) To conduct Exploration within the Area of Interest,
(b) To acquire additional real property and other interests within the
Area of Interest,
(c) To evaluate the possible Development and Mining of the Properties,
and, if justified, to engage in Development and Mining,
(d) To engage in Operations on the Properties,
(e) To engage in marketing Products,
(f) To complete and satisfy all Environmental Compliance obligations and
Continuing Obligations affecting the Properties, and
(g) To perform any other activity necessary, appropriate, or incidental to
any of the foregoing.
2.4 LIMITATION. Unless the Members otherwise agree in writing, the
Business of the Company shall be limited to the purposes described in SECTION
-------
2.3, and nothing in this Agreement shall be construed to enlarge such purposes.
----
2.5 TERM. The term of the Company shall begin on the Effective Date and
shall continue for twenty (20) years from the Effective Date and for so long
thereafter as Products are produced from the Properties on a continuous basis,
and thereafter until all materials, supplies, equipment and infrastructure have
been salvaged and disposed of, and any required Environmental Compliance is
completed and accepted, unless the Company is earlier terminated as herein
provided. For purposes hereof, Products shall be deemed to be produced from the
Properties on a "continuous basis" so long as production in commercial
quantities is not halted for more than one hundred and eighty (180) consecutive
days.
2.6 RESIDENT AGENT; OFFICES. The name of the Company's Resident Agent in
the State of Nevada is ▇▇▇▇▇ ▇. ▇▇▇▇▇ or such other person as the Manager may
select in compliance with the "ACT" from time to time. The registered office of
---
the Company in the State of Nevada shall be located at ▇▇▇ ▇▇▇▇▇, ▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ or at any other place within the State of Nevada
which the Manager shall select. The principal office of the Company shall be at
any other location, which the Manager shall select.
ARTICLE III CONTRIBUTIONS BY MEMBERS
3.1 MEMBERS' INITIAL CONTRIBUTIONS.
(a) NGXS, as its Initial Contribution, hereby contributes the Assets described
in EXHIBIT A to the capital of the Company.
----------
(b) Subject to BMGE's right of resignation as set forth in SECTION 3.2, BMGE,
-----------
as its Initial Contribution, shall fund Operations under SUBSECTION 3.1(C)
-----------------
and in accordance with EXHIBIT G and EXHIBIT I totaling three million, two
--------- ---------
hundred and fifty thousand Dollars ($3,250,000). In determining whether
such funding obligation has been met, only costs that are properly
chargeable to the Business Account under EXHIBIT B shall be included
----------
("QUALIFYING EXPENSES"); provided, however, BMGE shall not be entitled to
an Administrative Charge as provided by PARAGRAPH 2.13 OF EXHIBIT B during
---------------------------
the time it is making Qualifying Expenses. Upon completion of such funding,
this amount shall be credited to BMGE's Equity Account.
(c) Subject only to the provisions of SECTION 10.1, until BMGE has completed
------------
its Initial Contribution, the Members, the Management Committee and the
Manager hereby delegate to NGXS the sole right to determine the nature,
timing, scope, extent and method of all Operations without any obligation
to hold meetings of the Management Committee, to prepare Programs and
Budgets for review, comment or approval by BMGE, or to obtain the approval
or consent of BMGE or the Management Committee. In conducting such
Operations, NGXS shall be entitled, but shall not be obligated, to exercise
any of the applicable powers of the Manager in SECTION 9.2, except that
-----------
until BMGE has completed its Initial Contribution it shall not be entitled
or required to perform the activities described in SUBSECTIONS 9.2(G), (I),
------------------ ---
(L), (T) and (U) that would otherwise require consent of the Management
--- --- ---
Committee. Prior to completion of BMGE's Initial Contribution, NGXS, in
lieu of any reporting requirements under this Agreement, shall: (i) keep
BMGE generally informed concerning all material Operations and other
material activities affecting the Properties; (ii) within ten (10) days
after the end of each Approved Budget, furnish to BMGE a reasonably
detailed written report of all Operations conducted on or for the benefit
of the Properties during the preceding period; (iii) make available for
inspection and copying by BMGE all factual and interpretive reports,
studies and analyses concerning the Properties, and make all core and other
samples available for inspection by BMGE; and (iv) on or before a date ten
days (10) after each Approved Program, submit to BMGE a statement of
Qualifying Expenses incurred during the preceding period. NGXS makes no
representation or warranty, express or implied, as to the accuracy or
completeness of the data and information provided to BMGE in accordance
with (i) through (iv) above.
(d) BMGE shall provide NGXS with written notice of any exceptions it may have
to the statement of Qualifying Expenses submitted to it as provided above
within ten (10) days after receipt of the statement. Failure to provide
such notice within the ten (10) day period shall constitute acceptance by
BMGE of the stated Qualifying Expenses.
3.2 FAILURE TO MAKE INITIAL CONTRIBUTION.
(a) BMGE's failure to make its Initial Contribution in accordance with the
provisions of this Article and except as otherwise provided in EXHIBIT I,
if not cured within twenty (20) days after notice by NGXS of such default,
shall be deemed to be a resignation of BMGE from the Company, the
termination of its membership in the Company and a transfer of its
Ownership Interest and Capital Account to NGXS. Subject to SUBSECTION
3.2(B) below, BMGE's resignation shall be effective upon such failure. Upon
such event, BMGE shall have no further right, title or interest in the
Company or the Assets and it shall take such actions as are necessary to
ensure that all Assets are free and clear of any Encumbrances arising by,
through or under it, except for such Encumbrances to which the Members may
have agreed.
(b) Notwithstanding SUBSECTION 3.2(A) above, in the event BMGE, within ten (10)
days after the Effective Date, determines that conditions may exist on the
Properties which may, in BMGE's judgment, result in violation of
Environmental Laws, BMGE shall have the right to resign from the Company by
giving written notice to NGXS of such resignation. BMGE's resignation shall
be effective upon receipt by NGXS of such notice. Such resignation shall
relieve BMGE of its responsibility to fund and satisfy BMGE's share of
liabilities to third parties (regardless of whether such liabilities accrue
before or after such resignation), including Environmental Liabilities,
Continuing Obligations and Environmental Compliance. Except as otherwise
expressly provided herein, BMGE's resignation shall relieve BMGE from any
other obligation to make contributions hereunder.
3.3 RECORD TITLE. Title to the Assets shall be held by the Company.
ARTICLE IV INTERESTS OF MEMBERS
4.1 INITIAL OWNERSHIP INTERESTS. As provided by EXHIBIT I, BMGE must expend
$1,165,000 in order to earn a 50% interest in PGL and that before that event,
its interest is not vested. After that event the Members shall
have the following initial Ownership Interests:
NGXS 50%
BMGE 50%
4.2 CHANGES IN OWNERSHIP INTERESTS. Except as otherwise provided in EXHIBIT
--------
I, the Ownership Interests shall be eliminated or changed as follows:
--
(a) Upon resignation or deemed resignation as provided in SECTIONS 3.2, 4.4,
------------ ----
and ARTICLE XIV;
-------------
(b) Upon an election by either Member pursuant to SECTION 10.5 to contribute
------------
less to an adopted Program and Budget Stage than the percentage equal to
its Ownership Interest, or to contribute nothing to an adopted Program and
Budget Stage;
(c) In the event of default by either Member in making its agreed-upon
contribution to an adopted Program and Budget Stage, followed by an
election by the other Member to invoke any of the remedies in SECTION 11.5;
-------------
(d) Upon Transfer by either Member of part or all of its Ownership Interest in
accordance with ARTICLE VII;
-------------
(e) Upon acquisition by either Member of part or all of the Ownership Interest
of the other Member, however arising; or
(f) Upon BMGE contributing as per EXHIBIT I.
-----------
4.3 ADMISSION OF NEW MEMBERS. Except in the event of a transfer permitted
pursuant to ARTICLE VII, a new member may be admitted only with the unanimous
------------
written approval of the Members.
4.4 ELIMINATION OF MINORITY INTEREST.
(a) A Reduced Member whose Recalculated Ownership Interest becomes less than
twenty five percent (25%) shall be deemed to have withdrawn from the
Company and shall relinquish its entire Ownership Interest free and clear
of any Encumbrances arising by, through or under the Reduced Member, except
any such Encumbrances listed in PARAGRAPH 1.1 OF EXHIBIT A or to which the
--------------------------
Members have agreed. Such relinquished Ownership Interest shall be deemed
to have accrued automatically to the other Member. The Reduced Member's
Capital Account shall be transferred to the remaining Member. The Reduced
Member shall have the right to receive a one and a quarter percent (1.25%)
Net Smelter Royalty, if any, as of the effective date of the resignation.
Upon receipt of such amount, the Reduced Member shall thereafter have no
further right, title, or interesting the Assets, in the Company or under
this Agreement, and the tax partnership established by EXHIBIT C shall
---------
dissolve pursuant to PARAGRAPH 4.2 OF EXHIBIT C. In such event, the Reduced
--------------------------
Member shall execute and deliver an appropriate conveyance of any right,
title and interest the Reduced Member may have in the Assets to the
remaining Member.
(b) The relinquishment, resignation and entitlements for which this Section
provides shall be effective as of the effective date of the recalculation
under SECTIONS 10.5 or 11.5. However, if the final adjustment provided
-------------- ----
under SECTION 10.6 for any recalculation under SECTION 10.5 results in a
------------- ------------
Recalculated Ownership Interest of twenty five percent (25%) or more: (i)
the Recalculated Ownership Interest shall be deemed, effective
retroactively as of the first day of the Program Period, to have
automatically revested; (ii) the Reduced Member shall be reinstated as a
Member, with all of the rights and obligations pertaining thereto; (iii)
the right to Net Smelter Royalty under SUBSECTION 4.4(A) shall terminate;
----------------
and (iv) the Manager, on behalf of the Members, shall make any necessary
reimbursements, reallocations of Products, contributions and other
adjustments as provided in SUBSECTION 10.6(D). Similarly, if such final
-----------------
adjustment under SECTION 10.6 results in a Recalculated Ownership Interest
------------
for either Member of less than twenty five percent (25%) for a Program
Period as to which the provisional calculation under SECTION 10.5 had not
------------
resulted in an Ownership Interest of less than twenty five percent (25%),
then such Member, at its election within thirty (30) days after notice of
the final adjustment, may contribute an amount resulting in a revised final
adjustment and resultant Recalculated Participating Interest of twenty five
percent (25%). If no such election is made, such Member shall be deemed to
have withdrawn under the terms of SUBSECTION 4.4(A) as of the beginning of
----------------
such Program Period, and the Manager, on behalf of the Members, shall make
any necessary reimbursements, reallocations of Products, contributions and
other adjustments as provided in SUBSECTION 10.6(D), including of any Net
-----------------
Smelter Royalty to which such Member may be entitled for such Program
Period.
4.5 DOCUMENTATION OF ADJUSTMENTS TO OWNERSHIP INTERESTS. Each Member's
Ownership Interest and related Equity Account balance shall be shown in the
accounting records of the Company, and any adjustments thereto, including any
reduction, readjustment, and restoration of Ownership Interests under SECTIONS
--------
4.4, 10.5, 10.6 and 11.5, shall be made monthly. The Schedule of Members
----------------------------
attached hereto shall be amended from time to time to reflect such changes.
ARTICLE V RELATIONSHIP OF THE MEMBERS
5.1 LIMITATION ON AUTHORITY OF MEMBERS. No Member is an agent of the
Company solely by virtue of being a Member, and no Member has authority to act
for the Company solely by virtue of being a Member. This SECTION 5.1 supersedes
any authority granted to the Members pursuant to the Act. Any Member that takes
any action or binds the Company in violation of this SECTION 5.1 shall be solely
responsible for any loss and expense incurred by the Company as a result of the
unauthorized action and shall indemnify and hold the Company harmless with
respect to the loss or expense.
5.2 FEDERAL TAX ELECTIONS AND ALLOCATIONS. The Company shall be treated as
a partnership for federal income tax purposes, and no Member shall take any
action to alter such treatment.
5.3 STATE INCOME TAX. To the extent permissible under applicable law, the
relationship of the Members shall be treated for state income tax purposes in
the same manner as it is for federal income tax purposes.
5.4 TAX RETURNS. After approval of the Management Committee, any tax
returns or other required tax forms shall be filed in accordance with EXHIBIT C.
---------
5.5 OTHER BUSINESS OPPORTUNITIES. Each Member shall have the right to
engage in and receive full benefits from any independent business activities or
operations, whether or not competitive with the Company, without consulting
with, or obligation to, the other Member or the Company. The doctrines of
"corporate opportunity" or "business opportunity" shall not be applied to the
Business nor to any other activity or operation of any Member. No Member shall
have any obligation to the Company or any other Member with respect to any
opportunity to acquire any property outside the Area of Interest at any time, or
within the Area of Interest after the termination of the Company. Unless
otherwise agreed in writing, neither the Manager nor any Member shall have any
obligation to mill, beneficiate or otherwise treat any Products in any facility
owned or controlled by the Manager or such Member.
5.6 WAIVER OF RIGHTS TO PARTITION OR OTHER DIVISION OF ASSETS. The Members
hereby waive and release all rights of partition, or of sale in lieu thereof, or
other division of Assets, including any such rights provided by Law.
5.7 BANKRUPTCY OF A MEMBER. A Member shall cease to have any power as a
Member or Manager or any voting rights or rights of approval hereunder upon
bankruptcy, insolvency, dissolution or assignment for the benefit of creditors
of such Member, and its successor upon the occurrence of any such event shall
have only the rights, powers and privileges of a transferee enumerated in
SECTION 7.2, and shall be liable for all obligations of the Member under this
------------
Agreement. In no event, however, shall a personal representative or successor
become a substitute Member unless the requirements of SECTION 7.2 are satisfied.
-----------
5.8 IMPLIED COVENANTS. There are no implied covenants contained in this
Agreement other than those of good faith and fair dealing.
5.9 NO CERTIFICATE. The Company shall not issue certificates representing
Ownership Interests in the Company.
5.10 DISPOSITION OF PRODUCTION. Neither Member shall have any obligation to
account to the other Member for, nor have any interest or right of participation
in any profits or proceeds nor have any obligation to share in any losses from,
futures contracts, forward sales, trading in puts, calls, options or any similar
hedging, price protection or marketing mechanism employed by a Member with
respect to its proportionate share of any Products produced or to be produced
from the Properties.
5.11 LIMITATION OF LIABILITY. The Members shall not be required to make any
contribution to the capital of the Company except as otherwise provided in this
Agreement, nor shall the Members in their capacity as Members or Manager be
bound by, or liable for, any debt, liability or obligation of the Company
whether arising in contract, tort, or otherwise, except as expressly provided by
this Agreement. The Members shall be under no obligation to restore a deficit
Capital Account upon the dissolution of the Company or the liquidation of any of
their Ownership Interests.
5.12 INDEMNITIES. The Company may, and shall have the power to, indemnify
and hold harmless any Member or Manager or other person from and against any and
all claims and demands whatsoever arising from or related to the Business, the
Company or a Member's membership in the Company. 5.13 NO THIRD PARTY BENEFICIARY
RIGHTS. This Agreement shall be construed to benefit the Members and their
respective successors and assigns only, and shall not be construed to create
third party beneficiary rights in any other party or in any governmental
organization or agency.
ARTICLE VI REPRESENTATIONS AND WARRANTIES
As of the Effective Date, each Member warrants and represents to the other
that:
(a) It is a corporation or a Limited Liability company duly organized and in
good standing in its state of incorporation and is qualified to do business
and is in good standing in those states where necessary in order to carry
out the purposes of this Agreement;
(b) It has the capacity to enter into and perform this Agreement and all
transactions contemplated herein and that all corporate, board of
directors, shareholder, surface and mineral rights owner, lessor, lessee
and other actions and consents required to authorize it to enter into and
perform this Agreement have been properly taken or obtained;
(c) It will not breach any other agreement or arrangement by entering into or
performing this Agreement;
(d) It is not subject to any governmental order, judgment, decree, debarment,
sanction or Laws that would preclude the permitting or implementation of
Operations under this Agreement; and
(e) This Agreement has been duly executed and delivered by it and is valid and
binding upon it in accordance with its terms.
ARTICLE VII TRANSFER OF INTEREST; PREEMPTIVE RIGHT
7.1 GENERAL. A Member shall have the right to Transfer to a third party its
Ownership Interest, or any beneficial interest therein, solely as provided in
this Article VII.
7.2 LIMITATIONS ON FREE TRANSFERABILITY. Any Transfer by either Member
under SECTION 7.1 shall be subject to the following limitations:
(a) Neither Member shall Transfer any beneficial interest in the Company
(including, but not limited to, any royalty, profits, or other interest in
the Products) except in conjunction with the Transfer of part or all of its
Ownership Interest;
(b) No transferee of all or any part of a Member's Ownership Interest shall
have the rights of a Member unless and until the transferring Member has
provided to the other Member notice of the Transfer, and, except as
provided in SUBSECTIONS 7.2(F) and 7.2(G), the transferee, as of the
------------------- ------
effective date of the Transfer, has committed in writing to assume and be
bound by this Agreement to the same extent as the transferring Member;
(c) Neither Member, without the consent of the other Member, shall make a
Transfer that shall violate any Law, or result in the cancellation of any
permits, licenses, or other similar authorization;
(d) No Transfer permitted by this Article shall relieve the transferring Member
of any liability of such transferring Member under this Agreement, whether
accruing before or after such Transfer;
(e) Any Member that makes a Transfer that shall cause termination of the tax
partnership established by SECTION 5.2 shall indemnify the other Member
------------
for, from and against any and all loss, cost, expense, damage, liability or
claim therefore arising from the Transfer, including without limitation any
increase in taxes, interest and penalties or decrease in credits caused by
such termination and any tax on indemnification proceeds received by the
indemnified Member.
(f) In the event of a Transfer of less than all of an Ownership Interest, the
transferring Member and its transferee shall act and be treated as one
Member under this Agreement; provided however, that in order for such
Transfer to be effective, the transferring Member and its transferee must
first: (i) agree, as between themselves, that one of them is authorized to
act as the sole agent ("AGENT") on their behalf with respect to all matters
pertaining to this Agreement and the Company; and (ii) notify the other
Member of the designation of the Agent, and in such notice warrant and
represent to the other Member that: (A) the Agent has the sole authority to
act on behalf of, and to bind, the transferring Member and its transferee
with respect to all matters pertaining to this Agreement and the Company;
(B) the other Member may rely on all decisions of, notices and other
communications from, and failures to respond by, the Agent, as if given (or
not given) by the transferring Member and its transferee; and (C) all
decisions of, notices and other communications from, and failures to
respond by, the other Member to the Agent shall be deemed to have been
given (or not given) to the transferring Member and its transferee. The
transferring Member and its transferee may change the Agent (but such
replacement must be one of them) by giving notice to the other Member,
which notice must conform to SUBSECTION 7.2(F)(II) .
----------------------
(g) If the Transfer is the grant of an Encumbrance on an Ownership Interest to
secure a loan or other indebtedness of either Member in a bona fide
transaction, other than a transaction approved unanimously by the
Management Committee or Project Financing approved by the Management
Committee, such Encumbrance shall be granted only in connection with such
Member's financing payment or performance of that Member's obligations
under this Agreement and shall be subject to the terms of this Agreement
and the rights and interests of the other Member hereunder. Any such
Encumbrance shall be further subject to the condition that the holder of
such Encumbrance ("CHARGEE") first enters into a written agreement with the
other Member in form satisfactory to the other Member, acting reasonably,
binding upon the Chargee, to the effect that: (i) the Chargee shall not
enter into possession or institute any proceedings for foreclosure or
partition of the encumbering Member's Ownership Interest and that such
Encumbrance shall be subject to the provisions of this Agreement; (ii) the
Chargee's remedies under the Encumbrance shall be limited to the sale of
the whole (but only of the whole) of the encumbering Member's Ownership
Interest to the other Member, or, failing such a sale, at a public auction
to be held at least sixty (60) days after prior notice to the other Member,
such sale to be subject to the purchaser entering into a written agreement
with the other Member whereby such purchaser assumes all obligations of the
encumbering Member under the terms of this Agreement. The price of any
preemptive sale to the other Member shall be the remaining principal amount
of the loan plus accrued interest and related expenses, and such preemptive
sale shall occur within sixty (60) days of the Chargee's notice to the
other Member of its intent to sell the encumbering Member's Ownership
Interest. Failure of a sale to the other Member to close by the end of such
period, unless failure is caused by the encumbering Member or by the
Chargee, shall permit the Chargee to sell the encumbering Member's
Ownership Interest at a public sale; and (iii) the charge shall be
subordinate to any then-existing debt, including Project Financing
previously approved by the Management Committee, encumbering the
transferring Member's Ownership Interest.
7.3 Preemptive Right. Any Transfer by either Member under Section 7.1 and
any Transfer by an Affiliate in Control of either Member shall be subject to a
preemptive right of the other Member to the extent provided in Exhibit H.
Failure of a Member's Affiliate to comply with this Section and Exhibit H shall
be a breach by such Member of this Agreement. The preemptive right does not
apply to NGXS's Net Profits Interest, Net Smelter Return, or Gross Bullion
Royalty described in SECTION 1.9 OF EXHIBIT I, if NGSX has elected not to
----------------------------
continue as a participating Member.
ARTICLE VIII MANAGEMENT COMMITTEE
8.1 ORGANIZATION AND COMPOSITION. The Members hereby establish a
Management Committee to determine overall policies, objectives, procedures,
methods and actions under this Agreement. The Management Committee shall consist
of two (2) members appointed by BMGE and two (2) members appointed by NGXS. Each
Member may appoint one or more alternates to act in the absence of a regular
member. Any alternate so acting shall be deemed a Member. Appointments by a
Member shall be made or changed by notice to the other Members. BMGE shall
designate one of its Members to serve as the chair of the Management Committee.
8.2 DECISIONS. Before BMGE has completed its contribution of $1,165,000 to
earn a 50% interest according to PARAGRAPHS 1.1 AND 1.2 OF EXHIBIT I, NGXS shall
-----------------------------------
determine the decisions of the Management Committee. After BMGE has completed
its contribution of $1,165,000 to earn a 50% interest according to PARAGRAPHS
----------
1.1 AND 1.2 OF EXHIBIT I, each Member acting through its appointed members in
---------------------------
attendance at the meeting, shall have two votes each and both parties
acknowledge that the possibility of a dispute exists that would invoke ARTICLE
-------
XV to resolve. After BMGE has expended $3,250,000 to earn a 70% interest
--
according to PARAGRAPHS 1.1 AND 1.2 OF EXHIBIT I, each Member, acting through
------------------------------------
its appointed member(s) in attendance at the meeting, shall have the votes on
the Management Committee in proportion to its Ownership Interest. After BMGE has
expended $3,250,000, the vote of the Member with an Ownership Interest over
fifty (50%) shall determine the decisions of the Management Committee.
8.3 MEETINGS.
(a) After BMGE has completed its Initial Contribution, the Management Committee
shall hold regular meetings at least quarterly in Reno, Nevada, or at other
agreed places. The Manager shall give ten (10) days notice to the Members
of such meetings. Additionally, either Member may call a special meeting
upon seven (7) days notice to the other Member. In case of an emergency,
reasonable notice of a special meeting shall suffice. There shall be a
quorum if at least one member of the Management Committee representing each
Member is present; provided, however, that if a Member fails to attend two
consecutive properly called meetings, then a quorum shall exist at the
second meeting if the other Member is represented by at least one appointed
member, and a vote of such Member shall be considered the vote required for
the purposes of the conduct of all business properly noticed even if such
vote would otherwise require unanimity.
(b) If business cannot be conducted at a regular or special meeting due to the
lack of a quorum, either Member may call the next meeting upon seven (7)
days notice to the other Member.
(c) Each notice of a meeting shall include an itemized agenda prepared by the
Manager in the case of a regular meeting or by the Member calling the
meeting in the case of a special meeting, but any matters may be considered
if either Member adds the matter to the agenda at least five (5) days
before the meeting or with the consent of the other Member. The Manager
shall prepare minutes of all meetings and shall distribute copies of such
minutes to the other Member within ten (10) days after the meeting. Either
Member may electronically record the proceedings of a meeting with the
consent of the other Member. The other Member shall sign and return or
object to the minutes prepared by the Manager within thirty (30) days after
receipt, and failure to do either shall be deemed acceptance of the minutes
as prepared by the Manager. The minutes, when signed or deemed accepted by
both Members, shall be the official record of the decisions made by the
Management Committee. Decisions made at a Management Committee meeting
shall be implemented in accordance with adopted Programs and Budgets. If a
Member timely objects to minutes proposed by the Manager, the members of
the Management Committee shall seek, for a period not to exceed thirty (30)
days from receipt by the Manager of notice of the objections, to agree upon
minutes acceptable to both Members. If the Management Committee does not
reach agreement on the minutes of the meeting within such thirty (30) day
period, the minutes of the meeting as prepared by the Manager together with
the other Member's proposed changes shall collectively constitute the
record of the meeting. If personnel employed in Operations are required to
attend a Management Committee meeting, reasonable costs incurred in
connection with such attendance shall be charged to the Business Account.
All other costs shall be paid by the Members individually.
8.4 ACTION WITHOUT MEETING IN PERSON. In lieu of meetings in person,
the Management Committee may conduct meetings by telephone or videoconference,
so long as minutes of such meetings are prepared in accordance with SUBSECTION
----------
8.3(C). The Management Committee may also take actions in writing signed by all
-----
members of the Management Committee.
8.5 MATTERS REQUIRING APPROVAL. Except as provided in SUBSECTION 3.1(C) and
-----------------
as otherwise delegated to the Manager in SECTION 9.2, the Management Committee
-----------
shall have exclusive authority to determine all matters related to overall
policies, objectives, procedures, methods and actions under this Agreement.
ARTICLE IX MANAGER
9.1 APPOINTMENT. The Members hereby appoint NGXS as the Manager with
overall management responsibility for Operations. NGXS hereby agrees to serve
until it resigns as provided in SECTION 9.4.
------------
9.2 POWERS AND DUTIES OF MANAGER. Subject to the terms and provisions of
this Agreement, the Manager shall have the following powers and duties, which
shall be discharged in accordance with adopted Programs and Budgets.
(a) The Manager shall manage, direct and control Operations, and shall prepare
and present to the Management Committee proposed Programs and Budgets as
provided in ARTICLE X.
-----------
(b) The Manager shall implement the decisions of the Management Committee,
shall make all expenditures necessary to carry out adopted Programs, and
shall promptly advise the Management Committee if it lacks sufficient funds
to carry out its responsibilities under this Agreement.
(c) The Manager shall use reasonable efforts to: (i) purchase or otherwise
acquire all material, supplies, equipment, water, utility and
transportation services required for Operations, such purchases and
acquisitions to be made to the extent reasonably possible on the best terms
available, taking into account all of the circumstances; (ii) obtain such
customary warranties and guarantees as are available in connection with
such purchases and acquisitions; and (iii) keep the Assets free and clear
of all Encumbrances, except any such Encumbrances listed in PARAGRAPH 1.1
-------------
OF EXHIBIT A and those existing at the time of, or created concurrent with,
------------
the acquisition of such Assets, or mechanic's or material men's liens
(which shall be contested, released or discharged in a diligent matter) or
Encumbrances specifically approved by the Management Committee.
(d) The Manager shall conduct such title examinations of the Properties and
cure such title defects pertaining to the Properties as may be advisable in
its reasonable judgment.
(e) The Manager shall: (i) make or arrange for all payments required by leases,
licenses, permits, contracts and other agreements related to the Assets;
(ii) pay all taxes, assessments and like charges on Operations and Assets
except taxes determined or measured by a Member's sales revenue or net
income and taxes, including production taxes, attributable to a Member's
share of Products, and shall otherwise promptly pay and discharge expenses
incurred in Operations; provided, however, that if authorized by the
Management Committee, the Manager shall have the right to contest (in the
courts or otherwise) the validity or amount of any taxes, assessments or
charges if the Manager deems them to be unlawful, unjust, unequal or
excessive, or to undertake such other steps or proceedings as the Manager
may deem reasonably necessary to secure a cancellation, reduction,
readjustment or equalization thereof before the Manager shall be required
to pay them, but in no event shall the Manager permit or allow title to the
Assets to be lost as the result of the nonpayment of any taxes, assessments
or like charges; and (iii) do all other acts reasonably necessary to
maintain the Assets.
(f) The Manager shall: (i) apply for all necessary permits, licenses and
approvals; (ii) comply with all Laws; (iii) notify promptly the Management
Committee of any allegations of substantial violation thereof; and (iv)
prepare and file all reports or notices required for or as a result of
Operations. The Manager shall not be in breach of this provision if a
violation has occurred in spite of the Manager's good faith efforts to
comply consistent with its standard of care under SECTION 9.3. In the event
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of any such violation, the Manager shall timely cure or dispose of such
violation on behalf of both Members through performance, payment of fines
and penalties, or both, and the cost thereof shall be charged to the
Business Account.
(g) The Manager shall prosecute and defend, but shall not initiate without
consent of the Management Committee, all litigation or administrative
proceedings arising out of Operations. The non-managing Member shall have
the right to participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Member shall approve in
advance any settlement involving payments, commitments or obligations in
excess of ten thousand Dollars ($10,000) in cash or value.
(h) The Manager shall obtain insurance for the benefit of the Company as
provided in EXHIBIT F or as may otherwise be determined from time to time
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by the Management Committee.
(i) The Manager may dispose of Assets, whether by abandonment, surrender, or
Transfer in the ordinary course of business, except that Properties may be
abandoned or surrendered only as provided in SECTION 12.2. Without prior
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authorization from the Management Committee, however, the Manager shall
not: (i) dispose of Assets in any one transaction (or in any series of
related transactions) having a value in excess of one hundred thousand
Dollars ($100,000); (ii) enter into any sales contracts or commitments for
Product, except as permitted in SECTION 5.10; (iii) begin a liquidation of
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the Company; or (iv) dispose of all or a substantial part of the Assets
necessary to achieve the purposes of the Company.
(j) The Manager shall have the right to carry out its responsibilities
hereunder through agents, Affiliates or independent contractors.
(k) The Manager shall perform or cause to be performed all assessment and other
work, and shall pay all Governmental Fees, required by Law in order to
maintain the unpatented mining claims, mill sites and tunnel sites included
within the Properties. The Manager shall have the right to perform the
assessment work required hereunder pursuant to a common plan of exploration
and continued actual occupancy of such claims and sites shall not be
required. The Manager shall not be liable on account of any determination
by any court or governmental agency that the work performed by the Manager
does not constitute the required annual assessment work or occupancy for
the purposes of preserving or maintaining ownership of the claims, provided
that the work done is pursuant to an adopted Program and Budget Stage and
is performed in accordance with the Manager's standard of care under
SECTION 9.3. The Manager shall timely record with the appropriate county
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and file with the appropriate United States agency any required affidavits,
notices of intent to hold and other documents in proper form attesting to
the payment of Governmental Fees, the performance of assessment work or
intent to hold the claims and sites, in each case in sufficient detail to
reflect compliance with the requirements applicable to each claim and site.
The Manager shall not be liable on account of any determination by any
court or governmental agency that any such document submitted by the
Manager does not comply with applicable requirements, provided that such
document is prepared and recorded or filed in accordance with the Manager's
standard of care under SECTION 9.3.
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(l) If authorized by the Management Committee, the Manager may: (i) locate,
amend or relocate any unpatented mining claim or mill site or tunnel site,
(ii) locate any fractions resulting from such amendment or relocation,
(iii) apply for patents or mining leases or other forms of mineral tenure
for any such unpatented claims or sites, (iv) abandon any unpatented mining
claims for the purpose of locating mill sites or otherwise acquiring from
the United States rights to the ground covered thereby, (v) abandon any
unpatented mill sites for the purpose of locating mining claims or
otherwise acquiring from the United States rights to the ground covered
thereby, (vi) exchange with or convey to the United States any of the
Properties for the purpose of acquiring rights to the ground covered
thereby or other adjacent ground, and (vii) convert any unpatented claims
or mill sites into one or more leases or other forms of mineral tenure
pursuant to any Law hereafter enacted.
(m) The Manager shall keep and maintain all required accounting and financial
records pursuant to the procedures described in EXHIBIT B and in accordance
with customary cost accounting practices in the mining industry, and shall
ensure appropriate separation of accounts unless otherwise agreed by the
Members.
(n) The Manager shall keep and maintain all required records, make elections,
and prepare and file all federal and state tax returns or other required
tax forms, and perform the other duties described in EXHIBIT C.
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(o) The Manager shall maintain Equity Accounts for each Member. Each Member's
Equity Account shall be credited with the value of such Member's
contributions under SUBSECTIONS 3.1(A) and 3.1(B) and shall be credited
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with any additional amounts contributed by such Member to the Company. Each
Member's Equity Account shall be charged with the cash and the fair market
value of property distributed to such Member (net of liabilities assumed by
such Member and liabilities to which such distributed property is subject).
Contributions and distributions shall include all cash contributions or
distributions plus the agreed value (expressed in dollars) of all in-kind
contributions or distributions. Solely for purposes of determining the
Equity Account balances of the Members, the Manager shall reasonably
estimate the fair market value of all Products distributed to the Members,
and such estimated value shall be used regardless of the actual amount
received by each Member upon disposition of such Products.
(p) SUBJECT TO SUBSECTION 3.1(C), the Manager shall keep the Management
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Committee advised of all Operations by submitting in writing to the members
of the Management Committee: (i) monthly progress reports that include
statements of expenditures and comparisons of such expenditures to the
adopted Budget; (ii) periodic summaries of data acquired; (iii) copies of
reports concerning Operations; (iv) a detailed final report within ten (10)
days after completion of each Program and Budget Stage, which shall include
comparisons between actual and budgeted expenditures and comparisons
between the objectives and results of Programs; and (v) such other reports
as any member of the Management Committee may reasonably request. Subject
to ARTICLE XIII, at all reasonable times the Manager shall provide the
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Management Committee, or other representative of a Member upon the request
of such Member's member of the Management Committee, access to, and the
right to inspect and, at such Member's cost and expense, copy the Existing
Data and all maps, drill logs and other drilling data, core, pulps,
reports, surveys, assays, analyses, production reports, operations,
technical, accounting and financial records, and other Business
Information, to the extent preserved or kept by the Manager. In addition,
the Manager shall allow the non-managing Member, at the latter's sole risk,
cost and expense, and subject to reasonable safety regulations, to inspect
the Assets and Operations at all reasonable times, so long as the
non-managing Member does not unreasonably interfere with Operations.
(q) The Manager shall prepare an Environmental Compliance plan for all
Operations consistent with the requirements of any applicable Laws or
contractual obligations and shall include in each Program and Budget Stage
sufficient funding to implement the Environmental Compliance plan and to
satisfy the financial assurance requirements of any applicable Law or
contractual obligation pertaining to Environmental Compliance. To the
extent practical, the Environmental Compliance plan shall incorporate
concurrent reclamation of Properties disturbed by Operations.
(r) The Manager shall undertake to perform Continuing Obligations when and as
economic and appropriate, whether before or after termination of the
Company. The Manager shall have the right to delegate performance of
Continuing Obligations to persons having demonstrated skill and experience
in relevant disciplines. As part of each Program and Budget Stage
submittal, the Manager shall specify in such Program and Budget Stage the
measures to be taken for performance of Continuing Obligations and the cost
of such measures. The Manager shall keep the other Member reasonably
informed about the Manager's efforts to discharge Continuing Obligations.
Authorized representatives of each Member shall have the right from time to
time to enter the Properties to inspect work directed toward satisfaction
of Continuing Obligations and audit books, records, and accounts related
thereto.
(s) The funds that are to be deposited into the Environmental Compliance Fund
shall be maintained by the Manager in a separate, interest bearing cash
management account, which may include, but is not limited to, money market
investments and money market funds, and/or in longer term investments if
approved by the Management Committee. Such funds shall be used solely for
Environmental Compliance and Continuing Obligations, including the
committing of such funds, interests in property, insurance or bond
policies, or other security to satisfy Laws regarding financial assurance
for the reclamation or restoration of the Properties, and for other
Environmental Compliance requirements.
(t) If Ownership Interests are adjusted in accordance with this Agreement the
Manager shall modify the Schedule of Members to properly reflect such
adjustment and shall propose from time to time one or more methods for
fairly allocating costs for Continuing Obligations.
(u) The Manager shall undertake all other activities reasonably necessary to
fulfill the foregoing, and to implement the policies, objectives,
procedures, methods and actions determined by the Management Committee
pursuant to SECTION 8.1.
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(v) The balance of the funds that are not initially expended for the Land
Acquisition Stage are to be deposited and shall be maintained by the
Manager in a separate, interest bearing cash management account, which may
include, but is not limited to, money market investments and money market
funds, and/or in longer term investments if approved by the Management
Committee. Such residual funds shall be used solely to maintain Acquired
Properties in good standing and shall be available to the Manager to make
appropriate, timely payments.
9.3 STANDARD OF CARE. The Manager shall discharge its duties under
SECTION 9.2 and conduct all Operations in a good, workmanlike and efficient
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manner, in accordance with sound mining and other applicable industry standards
and practices, and in accordance with Laws and with the terms and provisions of
leases, licenses, permits, contracts and other agreements pertaining to the
Assets. The Manager shall not be liable to the other Member for any act or
omission resulting in damage or loss except to the extent caused by or
attributable to the Manager's willful misconduct or gross negligence. The
Manager shall not be in default of any of its duties under SECTION 9.2 if its
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inability or failure to perform results from the failure of the other Member to
perform acts or to contribute amounts required of it by this Agreement.
9.4 RESIGNATION; DEEMED OFFER TO RESIGN. The Manager may resign upon not
less than one (1) months' prior notice to the other Member, in which case the
other Member may elect to become the new Manager by notice to the resigning
Member within ten (10) days after the notice of resignation. If any of the
following shall occur, the Manager shall be deemed to have resigned upon the
occurrence of the event described in each of the following Subsections, with the
successor Manager to be appointed by the other Member at a subsequently called
meeting of the Management Committee, at which the Manager shall not be entitled
to vote. The other Member may appoint itself or a third party as the Manager.
(a) The aggregate Ownership Interest of the Manager and its Affiliates becomes
less than thirty percent (30%);
(b) The Manager fails to perform a material obligation imposed upon it under
this Agreement and such failure continues for a period of sixty (60) days
after notice from the other Member demanding performance;
(c) The Manager fails to pay or contest in good faith Company bills and Company
debts as such obligations become due;
(d) A receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official for a substantial part of its assets is appointed and such
appointment is neither made ineffective nor discharged within sixty (60)
days after the making thereof, or such appointment is consented to,
requested by, or acquiesced to by the Manager;
(e) The Manager commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect; or consents to the
entry of an order for relief in an involuntary case under any such law or
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official of any
substantial part of its assets; or makes a general assignment for the
benefit of creditors; or takes corporate or other action in furtherance of
any of the foregoing; or
(e) Entry is made against the Manager of a judgment, decree or order for relief
affecting its ability to serve as Manager or a substantial part of its
Ownership Interest or its other assets by a court of competent jurisdiction
in an involuntary case commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or hereafter in
effect.
(f) After BMGE has expended $3,250,000 BMGE shall have the right to appoint the
Manager.
Under SUBSECTIONS (D), (E) OR (F) above, the appointment of a successor
Manager shall be deemed to pre-date the event causing a deemed resignation.
9.5 PAYMENTS TO MANAGER. The Manager shall be compensated for its services
and reimbursed for its costs hereunder in accordance with EXHIBIT B.
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9.6 TRANSACTIONS WITH AFFILIATES. If the Manager engages Affiliates to
provide services hereunder, it shall do so on terms no less favorable than would
be the case in arm's-length transactions with unrelated parties.
9.7 ACTIVITIES DURING DEADLOCK. If the Management Committee for any reason
fails to adopt an Exploration, Pre-Feasibility Study, Feasibility Study or
Development Program and Budget Stage, the Manager shall continue Operations at
levels sufficient to maintain the Properties. If the Management Committee for
any reason fails to adopt an initial Mining Program and Budget or any Expansion
or Modification Programs and Budgets, the Manager shall continue Operations at
levels sufficient to maintain the then current Operations and Properties. If the
Management Committee for any reason fails to adopt Mining Programs and Budgets
subsequent to the initial Mining Program and Budget, subject to the contrary
direction of the Management Committee and receipt of necessary funds, the
Manager shall continue Operations at levels comparable with the last adopted
Mining Program and Budget. All of the foregoing shall be subject to the contrary
direction of the Management Committee and the receipt of necessary funds.
ARTICLE X PROGRAMS AND BUDGETS
10.1 INITIAL PROGRAM AND BUDGET. The Initial Program and Budget with
Program and Budget Stages to which both Members have agreed is hereby adopted
and is attached as EXHIBIT G. The Schedule of BMGE Initial Contributions,
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Ownership Interest Calculations, and Failure to Make Contributions Dilution
Schedule to which both parties have agreed is hereby adopted and is attached as
EXHIBIT I. The remaining subsections of Article X apply if and only if the
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company elects to retain one or more properties and NGSX elects to retain a
working ownership interest or the carried interest to production.
10.2 OPERATIONS PURSUANT TO PROGRAMS AND BUDGETS. Except as otherwise
provided in SUBSECTION 3.1(C) and SECTION 10.12, Operations shall be conducted,
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expenses shall be incurred, and Assets shall be acquired only pursuant to the
adopted Initial Program and Budget with Program and Budget Stages in accordance
with EXHIBIT G. Every Program and Budget Stage adopted pursuant to this
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Agreement shall provide for accrual of reasonably anticipated Environmental
Compliance expenses for all Operations contemplated under the Program and
Budget.
10.3 PRESENTATION OF PROGRAMS AND BUDGETS. Proposed Programs and Budgets
with Program and Budget Stages shall be prepared by the Manager for a period of
one (1) year or any other period as approved by the Management Committee, and
shall be submitted to the Management Committee for review and consideration. All
proposed Programs and Budgets may include Exploration, Pre-Feasibility Studies,
Feasibility Study, Development, Mining and Expansion or Modification Operations
components, or any combination thereof, and shall be reviewed and adopted upon a
vote of the Management Committee in accordance with SECTIONS 8.2 and 10.4. Each
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Program and Budget adopted by the Management Committee, regardless of length,
shall be reviewed at least once a year at a meeting of the Management Committee.
During the period encompassed by any Program and Budget, and at least one (1)
month prior to its expiration, a proposed Program and Budget for the succeeding
period shall be prepared by the Manager and submitted to the Management
Committee for review and consideration.
10.4 REVIEW AND ADOPTION OF PROPOSED PROGRAMS AND BUDGETS. Within ten (10)
days after submission of a proposed Program and Budget, each Member shall submit
in writing to the Management Committee:
(a) Notice that the Member approves any or all of the Stages of the proposed
Program and Budget; or
(b) Modifications proposed by the Member to the Stages of the proposed Program
and Budget; or
(c) Notice that the Member rejects any or all of the Stages of the proposed
Program and Budget.
If a Member fails to give any of the foregoing responses within the allotted
time, the failure shall be deemed to be a vote by the Member for adoption of the
Manager's proposed Program and Budget with Program and Budget Stages. If a
Member makes a timely submission to the Management Committee pursuant to
SUBSECTIONS 10.4(A), (B) or (C), then the Manager working with the other Member
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shall seek for a period of time not to exceed five (20) days to develop a
complete Program and Budget with Program and Budget Stages acceptable to both
Members. The Manager shall then call a Management Committee meeting in
accordance with SECTION 8.3 for purposes of reviewing and voting upon the
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proposed Program and Budget.
10.5 ELECTION TO PARTICIPATE. Except as otherwise provided in EXHIBIT
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I:
(a) By notice to the Management Committee within twenty (20) calendar days
after the final vote adopting a Program and Budget, and notwithstanding its
vote concerning adoption of a Program and Budget, a Member may elect to
participate in the approved Program and Budget: (i) in proportion to its
respective Ownership Interest, (ii) in some lesser amount than its
respective Ownership Interest, or (iii) not at all. In case of an election
under SUBSECTION 10.5(A)(II) or (III) , its Ownership Interest shall be
recalculated as provided in SUBSECTION 10.5(B) below, with dilution
effective as of the first day of the Program Period for the adopted Program
and Budget. If a Member fails to so notify the Management Committee of the
extent to which it elects to participate, the Member shall be deemed to
have elected to contribute to such Program and Budget in proportion to its
respective Ownership Interest as of the beginning of the Program Period.
(b) If a Member elects to contribute to an adopted Program and Budget some
lesser amount than in proportion to its respective Ownership Interest, or
not at all, and the other Member elects to fund all or any portion of the
deficiency, the Ownership Interest of the Reduced Member shall be
provisionally recalculated as follows: (i) for an election made before
"PAYOUT", by dividing: (A) the sum of (1) the amount credited to the
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Reduced Member's Equity Account with respect to its Initial Contribution
under SECTION 3.1, (2) the total of all of the Reduced Member's
------------
contributions to the Company under SUBSECTION 10.5(A) or otherwise pursuant
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to this Agreement, and (3) the amount, if any, the Reduced Member elects to
contribute to the adopted current Program and Budget; by (B) the sum of
(1), (2) and (3) above for both Members; and then multiplying the result by
one hundred; or (ii) for an election made after Payout, by reducing its
Ownership Interest in an amount equal to two times the amount by which it
would have been reduced under SUBSECTION 10.5(B)(I) if such election were
---------------------
made before Payout. The Ownership Interest of the other Member shall be
increased by the amount of the reduction in the Ownership Interest of the
Reduced Member, and if the other Member elects not to fund the entire
deficiency, the Manager shall adjust the Program and Budget to reflect the
funds available.
(c) Whenever the Ownership Interests are recalculated pursuant to this Section,
(i) the Equity Accounts of both Members shall be revised to bear the same
ratio to each other as their recalculated Ownership Interests; (ii) the
Schedule of Members shall be amended to reflect the recalculated Ownership
Interests; and (iii) the portion of Capital Account attributable to the
reduced Ownership Interest of the Reduced Member shall be transferred to
the other Member.
10.6 RECALCULATION OR RESTORATION OF REDUCED INTEREST BASED ON ACTUAL
EXPENDITURES. Except as otherwise provided in EXHIBIT I:
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(a) If a Member makes an election under SUBSECTION 10.5(A)(II) OR (III), then
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within ten (10) days after the conclusion of such Program and Budget, the
Manager shall report the total amount of money expended plus the total
obligations incurred by the Manager for such Budget.
(b) If the Manager expended or incurred obligations that were more or less than
the adopted Budget, the Ownership Interests shall be recalculated pursuant
to SUBSECTION 10.5(B) by substituting each Member's actual contribution to
-----------------
the adopted Budget for that Member's estimated contribution at the time of
the Reduced Member's election under SUBSECTION 10.5(A).
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(c) If the Manager expended or incurred obligations of less than sixty percent
(60%) of the adopted Budget, within ten (10) days of receiving the
Manager's report on expenditures, the Reduced Member may notify the other
Member of its election to reimburse the other Member for the difference
between any amount contributed by the Reduced Member to such adopted
Program and Budget and the Reduced Member's proportionate share (at the
Reduced Member's former Ownership Interest) of the actual amount expended
or incurred for the Program, plus interest on the difference accruing at
the rate described in SECTION 11.3 plus ten (10) percentage points. The
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Reduced Member shall deliver the appropriate amount (including interest) to
the other Member with such notice. Failure of the Reduced Member to so
notify and tender such amount shall result in dilution occurring in
accordance with this Article X and shall bar the Reduced Member from its
rights under this SUBSECTION 10.6(C) concerning the relevant adopted
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Program and Budget.
(d) All recalculations under this Section shall be effective as of the first
day of the Program Period for the Program and Budget. The Manager, on
behalf of both Members, shall make such reimbursements, reallocations of
Products, contributions and other adjustments as are necessary so that, to
the extent possible, each Member will be placed in the position it would
have been in had its Ownership Interests as recalculated under this Section
been in effect throughout the Program Period for such Program and Budget.
(e) Whenever the Ownership Interests are recalculated pursuant to this Section,
(i) the Members' Equity Accounts shall be revised to bear the same ratio to
each other as their Recalculated Ownership Interests; (ii) the Schedule of
Members shall be amended to reflect the recalculated Ownership Interests;
and (iii) the Capital Accounts of the Members shall be determined without
regard to SUBSECTION 10.5(C), provided, that the portion of Capital Account
attributable to the reduced Ownership Interest of the Reduced Member, if
any, after taking into account the adjustments required by this Section
10.6 shall be transferred to the other Member.
10.7 PRE-FEASIBILITY STUDY PROGRAM AND BUDGETS.
(a) At such time as either Member is of the good faith and reasonable opinion
that economically viable Mining Operations may be possible on the
Properties, the Member may propose to the Management Committee that a
Pre-Feasibility Study Program and Budget, or a Program and Budget that
includes Pre-Feasibility Studies, be prepared. Such proposal shall be made
in writing to the other Member, shall reference the data upon which the
proposing Member bases its opinion, and shall call a meeting of the
Management Committee pursuant to SECTION 8.3. If such proposal is adopted
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by the Management Committee, the Manager shall prepare or have prepared a
Pre-Feasibility Study Program and Budget as approved by the Management
Committee and shall submit the same to the Management Committee within
twenty (20) days following adoption of the proposal.
(b) Pre-Feasibility Studies may be conducted by the Manager, Feasibility
Contractors, or both, or may be conducted by the Manager and audited by
Feasibility Contractors, as the Management Committee determines. A
Pre-Feasibility Study Program shall include the work necessary to prepare
and complete the Pre-Feasibility Study approved in the proposal adopted by
the Management Committee, which may include some or all of the following:
(i) analyses of various alternatives for mining, processing and
beneficiation of Products; (ii) analyses of alternative mining, milling,
and production rates; (iii) analyses of alternative sites for placement of
facilities (i.e., water supply facilities, transport facilities, reagent
storage, offices, shops, warehouses, stock yards, explosives storage,
handling facilities, housing, public facilities); (iv) analyses of
alternatives for waste treatment and handling (including a description of
each alternative of the method of tailings disposal and the location of the
proposed disposal site); (v) estimates of recoverable proven and probable
reserves of Products and of related substances, in terms of technical and
economic constraints (extraction and treatment of Products), including the
effect of grade, losses, and impurities, and the estimated mineral
composition and content thereof, and review of mining rates commensurate
with such reserves; (vi) analyses of environmental impacts of the various
alternatives, including an analysis of the permitting, environmental
liability and other Environmental Law implications of each alternative, and
costs of Environmental Compliance for each alternative; (vii) conduct of
appropriate metallurgical tests to determine the efficiency of alternative
extraction, recovery and processing techniques, including an estimate of
water, power, and reagent consumption requirements; (viii) conduct of
hydrology and other studies related to any required dewatering; and
(ix)conduct of other studies and analyses approved by the Management
Committee.
(c) The Manager shall have the discretion to base its and any Feasibility
Contractors' Pre-Feasibility Study on the cumulative results of each
discipline studied, so that if a particular portion of the work would
result in the conclusion that further work based on these results would be
unwarranted for a particular alternative, the Manager shall have no
obligation to continue expenditures on other Pre-Feasibility Studies
related solely to such alternative.
10.8 COMPLETION OF PRE-FEASIBILITY STUDIES AND SELECTION OF APPROVED
ALTERNATIVES. As soon as reasonably practical following completion of all
Pre-Feasibility Studies required to evaluate fully the alternatives studied
pursuant to Pre-Feasibility Programs, the Manager shall prepare a report
summarizing all Pre-Feasibility Studies and shall submit the same to the
Management Committee. Such report shall incorporate the following:
(a) The results of the analyses of the alternatives and other matters evaluated
in the conduct of the Pre-Feasibility Programs;
(b) Reasonable estimates of capital costs for the Development and start-up of
the mine, mill and other processing and ancillary facilities required by
the Development and Mining alternatives evaluated (based on flow sheets,
piping and instrumentation diagrams, and other major engineering diagrams),
which cost estimates shall include reasonable estimates of: (i) capitalized
pre-stripping expenditures, if an open pit or surface mine is proposed;
(ii) expenditures required to purchase, construct and install all
machinery, equipment and other facilities and infrastructure (including
contingencies) required to bring a mine into commercial production,
including an analysis of costs of equipment or supply contracts in lieuof
Development costs for each Development and Mining alternative evaluated;
(iii) expenditures required to perform all other related work required to
commence commercial production of Products and, if applicable, process
Products (including reasonable estimates of working capital requirements);
and (iv) all other direct and indirect costs and general and administrative
expenses that may be required for a proper evaluation of the Development
and Mining alternatives and annual production levels evaluated. The capital
cost estimates shall include a schedule of the timing of the estimated
capital requirements for each alternative;
(c) A reasonable estimate of the annual expenditures required for the first
year of Operations after completion of the capital program described in
SUBSECTION 10.8(B) for each Development alternative evaluated, and for
-------------------
subsequent years of Operations, including estimates of annual production,
processing, administrative, operating and maintenance expenditures, taxes
(other than income taxes), working capital requirements, royalty and
purchase obligations, equipment leasing or supply contract expenditures,
work commitments, Environmental Compliance costs, post-Operations
Environmental Compliance and Continuing Obligations funding requirements
and all other anticipated costs of such Operations. This analysis shall
also include an estimate of the number of employees required to conduct
such Operations for each alternative;
(d) A review of the nature, extent and rated capacity of the mine, machinery,
equipment and other facilities preliminarily estimated to be required for
the purpose of producing and marketing Products under each Development and
Mining alternative analyzed; (e)an analysis (and sensitivity analyses
reasonably requested by either Member), based on various target rates of
return and price assumptions requested by either Member, of whether it is
technically, environmentally, and economically feasible to place a
prospective ore body or deposit within the Properties into commercial
production for each of the Development and Mining alternatives analyzed
(including a discounted cash flow rate of return investment analysis for
each alternative and net present value estimate using various discount
rates requested by either Member); and
(f) Such other information as the Management Committee deems appropriate.
Within twenty (20) days after delivery of the Pre-Feasibility Study summary
to the Members, a Management Committee meeting shall be convened for the
purposes of reviewing the Pre-Feasibility Study summary and selecting one
or more Approved Alternatives, if any.
10.9 PROGRAMS AND BUDGETS FOR FEASIBILITY STUDY. Within twenty (20)
days following the selection of an Approved Alternative, the Manager shall
submit to the Management Committee a Program and a Budget, which shall include
necessary Operations, for the preparation of a Feasibility Study. A Feasibility
Study may be prepared by the Manager, Feasibility Contractors, or both, or may
be prepared by the Manager and audited by Feasibility Contractors, as the
Management Committee determines.
10.10 DEVELOPMENT PROGRAMS AND BUDGETS; PROJECT FINANCING.
(a) Unless otherwise determined by the Management Committee, the Manager shall
not submit to the Management Committee a Program and Budget including
Development of the mine described in a completed Feasibility Study until
sixty (60) days following the receipt by Manager of the Feasibility Study.
The Program and Budget, which includes Development of the mine described in
the completed Feasibility Study, shall be based on the estimated cost of
Development described in the Feasibility Study for the Approved
Alternative, unless otherwise directed by the Management Committee.
(b) Promptly following adoption of the Program and Budget, which includes
Development as described in a completed Feasibility Study, but in no event
more than sixty (60) days thereafter, the Manager shall submit to the
Management Committee a report on material bids received for Development
work ("BID REPORT"). If bids described in the Bid Report result in the
aggregate cost of Development work exceeding one hundred and fifteen
percent (115%) of the Development cost estimates that formed the basis of
the Development component of the adopted Program and Budget, the Program
and Budget, which includes relevant Development, shall be deemed to have
been re-submitted to the Management Committee based on the aggregate costs
as described in the Bid Report on the date of receipt of the Bid Report and
shall be reviewed and adopted in accordance with SECTIONS 8.2 and 10.4.
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(c) If the Management Committee approves the Development of the mine described
in a Feasibility Study and also decides to seek Project Financing for such
mine, each Member shall, at its own cost, cooperate in seeking to obtain
Project Financing for such mine; provided, however, that all fees, charges
and costs (including attorneys and technical consultants fees) paid to the
Project Financing lenders shall be borne by the Members in proportion to
their Ownership Interests, unless such fees are capitalized as a part of
the Project Financing.
10.11 EXPANSION OR MODIFICATION PROGRAMS AND BUDGETS. Any Program and
Budget proposed by the Manager involving Expansion or Modification shall be
based on a Feasibility Study prepared by the Manager, Feasibility Contractors,
or both, or prepared by the Manager and audited by Feasibility Contractors, as
the Management Committee determines. The Program and Budget, which include
Expansion or Modification, shall be submitted for review and approval by the
Management Committee within sixty (60) days following receipt by the Manager of
such Feasibility Study.
10.12 BUDGET OVERRUNS; PROGRAM CHANGES. For Programs and Budgets adopted
after completion of BMGE's Initial Contribution, the Manager shall immediately
notify the Management Committee of any material departure from an adopted
Program and Budget. If the Manager exceeds an adopted Budget by more than
fifteen percent (15%) in the aggregate, then the excess over ten percent (10%),
unless authorized or ratified by the Management Committee, shall be for the sole
account of the Manager and such excess shall not be included in the calculations
of the Ownership Interests nor deemed a contribution under this Agreement.
Budget overruns of fifteen percent (15%) or less in the aggregate shall be borne
by the Members in proportion to their respective Ownership Interests.
10.13 SUPPLEMENTAL BUSINESS ARRANGEMENT. At any time during the term of
this Agreement, the Management Committee may determine by unanimous vote of both
Members after BMGE's Initial Contribution obligations have been fully satisfied
that it is appropriate to segregate the Area of Interest into areas subject to
separate Programs and Budgets for purposes of conducting further Exploration,
Pre-Feasibility or Feasibility Studies, Development, or Mining. At such time,
the Management Committee shall designate which portion of the Properties will
comprise an area of interest under a separate business arrangement
("SUPPLEMENTAL BUSINESS ARRANGEMENT") for the purpose of further exploring,
analyzing, developing, and mining such portion of the Properties. The
Supplemental Business Arrangement shall substantially reflect the same terms as
this Agreement, with rights and interests of the Members in the Supplemental
Business Arrangement identical to the rights and interests of the Members in the
Company at the time of the designation, unless otherwise agreed to by the
Members, and with the Members agreeing to new Capital and Equity Accounts and
other terms necessary for the Supplemental Business Arrangement to comply with
the nature and purpose of the designation. Following the effectuation of the
Supplemental Business Arrangement, this Agreement shall terminate insofar as it
affects the Properties covered by the Supplemental Business Arrangement.
ARTICLE XI ACCOUNTS AND SETTLEMENTS
11.1 MONTHLY STATEMENTS. After completion of BMGE's Initial
Contribution, the Manager shall promptly submit to the Management Committee
monthly statements of account reflecting in reasonable detail the charges and
credits to the Business Account during the preceding month.
11.2 CASH CALLS. Except as otherwise provided in EXHIBIT I on the basis of
---------
each adopted Program and Budget Stage, the Manager shall submit prior to the
last day of each month a billing for estimated cash requirements for the next
month. Within ten (10) days after receipt of each billing, each Member shall
advance its proportionate share of such cash requirements. The Manager shall
record all funds received in the Business Account. The Manager shall at all
times maintain a cash balance approximately equal to the rate of disbursement
for up to ten (10) days. All funds in excess of immediate cash requirements
shall be invested by the Manager for the benefit of the Company in cash
management accounts and investments selected at the discretion of the Manager,
which accounts may include, but are not limited to, money market investments and
money market funds.
11.3 FAILURE TO MEET CASH CALLS. Except as otherwise provided in EXHIBIT I
---------
a Member that fails to meet cash calls in the amount and at the times specified
in SECTION 11.2 shall be in default, and the amounts of the defaulted cash call
------------
shall bear interest from the date due at an annual rate equal to ten (10)
percentage points over the Prime Rate, but in no event shall the rate of
interest exceed the maximum permitted by Law. Such interest shall accrue to the
benefit of and be payable to the non-defaulting Member, but shall not be deemed
as amounts contributed by the defaulting Member in the event dilution occurs in
accordance with SUBSECTION 4.2(C). In addition to any other rights and remedies
-----------------
available to it by Law, the non-defaulting Member shall have those other rights,
remedies, and elections specified in SECTIONS 11.4 and 11.5.
--------------------------
11.4 COVER PAYMENT. If a Member defaults in making a contribution or cash
call required by an adopted Program and Budget Stage, the non-defaulting Member
may, but shall not be obligated to, advance some portion or all of the amount in
default on behalf of the defaulting Member (a "COVER PAYMENT"). Each and every
--------------
Cover Payment shall constitute a demand loan bearing interest from the date of
the advance at the rate provided in SECTION 11.3. If more than one Cover Payment
------------
is made, the Cover Payments shall be aggregated and the rights and remedies
described herein pertaining to an individual Cover Payment shall apply to the
aggregated Cover Payments. The failure to repay such loan upon demand shall be a
default.
11.5 REMEDIES. Except as otherwise provided in EXHIBIT I the Members
---------
acknowledge that if either Member defaults in making a contribution required by
ARTICLE III or a cash call, or in repaying a loan, as required under SECTIONS
------------ --------
11.2, 11.3 or 11.4, whether or not a Cover Payment is made, it will be difficult
------------------
to measure the damages resulting from such default (it being hereby understood
and agreed that the Members have attempted to determine such damages in advance
and determined that the calculation of such damages cannot be ascertained with
reasonable certainty). Both Members acknowledge and recognize that the damage to
the non-defaulting Member could be significant. In the event of such default, as
reasonable liquidated damages, the non-defaulting Member may, with respect to
any such default not cured within twenty (20) days after notice to the
defaulting Member of such default, elect any of the following remedies by giving
notice to the defaulting Member. Such election may be made with respect to each
failure to meet a cash call relating to a Program and Budget, regardless of the
frequency of such cash calls, provided such cash calls are made in accordance
with SECTION 11.2.
--------------
(a) The defaulting Member grants to the non-defaulting Member a power of sale
as to all or any portion of its Ownership Interest or of its interest in
any Assets, upon a default under SECTIONS 11.3 or 11.4. Such power shall be
---------------------
exercised in the manner provided by applicable Law or otherwise in a
commercially reasonable manner and upon reasonable notice. If the
non-defaulting Member elects to enforce the lien or security interest
pursuant to the terms of this Subsection, the defaulting Member shall be
deemed to have waived any available right of redemption, any required
valuation or appraisal of the secured property prior to sale, any available
right to stay execution or to require a marshaling of assets, and any
required bond in the event a receiver is appointed, and the defaulting
Member shall be liable for any deficiency.
(b) The non-defaulting Member may elect to have the defaulting Member's
Ownership Interest diluted or eliminated as follows: (i) For a default
occurring before Payout relating to a Program and Budget covering in whole
or in part Exploration, Pre-Feasibility Study or Feasibility Study
Operations, the Reduced Member's Ownership Interest shall be recalculated
by dividing: (X) the sum of (1) the value of the Reduced Member's Initial
Contribution under SECTION 3.1, (2) the total of all of the Reduced
------------
Member's contributions to the Company under SUBSECTION 10.5(A) or otherwise
------------------
pursuant to this Agreement and (3) the amount, if any, the Reduced Member
contributed to the adopted current Program and Budget with respect to which
the default occurred; by (Y) the sum of (1), (2) and (3) above for both
Members; and then multiplying the result by one hundred. For such a default
occurring after Payout, the Reduced Member's Ownership Interest shall be
reduced in an amount equal to two times the amount by which it would have
been reduced if such default had occurred before Payout. For such a
default, whether occurring before or after Payout, the Recalculated
Ownership Interest shall then be further reduced: (A) for a default
relating exclusively to an Exploration Program and Budget, by multiplying
the Recalculated Ownership Interest by the following percentage: 200; or
(B) for a default relating to a Program and Budget covering in whole or in
part Pre-Feasibility Study and/or Feasibility Study Operations, by
multiplying Recalculated Ownership Interest by the following percentage:
25. The Ownership Interest of the other Member shall be increased by the
amount of the reduction in the Ownership Interest of the Reduced Member,
including the further reduction under SUBSECTIONS 10.5(B)(I)(A) or (B).
--------------------------------
(ii) For a default relating to a Program and Budget covering in whole or in
part Development or Mining, at the non-defaulting Member's election, the
defaulting Member shall be deemed to have withdrawn and to have
automatically relinquished its interest in the Assets to the non-defaulting
Member; provided, however, the defaulting Member shall have the right to
receive only from one and a quarter percent (1.25%) of Net Smelter Royalty
Proceeds, if any, and not from any other source. Upon receipt of such
amount the defaulting Member shall thereafter have no further right, title
or interest in the Assets. (iii) Dilution under this SUBSECTION 11.5(B)
------------------
shall be effective as of the date of the original default, and SECTION 10.6
------------
shall not apply. The amount of any Cover Payment under SECTION 11.4 and
------------
interest thereon, or any interest accrued in accordance with SECTION 11.3,
-------------
shall be deemed to be amounts contributed by the non-defaulting Member, and
not as amounts contributed by the defaulting Member. (iv) Whenever the
Ownership Interests are recalculated pursuant to this SUBSECTION 11.5(B),
------------------
(A) the Equity Accounts of both Members shall be adjusted to bear the same
ratio to each other as their recalculated Ownership Interests; and (B) the
portion of Capital Account attributable to the reduced Ownership Interest
of the Reduced Member shall be transferred to the other Member.
(c) If a Member has defaulted in meeting a cash call or repaying a loan, and if
the non-defaulting Member has made a Cover Payment, then, in addition to a
reduction in the defaulting Member's Ownership Interest effected pursuant
to SUBSECTION 11.5(B), the non-defaulting Member shall have the right, if
------------------
the indebtedness arising from a default or Cover Payment is not discharged
within ten (10) days of the default and upon not less than thirty (30) days
advance notice to the defaulting Member, to elect to purchase all the
right, title, and interest, whenever acquired or arising, of the defaulting
Member in the Company and Assets, including but not limited to its
Ownership Interest or interest in Net Proceeds, together with all proceeds
from and accessions of the foregoing (collectively the "DEFAULTING MEMBER'S
ENTIRE INTEREST") at a purchase price equal to eighty percent (80%) of the
fair market value thereof as determined by a qualified independent
appraiser appointed by the non-defaulting Member. If the defaulting Member
conveys notice of objection to the person so appointed within ten (10) days
after receiving notice thereof, then an independent and qualified appraiser
shall be appointed by the joint action of the appraiser appointed by the
non-defaulting Member and a qualified independent appraiser appointed by
the defaulting Member; provided, however, that if the defaulting Member
fails to designate a qualified independent appraiser for such purpose
within ten (10) days after giving notice of such objection, then the person
originally designated by the non-defaulting Member shall serve as the
appraiser; provided further, that if the appraisers appointed by each of
the Members fail to appoint a third qualified independent appraiser within
five (5) days after the appointment of the last of them, then an appraiser
shall be appointed by a judge of a court of competent jurisdiction in the
state in which the Assets are situated upon the application of either
Member. There shall be withheld from the purchase price payable, upon
transfer of the Defaulting Member's Entire Interest, the amount of any
Cover Payment under SECTION 11.4 and unpaid interest thereon to the date of
such transfer, or any unpaid interest accrued in accordance with SECTION
11.3 to the date of such transfer. Upon payment of such purchase price, the
defaulting Member shall be deemed to have relinquished all of the
Defaulting Member's Entire Interest to the non-defaulting Member.
11.6 AUDITS.
(a) After completion of BMGE's Initial Contribution, within ninety (90) days
after the end of each calendar year, at the request of a Member, an audit
shall be completed by certified public accountants selected by, and
independent of, the Manager. The audit shall be conducted in accordance
with generally accepted auditing standards and shall cover all books and
records maintained by the Manager pursuant to this Agreement, all Assets
and Encumbrances, and all transactions and Operations conducted during such
calendar year, including production and inventory records and all costs for
which the Manager sought reimbursement under this Agreement, together with
all other matters customarily included in such audits. All written
exceptions to and claims upon the Manager for discrepancies disclosed by
such audit shall be made not more than three (3) months after receipt of
the audit report, unless either Member elects to conduct an independent
audit pursuant to SUBSECTION 11.6(B) which is ongoing at the end of such
------------------
three (3) month period, in which case such exceptions and claims may be
made within the period provided in SUBSECTION 11.6(B). Failure to make any
such exception or claim within such period shall mean the audit is deemed
to be correct and binding upon the Members.The cost of all audits under
this Subsection shall be charged to the Business Account.
(b) Notwithstanding the annual audit conducted by certified public accountants
selected by the Manager, each Member shall have the right to have an
independent audit of all Company books, records and accounts, including all
charges to the Business Account. This audit shall review all issues raised
by the requesting Member, with all costs borne by the requesting Member.
The requesting Member shall give the other Member thirty (30) days prior
notice of such audit. Any audit conducted on behalf of either Member shall
be made during the Manager's normal business hours and shall not interfere
with Operations. Neither Member shall have the right to audit records and
accounts of the Company relating to transactions or Operations more than
twenty-four (24) months after the calendar year during which such
transactions, or transactions related to such Operations, were charged to
the Business Account. All written exceptions to and claims upon the Manager
for discrepancies disclosed by such audit shall be made not more than three
(3) months after completion and delivery of such audit, or they shall be
deemed waived.
ARTICLE XII PROPERTIES
12.1 ROYALTIES, PRODUCTION TAXES AND OTHER PAYMENTS BASED ON PRODUCTION.
All required payments of production royalties, taxes based on production of
Products, and other payments out of production to private parties and
governmental entities, shall be determined and made by the Company in a timely
manner and otherwise in accordance with applicable laws and agreements. The
Manager shall furnish to the Members evidence of timely payment for all such
required payments. In the event the Company fails to make any such required
payment, any Member shall have the right to make such payment and shall thereby
become subrogated to the rights of such third party; provided, however, that the
making of any such payment on behalf of the Company shall not constitute
acceptance by the paying Member of any liability to such third party for the
underlying obligation.
12.2 ABANDONMENT AND SURRENDER. Either Member may request the Management
Committee to authorize the Manager to surrender or abandon part or all of the
Properties. At the option of the other Member, the Company shall assign to the
objecting Member or such other Person as the objecting Member specifies, by
special warranty deed and without cost to the objecting Member, all of the
Company's interest in the Properties sought to be abandoned or surrendered, free
and clear of all Encumbrances created by, through or under the Company other
than those to which both Members have agreed. Upon the assignment, such
properties shall cease to be part of the Properties.
ARTICLE XIII CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION
13.1 BUSINESS INFORMATION. All Business Information shall be owned jointly
by the Members as their Ownership Interests are determined pursuant to this
Agreement. Both before and after the termination of the Company, all Business
Information may be used by either Member for any purpose, whether or not
competitive with the Business, without consulting with, or obligation to, the
other Member. Except as provided in SECTIONS 13.3 and 13.4, or with the prior
----------------------
written consent of the other Member, each Member shall keep confidential and not
disclose to any third party or the public any portion of the Business
Information that constitutes Confidential Information.
13.2 MEMBER INFORMATION. In performing its obligations under this
Agreement, neither Member shall be obligated to disclose any Member Information.
If a Member elects to disclose Member Information in performing its obligations
under this Agreement, such Member Information, together with all improvements,
enhancements, refinements and incremental additions to such Member Information
that are developed, conceived, originated or obtained by either Member in
performing its obligation under this Agreement ("ENHANCEMENTS"), shall be owned
exclusively by the Member that originally developed, conceived, originated or
obtained such Member Information. Each Member may use and enjoy the benefits of
such Member Information and Enhancements in the conduct of the Business
hereunder, but the Member that did not originally develop, conceive, originate
or obtain such Member Information may not use such Member Information and
Enhancements for any other purpose. Except as provided in SECTION 13.4, or with
------------
the prior written consent of the other Member, which consent may be withheld in
such Member's sole discretion, each Member shall keep confidential and not
disclose to any third party or the public any portion of Member Information and
Enhancements owned by the other Member that constitutes Confidential
Information.
13.3 PERMITTED DISCLOSURE OF CONFIDENTIAL BUSINESS INFORMATION. Either
Member may disclose Business Information that is Confidential Information:
(a) To a Member's officers, directors, partners, members, employees,
Affiliates, shareholders, agents, attorneys, accountants, consultants,
contractors, subcontractors or advisors, for the sole purpose of such
Member's performance of its obligations under this Agreement;
(b) To any party to whom the disclosing Member contemplates a Transfer of all
or any part of its Ownership Interest, for the sole purpose of evaluating
the proposed Transfer;
(c) To any actual or potential lender, underwriter or investor for the sole
purpose of evaluating whether to make a loan to or investment in the
disclosing Member; or (d) to a third party with whom the disclosing Member
contemplates any independent business activity or operation.
The Member disclosing Confidential Information pursuant to this SECTION
-------
13.3, shall disclose such Confidential Information to only those parties that
have a bona fide need to have access to such Confidential Information for the
purpose for which disclosure to such parties is permitted under this SECTION
-------
13.3 and that have agreed in writing supplied to, and enforceable by, the other
Member to protect the Confidential Information from further disclosure, to use
such Confidential Information solely for such purpose and to otherwise be bound
by the provisions of this ARTICLE XIII. Such writing shall not preclude parties
------------
described in SUBSECTION 13.3(B) from discussing and completing a Transfer with
------------------
the other Member. The Member disclosing Confidential Information shall be
responsible and liable for any use or disclosure of the Confidential Information
by such parties in violation of this Agreement and such other writing.
13.4 DISCLOSURE REQUIRED BY LAW. Notwithstanding anything contained in this
Article, a Member may disclose any Confidential Information if, in the opinion
of the disclosing Member's legal counsel: (a) such disclosure is legally
required to be made in a judicial, administrative or governmental proceeding
pursuant to a valid subpoena or other applicable order; or (b) such disclosure
is legally required to be made pursuant to the rules or regulations of a stock
exchange or similar trading market applicable to the disclosing Member.
Prior to any disclosure of Confidential Information under this SECTION
-------
13.4, the disclosing Member shall give the other Member at least ten (10) days
prior written notice (unless less time is permitted by such rules, regulations
or proceeding) and, in making such disclosure, the disclosing Member shall
disclose only that portion of Confidential Information required to be disclosed
and shall take all reasonable efforts to preserve the confidentiality thereof,
including, without limitation, obtaining protective orders and supporting the
other Member in intervention in any such proceeding.
13.5 PUBLIC ANNOUNCEMENTS. Prior to making or issuing any press release or
other public announcement or disclosure of Business Information that is not
Confidential Information, a Member shall first consult with the other Member as
to the content and timing of such announcement or disclosure, unless in the good
faith judgment of such Member, there is not sufficient time to consult with the
other Member before such announcement or disclosure must be made under
applicable Laws; but in such event, the disclosing Member shall notify the other
Member, as soon as possible, of the pendency of such announcement or disclosure,
and it shall notify the other Member before such announcement or disclosure is
made if at all reasonably possible. Any press release or other public
announcement or disclosure to be issued by either Member relating to this
Business shall also identify the other Member.
ARTICLE XIV RESIGNATION AND DISSOLUTION
14.1 EVENTS OF DISSOLUTION. The Company shall be dissolved upon the
occurrence of any of the following:
(a) Upon expiration of term of this Agreement in accordance with SECTION 2.5;
------------
(b) Upon the unanimous written agreement of the Members;
(c) At the election of either Member upon sixty (60) days notice of termination
to the other Member, if the Management Committee fails to adopt a Program
and Budget Stage for three (3) months after the expiration of the latest
adopted Program and Budget;
(d) Upon the resignation of a Member pursuant to SECTION 14.2 or upon the
------------
bankruptcy, insolvency, dissolution or assignment for the benefit of
creditors of a Member; or
(e) as otherwise provided by the Act.
14.2 RESIGNATION. A Member may elect to resign from the Company by (a) in
the case of BMGE, failing to complete its Initial Contributions as required by
SUBSECTION 3.1(B), or (b) giving notice to the other Member of the effective
------------------
date of resignation, which shall be the later of the end of the then current
Program Period or thirty (30) days after the date of the notice. Upon
resignation by a Member, the resigning Member shall be deemed to have
transferred to the remaining Member all of its Ownership Interest, including all
of its interest in the Assets and its Capital Account, without cost and free and
clear of all Encumbrances arising by, through or under such resigning Member,
except those described in PARAGRAPH 1.1 OF EXHIBIT A and those to which both
--------------------------
Members have agreed. The resigning Member shall execute and deliver all
instruments as may be necessary in the reasonable judgment of the other Member
to effect the transfer of its interests in the Company and the Assets to the
other Member. A resigning Member shall have no right to receive the fair value
of his Ownership Interest pursuant to 18-604 of the Act. If within a sixty (60)
day period both Members elect to withdraw, then the Company shall instead be
deemed to have been terminated by the written agreement of the Members pursuant
to SECTION 14.1(B).
----------------
14.3 DISPOSITION OF ASSETS ON DISSOLUTION. Promptly after dissolution under
SECTION 14.1, the Manager shall take all action necessary to wind up the
-------------
activities of the Company, in accordance with EXHIBIT C. All costs and expenses
---------
incurred in connection with the dissolution of the Company shall be expenses
chargeable to the Business Account.
14.4 FILING OF CERTIFICATE OF CANCELLATION. Upon completion of the winding
up of the affairs of the Company, the Manager shall promptly file a Certificate
of Cancellation with the Office of the Secretary of State of the State of
Nevada. If the Manager has caused the dissolution of the Company, whether
voluntarily or involuntarily, then a person selected by a majority vote of the
Members to wind up the affairs of the Company shall file the Certificate of
Cancellation.
14.5 RIGHT TO DATA AFTER DISSOLUTION. After dissolution of the Company
pursuant to SUBSECTIONS 14.1(A), (B), (C) or (E), each Member shall be entitled
------------------- --- --- ---
to make copies of all applicable information acquired hereunder before the
effective date of termination not previously furnished to it, but a bankrupt or
resigning Member causing a dissolution of the Company pursuant to SUBSECTION
----------
14.1(D) shall not be entitled to any such copies.
-------
14.6 CONTINUING AUTHORITY. On dissolution of the Company under SECTION
-------
14.1, or the deemed resignation of either Member pursuant to SECTIONS 3.2 or
---- ------------
11.5, the Member that was the Manager prior to such dissolution (or the other
----
Member in the event of a resignation by the Manager) shall have the power and
authority to do all things on behalf of both Members that are reasonably
necessary or convenient to: (a) wind up Operations and (b) complete any
transaction and satisfy any obligation, unfinished or unsatisfied, at the time
of such termination or resignation, if the transaction or obligation arises out
of Operations prior to such termination or resignation. The Manager shall have
the power and authority to grant or receive extensions of time or change the
method of payment of an already existing liability or obligation, prosecute and
defend actions on behalf of the Company and either or both Members, encumber
Assets, and take any other reasonable action in any matter with respect to which
the former Members continue to have, or appear or are alleged to have, a common
interest or a common liability.
ARTICLE XV DISPUTES
15.1 GOVERNING LAW. Except for matters of title to the Properties or
their Transfer, which shall be governed by the law of their situs, this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Nevada, without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws of any other
jurisdiction.
15.2 FORUM SELECTION. The parties submit to the jurisdiction of the Second
Judicial Court of the State of Nevada, Washoe County, Nevada, and the United
States District Court for the District of Nevada. The parties waive any
objections to the jurisdiction of such courts and venue of any actions or
proceedings in such courts arising from or relating to this Agreement.
15.3 ARBITRATION. All disputes arising from or relating to this Agreement,
including any dispute concerning the enforcement or construction of this
Agreement, shall be decided and determined by arbitration in accordance with the
provision of Chapter 30 of the Nevada Revised Statutes and, as applicable, the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be administered by and conducted before a single arbitrator
who must be an independent attorney licensed to practice law or an independent
geologist or mining engineer who is recognized as having experience and
knowledge of mining contract law and mining industry customs and practices. No
person having a prior or existing attorney-client, business or family
relationship with any of the parties or their principals shall be qualified to
act as an arbitrator. The arbitration shall be held in Reno, Nevada.
15.4 DISPUTE RESOLUTION. All disputes arising under or in connection with
this Agreement which cannot be resolved by agreement between the Members shall
be resolved in accordance with applicable Law. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or substantially prevailing
Member shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
ARTICLE XVI GENERAL PROVISIONS
16.1 NOTICES. All notices, payments and other required or permitted
communications ("NOTICES") to either Member shall be in writing, and shall be
addressed respectively as follows:
If to BMGE:
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Mailing Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇▇.▇▇.▇▇
With a Copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Mailing Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
E-Mail: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
If to NGXS:
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Mailing Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: 775-359-7722
E-Mail: ▇▇▇▇▇@▇▇▇.▇▇▇
With a Copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Mailing Address: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇▇@▇▇▇.▇▇▇
All Notices shall be given (a) by personal delivery to the Member, (b) by
electronic communication, capable of producing a printed transmission, (c) by
registered or certified mail return receipt requested, or (d) by overnight or
other express courier service. All Notices shall be effective and shall be
deemed given on the date of receipt at the principal address if received during
normal business hours, and, if not received during normal business hours, on the
next business day following receipt, or if by electronic communication, on the
date of such communication. Either Member may change its address by Notice to
the other Member.
16.2 GENDER. The singular shall include the plural, and the plural the
singular wherever the context so requires, and the masculine, the feminine, and
the neuter genders shall be mutually inclusive.
16.3 CURRENCY. All references to "dollars" or "$" herein shall mean lawful
currency of the United States of America.
16.4 HEADINGS. The subject headings of the Sections and Subsections of this
Agreement and the Paragraphs and Subparagraphs of the Exhibits to this Agreement
are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
16.5 WAIVER. The failure of either Member to insist on the strict
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit such Member's right thereafter to enforce any provision
or exercise any right.
16.6 MODIFICATION. No modification of this Agreement shall be valid unless
made in writing and duly executed by both Members.
16.7 FORCE MAJEURE. Except for the obligation to make payments when due
hereunder, the obligations of a Member shall be suspended to the extent and for
the period that performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without limitation,
labor disputes (however arising and whether or not employee demands are
reasonable or within the power of the Member to grant); acts of God; Laws,
instructions or requests of any government or governmental entity; judgments or
orders of any court; inability to obtain on reasonably acceptable terms any
public or private license, permit or other authorization; curtailment or
suspension of activities to remedy or avoid an actual or alleged, present or
prospective violation of Environmental Laws; action or inaction by any federal,
state or local agency that delays or prevents the issuance or granting of any
approval or authorization required to conduct Operations beyond the reasonable
expectations of the Member seeking the approval or authorization (including,
without limitation, a failure to complete any review and analysis required by
the National Environmental Policy Act or any similar state law within two (2)
months of initiation of that process); acts of war or conditions arising out of
or attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse weather condition; delay or failure by suppliers
or transporters of materials, parts, supplies, services or equipment or by
contractors' or subcontractors' shortage of, or inability to obtain, labor,
transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities; actions by
native rights groups, environmental groups, or other similar special interest
groups; or any other cause whether similar or dissimilar to the foregoing. The
affected Member shall promptly give notice to the other Member of the suspension
of performance, stating therein the nature of the suspension, the reasons
therefore, and the expected duration thereof. The affected Member shall resume
performance as soon as reasonably possible. During the period of suspension the
obligations of both Members to advance funds pursuant to SECTION 11.2 shall be
reduced to levels consistent with then current Operations.
16.8 RULE AGAINST PERPETUITIES. The Members do not intend that there shall
be any violation of the Rule Against Perpetuities, the Rule Against Unreasonable
Restraints on the Alienation of Property, or any similar rule. Accordingly, if
any right or option to acquire any interest in the Properties, in an Ownership
Interest, in the Assets, or in any real property exists under this Agreement,
such right or option must be exercised, if at all, so as to vest such interest
within time periods permitted by applicable rules. If, however, any such
violation should inadvertently occur, the Members hereby agree that a court
shall reform that provision in such a way as to approximate most closely the
intent of the Members within the limits permissible under such rules.
16.9 FURTHER ASSURANCES. Each of the Members shall take, from time to time
and without additional consideration, such further actions and execute such
additional instruments as may be reasonably necessary or convenient to implement
and carry out the intent and purpose of this Agreement or as may be reasonably
required by lenders in connection with Project Financing.
16.10 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement contains the
entire understanding of the Members and supersedes all prior agreements and
understandings between the Members relating to the subject matter hereof. This
Agreement shall be binding upon and inure to the benefit of the respective
successors and permitted assigns of the Members.
16.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and it shall not be necessary that the signatures of both Members
be contained on any counterpart. Each counterpart shall be deemed an original,
but all counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
BMGE
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
NGXS
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
EXHIBIT A
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT A ASSETS AND AREA OF INTEREST
1.1 INTELLECTUAL PROPERTIES AND TITLE EXCEPTIONS. NGSX grants to BMGE a
limited, exclusive license to use NGXS's proprietary water chemistry database
(the "Database"), NGXS's proprietary data reduction and orientation processes
for its GIS database for the state of Nevada and NGXS's proprietary water
sampling protocol. This license is limited and BMGE shall have no right to
assign, convey, disclose, lease, license or sub-license the Database or the
related intellectual property without NGXS's prior written consent. NGXS shall
retain all rights of control and ownership of, in and to the Database and
related intellectual property, including any and all additions or modifications
of the Database. The limited, exclusive license granted by NGXS to BMGE will
terminate upon BMGE expending $3,250,000 or upon BMGE failing to make a
contribution according to EXHIBIT I.
----------
1.2 AREA OF INTEREST. The Area of Interest is the State of Nevada.
EXHIBIT B
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT B ACCOUNTING PROCEDURES
The financing and accounting procedures to be followed by the Manager and
the Members under the Agreement are set forth below. All capitalized terms in
these Accounting Procedures shall have the definition attributed to them in the
Agreement, unless defined otherwise herein.
The purpose of these Accounting Procedures is to establish equitable
methods for determining charges and credits applicable to Operations. It is the
intent of the Members that neither of them shall lose or profit by reason of the
designation of one of them to exercise the duties and responsibilities of the
Manager. The Members shall meet and in good faith endeavor to agree upon changes
deemed necessary to correct any unfairness or inequity. In the event of a
conflict between the provisions of these Accounting Procedures and those of the
Agreement, the provisions of the Agreement shall control.
ARTICLE I GENERAL PROVISIONS
1.1 GENERAL ACCOUNTING RECORDS. The Manager shall maintain detailed and
comprehensive cost accounting records in accordance with these Accounting
Procedures, including general ledgers, supporting and subsidiary journals,
invoices, checks and other customary documentation, sufficient to provide a
record of revenues and expenditures and periodic statements of financial
position and the results of Operations for managerial, tax, regulatory or other
financial, regulatory, or legal reporting purposes related to the Company. Such
records shall be retained for the duration of the period allowed the Members for
audit or the period necessary to comply with tax or other regulatory
requirements. The records shall reflect all obligations, advances and credits of
the Members.
1.2 CASH MANAGEMENT ACCOUNTS. The Manager shall maintain one or more
separate cash management accounts for the payment of all expenses and the
deposit of all cash receipts for the Company.
1.3 STATEMENTS AND ▇▇▇▇▇▇▇▇. The Manager shall prepare statements and ▇▇▇▇
the Members as provided in ARTICLE XI of the Agreement. Payment of any such
----------
▇▇▇▇▇▇▇▇ by either Member, including the Manager, shall not prejudice such
Member's right to protest or question the correctness thereof for a period not
to exceed twenty-four (24) months following the calendar year during which such
▇▇▇▇▇▇▇▇ were received by such Member. All written exceptions to and claims upon
the Manager for incorrect charges, ▇▇▇▇▇▇▇▇ or statements shall be made upon the
Manager within such twenty-four (24) month period. The time period permitted for
adjustments hereunder shall not apply to adjustments resulting from periodic
inventories as provided in PARAGRAPHS 5.1 and 5.2.
--------------------------
ARTICLE II CHARGES TO BUSINESS ACCOUNT
Subject to the limitations hereinafter set forth, the Manager shall charge
the Business Account with the following:
2.1 PROPERTY ACQUISITION COSTS, RENTALS, ROYALTIES AND OTHER PAYMENTS. All
property acquisition and holding costs, including Governmental Fees, filing
fees, license fees, costs of permits and assessment work, delay rentals,
production royalties, including any required advances, and all other payments
made by the Manager which are necessary to acquire or maintain title to the
Assets.
2.2 LABOR AND EMPLOYEE BENEFITS.
(a) Salaries and wages of the Manager's employees directly engaged in
Operations, including salaries or wages of employees who are temporarily
assigned to and directly employed by same.
(b) The Manager's cost of holiday, vacation, sickness and disability benefits,
and other customary allowances applicable to the salaries and wages
chargeable under SUBPARAGRAPH 2.2(A) and PARAGRAPH 2.12. Such costs may be
---------------------------------------
charged on a "when and as paid basis" or by "percentage assessment" on the
amount of salaries and wages. If percentage assessment is used, the rate
shall be applied to wages or salaries excluding overtime and bonuses. Such
rate shall be based on the Manager's cost experience and it shall be
periodically adjusted at least annually to ensure that the total of such
charges does not exceed the actual cost thereof to the Manager.
(c) The Manager's actual cost of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus (except production or incentive bonus plans under a union contract
based on actual rates of production, cost savings and other production
factors, and similar non-union bonus plans customary in the industry or
necessary to attract competent employees, which bonus payments shall be
considered salaries and wages under SUBPARAGRAPH 2.2(A) or PARAGRAPH 2.12
-------------------------------------
rather than employees' benefit plans) and other benefit plans of a like
nature applicable to salaries and wages chargeable under SUBPARAGRAPHS
-------------
2.2(A) or PARAGRAPH 2.12, provided that the plans are limited to the extent
------------------------
feasible to those customary in the industry.
(d) Cost of assessments imposed by governmental authority that are applicable
to salaries and wages chargeable under SUBPARAGRAPH 2.2(A) and PARAGRAPH
---------------------------------
2.12, including all penalties except those resulting from the willful
----
misconduct or gross negligence of the Manager.
2.3 MATERIALS, EQUIPMENT AND SUPPLIES. The cost of materials, equipment
and supplies (herein called "Material") purchased from unaffiliated third
parties or furnished by either Member as provided in PARAGRAPH 3.2. The Manager
-------------
shall purchase or furnish only so much Material as may be required for immediate
use in efficient and economical Operations. The Manager shall also maintain
inventory levels of Material at reasonable levels to avoid unnecessary
accumulation of surplus stock.
2.4 EQUIPMENT AND FACILITIES FURNISHED BY MANAGER. The cost of machinery,
equipment and facilities owned by the Manager and used in Operations or used to
provide support or utility services to Operations charged at rates commensurate
with the actual costs of ownership and operation of such machinery, equipment
and facilities. Such rates shall include costs of maintenance, repairs, other
operating expenses, insurance, taxes, depreciation and interest at a rate not to
exceed Prime Rate plus three percent (3%) per annum. Such rates shall not exceed
the average commercial rates currently prevailing in the vicinity of the
Operations.
2.5 TRANSPORTATION. Reasonable transportation costs incurred in connection
with the transportation of employees and material necessary for Operations.
2.6 CONTRACT SERVICES AND UTILITIES. The cost of contract services and
utilities procured from outside sources, other than services described in
PARAGRAPHS 2.9 and 2.13. If contract services are performed by the Manager or an
-----------------------
Affiliate thereof, the cost charged to the Business Account shall not be greater
than that for which comparable services and utilities are available in the open
market within the vicinity of Operations. The cost of professional consultant
services procured from outside sources in excess of Twenty-Five Thousand Dollars
($25,000.00) per annum per contract shall not be charged to the Business Account
unless approved by the Management Committee.
2.7 INSURANCE PREMIUMS. Net premiums paid for insurance required to be
carried for Operations for the protection of the Members. When Operations are
conducted in an area where the Manager may self-insure for Workers' Compensation
and/or Employer's Liability under state law, the Manager may elect to include
such risks in its self-insurance program and shall charge its costs of
self-insuring such risks to the Business Account provided that such charges
shall not exceed published manual rates.
2.8 DAMAGES AND LOSSES. All costs in excess of insurance proceeds necessary
to repair or replace damage or losses to any Assets resulting from any cause
other than the willful misconduct or gross negligence of the Manager. The
Manager shall furnish the Management Committee with written notice of damages or
losses as soon as practicable after a report thereof has been received by the
Manager.
2.9 LEGAL AND REGULATORY EXPENSE. Except as otherwise provided in PARAGRAPH
---------
2.13, all legal and regulatory costs and expenses incurred in or resulting from
----
Operations or necessary to protect or recover the Assets of the Company,
including costs of title investigation and title curative services. All
attorneys' fees and other legal costs to handle, investigate, and settle
litigation or claims, and amounts paid in settlement of such litigation or
claims in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum shall
not be charged to the Business Account unless approved by the Management
Committee.
2.10 AUDIT. Cost of annual audits under SUBSECTION 11.6(A) of the
-------------------
Agreement.
2.11 TAXES. All taxes, assessments and like charges on Operations and
Assets which have been paid by the Manager for the benefit of the Members. Each
Member is separately responsible for taxes determined or measured by a Member's
sales revenue or net income.
2.12 FIELD SUPERVISION AND CAMP EXPENSES. A pro rata portion of: (i) the
salaries and expenses of the Manager's superintendent and other employees
serving Operations whose time is not allocated directly to such Operations, and
(ii) the costs of maintaining and operating an office and any necessary sub
office and (iii) all necessary camps, including housing facilities for
employees, used for Operations. The expense of those facilities, less any
revenue there from, shall include depreciation or a fair monthly rental in lieu
of depreciation of the investment. The total of such charges for all Properties
served by the Manager's employees and facilities shall be apportioned to the
Business Account on the basis of a ratio to be approved by the Management
Committee.
2.13 ADMINISTRATIVE CHARGE.
(a) Each month, the Manager shall charge the Business Account a sum for each
phase of Operations as provided below, which shall be a liquidated amount
to reimburse the Manager for its home office overhead and general and
administrative expenses to conduct each phase of Operations, and which
shall be in lieu of any management fee and for taxes based on production of
Products: (i) Exploration Phase three percent (3%) of Allowable Costs up to
five million Dollars ($5,000,000), and one percent (1%) of Allowable Costs
over five million Dollars ($5,000,000). (ii) Development Phase five percent
(5%) of Allowable Costs up to ten million Dollars ($10,000,000), and one
percent (1%) of Allowable Costs over ten million Dollars ($10,000,000).
(iii) Major Construction Phase ten percent (10%) of Allowable Costs up to
twenty five million Dollars ($25,000,000), and one percent (1%) of
Allowable Costs over twenty five million Dollars ($25,000,000). (iv) Mining
Phase ten percent (10%) of Allowable Costs.
(b) The term "Allowable Costs" as used in this Paragraph for a particular phase
of Operations shall mean all charges to the Business Account excluding: (i)
the administrative charge referred to herein; (ii) depreciation, depletion
or amortization of tangible or intangible Assets; (iii) amounts charged in
accordance with PARAGRAPHS 2.1 and 2.9; and (iv) marketing costs. The
-------------------------
Manager shall attribute such Allowable Costs to a particular phase of
Operations by applying the following guidelines: (A) The Exploration Phase
shall cover those Operations conducted to ascertain the existence,
location, extent or quantity of any deposit of ore or mineral. (B) The
Development Phase shall cover those Operations, including Pre-Feasibility
and Feasibility Study Operations, conducted to assess a commercially
feasible ore body or to extend production of an existing ore body, and to
construct or install related fixed Assets. (C) The Major Construction Phase
shall include all Operations involved in the construction of a mill,
smelter or other ore processing facilities. (D) The Mining Phase shall
include all other Operations activities not otherwise covered above,
including activities conducted after Mining Operations have ceased.
(c) Various phases of Operations may be conducted concurrently, in which event
the administrative charge shall be calculated separately for Allowable
Costs attributable to each phase.
(d) The monthly administration charge determined for each phase of Operations
shall be a liquidated amount to reimburse Manager for its home office
overhead and general and administrative expenses for its conduct of
Operations, and shall be equitably apportioned among all of the properties
served during such monthly period on the basis of a ratio approved by the
Management Committee.
(e) The following is a representative list of items that constitute the
Manager's principal business office expenses that are expressly covered by
the administrative charge provided in this Paragraph, except to the extent
that such items are directly chargeable to the Business Account under other
provisions of this Article II: (i) Administrative supervision, which
includes all services rendered by managers, department supervisors,
officers and directors of the Manager for Operations. (ii) Accounting, data
processing, personnel administration, billing and record keeping in
accordance with governmental regulations and the provisions of the
Agreement, and preparation of reports; (iii) The services of tax counsel
and tax administration employees for all tax matters, including any
protests, except any outside professional fees which the Management
Committee may approve as a direct charge to the Business Account; (iv)
Routine legal services rendered by outside sources and the Manager's legal
staff not otherwise charged to the Business Account under PARAGRAPH 2.9,
--------------
including property acquisition, attorney management and oversight, and
support services provided by Manager's legal staff concerning any
litigation; and (v) Rentals and other charges for office and records
storage space, telephone service, office equipment and supplies.
(f) The Management Committee shall annually review the administrative charges
and shall amend the methodology or rates used to determine such charges if
they are found to be insufficient or excessive based on the principles that
the Manager shall not make a profit or suffer a loss and that it should be
fairly and adequately compensated for its costs and expenses.
2.14 ENVIRONMENTAL COMPLIANCE FUND. Costs of reasonably anticipated
Environmental Compliance which, on a Program basis, shall be determined by the
Management Committee and shall be based on proportionate contributions in an
amount sufficient to establish a fund, which through successive proportionate
contributions during the life of the Company, will pay for ongoing Environmental
Compliance conducted during Operations and which will aggregate the reasonably
anticipated costs of mine closure, post-Operations Environmental Compliance and
Continuing Obligations. The Manager shall invest such amounts on behalf of the
Members as provided in SUBSECTION 9.2(S) of the Agreement.
------------------
2.15 OTHER EXPENDITURES. Any reasonable direct expenditure, other than
expenditures which are covered by the foregoing provisions, incurred by the
Manager for the necessary and proper conduct of Operations.
ARTICLE III BASIS OF CHARGES TO BUSINESS ACCOUNT
3.1 PURCHASES. Material purchased and services procured from third
parties shall be charged to the Business Account by the Manager at invoiced
cost, including applicable transfer taxes, less all discounts taken. If any
Material is determined to be defective or is returned to a vendor for any other
reason, the Manager shall credit the Business Account when an adjustment is
received from the vendor.
3.2 MATERIAL FURNISHED BY A MEMBER FOR USE IN THE BUSINESS. Any Material
furnished by either Member for use in the Business or distributed to either
Member by the Manager shall be priced on the following basis:
(a) New Material. New Material furnished by either Member shall be priced
-------------
F.O.B. the nearest reputable supply store or railway receiving point, where
like Material is available, at the current replacement cost of the same
kind of Material, exclusive of any available cash discounts, at the time it
is furnished (the "NEW PRICE").
(b) Used Material. (i) Used Material in sound and serviceable condition and
--------------
suitable for reuse without reconditioning shall be priced as follows: (A)
Used Material furnished by either Member shall be priced at seventy-five
percent (75%) of the New Price; (B) Used Material distributed to either
Member shall be priced (i) at seventy-five percent (75%) of the New Price
if such Material was originally charged to the Business Account as new
Material, or (ii) at sixty-five percent (65%) of the New Price if such
Material was originally charged to the Business Account as good used
Material at seventy-five percent (75%) of the New Price. (ii) Other used
Material that, after reconditioning, will be further serviceable for
original function as good secondhand Material, or that is serviceable for
original function but not substantially suitable for reconditioning, shall
be priced at fifty percent (50%) of New Price. The cost of any
reconditioning shall be borne by the transferee. (iii) Bad-Order Material
which is no longer usable for its original purpose without excessive repair
cost but further usable for some other purpose shall be priced on a basis
comparable with items normally used for that purpose. (iv) All other
Material, including junk, shall be priced at a value commensurate with its
use or at prevailing prices.
(c) Obsolete Material. Any Material that is serviceable and usable for its
------------------
original function, but its condition is not equivalent to that which would
justify a price as provided above, shall be priced by the Management
Committee. Such price shall be set at a level that will result in a charge
to the Business Account equal to the value of the service to be rendered by
such Material.
3.3 PREMIUM PRICES. Whenever Material is not readily obtainable at
published or listed prices because of national emergencies, strikes or other
unusual circumstances over which the Manager has no control, the Manager may
charge the Business Account for the required Material on the basis of the
Manager's direct cost and expenses incurred in procuring such Material and
making it suitable for use. The Manager shall give written notice of the
proposed charge to the Members prior to the time when such charge is to be
billed, whereupon either Member shall have the right, by notifying the Manager
within ten days of the delivery of the notice from the Manager, to furnish at
the usual receiving point all or part of its share of Material suitable for use
and acceptable to the Manager.
3.4 WARRANTY OF MATERIAL FURNISHED BY THE MANAGER OR MEMBERS. Neither
Member warrants any Material furnished beyond any dealer's or manufacturer's
warranty and no credits shall be made to the Business Account for defective
Material until adjustments are received by the Manager from the dealer,
manufacturer or their respective agents.
ARTICLE IV DISPOSAL OF MATERIAL
4.1 DISPOSITION GENERALLY. The Manager shall have no obligation to
purchase either Member's interest in Material. The Management Committee shall
determine the disposition of major items of surplus Material, provided the
Manager shall have the right to dispose of normal accumulations of junk and
scrap Material either by sale or by transfer to the Members as provided in
PARAGRAPH 4.2 below.
4.2 DISTRIBUTION TO MEMBERS. Any Material to be distributed to the Members
shall be made in proportion to their respective Participating Interests, and
corresponding credits shall be made to the Business Account on the basis
provided in PARAGRAPH 3.2.
---------------
4.3 SALES. Sales of Material to third parties shall be credited to the
Business Account at the net amount received. Any damages or claims by the
Purchaser shall be charged back to the Business Account if and when paid.
ARTICLE V INVENTORIES
5.1 PERIODIC INVENTORIES, NOTICE AND REPRESENTATIONS. At reasonable
intervals, inventories shall be taken by the Manager, which shall include all
such Material as is ordinarily considered controllable by operators of mining
properties and the expense of conducting such periodic inventories shall be
charged to the Business Account. The Manager shall give written notice to the
Members of its intent to take any inventory at least thirty (30) days before
such inventory is scheduled to take place. A Member shall be deemed to have
accepted the results of any inventory taken by the Manager if the Member fails
to be represented at such inventory.
5.2 RECONCILIATION AND ADJUSTMENT OF INVENTORIES. Reconciliation of
inventory with charges to the Business Account shall be made, and a list of
overages and shortages shall be furnished to the Management Committee within six
(6) months after the inventory is taken. Inventory adjustments shall be made by
the Manager to the Business Account for overages and shortages, but the Manager
shall be held accountable to the Company only for shortages due to lack of
reasonable diligence.
EXHIBIT C
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT C TAX MATTERS
ARTICLE I EFFECT OF THIS EXHIBIT
This Exhibit shall govern the relationship of the Members and the Company
with respect to tax matters and the other matters addressed herein. Except as
otherwise indicated, capitalized terms used in this Exhibit shall have the
meanings given to them in the Agreement. In the event of a conflict between this
Exhibit and the other provisions of the Agreement, the terms of this Exhibit
shall control.
ARTICLE II TAX MATTERS PARTNER
2.1 DESIGNATION OF TAX MATTERS PARTNER. The Manager is hereby
designated the tax matters partner (the "TMP") as defined in Section 6231(a)(7)
of the Internal Revenue Code of 1986 (the "CODE") and shall be responsible for,
make elections for, and prepare and file any federal and state tax returns or
other required tax forms following approval of the Management Committee. In the
event of any change in Manager, the Member serving as Manager at the end of a
taxable year shall continue as TMP with respect to all matters concerning such
year unless the TMP for that year is required to be changed pursuant to
applicable Treasury Regulations. The TMP and the other Member shall use
reasonable best efforts to comply with the responsibilities outlined in this
ARTICLE II and in Sections 6221 through 6233 of the Code (including any Treasury
---------
regulations promulgated thereunder) and in doing so shall incur no liability to
any other party.
2.2 NOTICE. Each Member shall furnish the TMP with such information
(including information specified in Section 6230(e) of the Code) as it may
reasonably request to permit it to provide the Internal Revenue Service with
sufficient information to allow proper notice to the Members in accordance with
Section 6223 of the Code. The TMP shall keep each Member informed of all
administrative and judicial proceedings for the adjustment at the partnership
level of partnership items in accordance with Section 6223(g) of the Code.
2.3 INCONSISTENT TREATMENT OF TAX ITEM. If an administrative proceeding
contemplated under Section 6223 of the Code has begun, and the TMP so requests,
each Member shall notify the TMP of its treatment of any partnership item on its
federal income tax return that is inconsistent with the treatment of that item
on the partnership return.
2.4 EXTENSIONS OF LIMITATION PERIODS. The TMP shall not enter into any
extension of the period of limitations as provided under Section 6229 of the
Code without first giving reasonable advance notice to the other Member of such
intended action.
2.5 REQUESTS FOR ADMINISTRATIVE ADJUSTMENTS. Neither Member shall file,
pursuant to Section 6227 of the Code, a request for an administrative adjustment
of partnership items for any taxable year of the Company without first notifying
the other Member. If the other Member agrees with the requested adjustment, the
TMP shall file the request for administrative adjustment on behalf of the
Company. If consent is not obtained within thirty (30) days after notice from
the proposing Member, or within the period required to timely file the request
for administrative adjustment, if shorter, either Member, including the TMP, may
file that request for administrative adjustment on its own behalf.
2.6 JUDICIAL PROCEEDINGS. Either Member intending to file a petition under
Section 6226, 6228 or other sections of the Code with respect to any partnership
item, or other tax matters involving the Company, shall notify the other Member
of such intention and the nature of the contemplated proceeding. If the TMP is
the Member intending to file such petition, such notice shall be given within a
reasonable time to allow the other Member to participate in the choosing of the
forum in which such petition will be filed. If both Members do not agree on the
appropriate forum, then the appropriate forum shall be decided in accordance
with SECTION 8.2 of the Agreement. If a deadlock results, the TMP shall choose
------------
the forum. If either Member intends to seek review of any court decision
rendered as a result of a proceeding instituted under the preceding part of this
Paragraph, such Member shall notify the other Member of such intended action.
2.7 SETTLEMENTS. The TMP shall not bind the other Member to a settlement
agreement without first obtaining the written consent of any such Member. Either
Member who enters into a settlement agreement for its own account with respect
to any partnership items, as defined by Section 6231(a)(3) of the Code, shall
notify the other Member of such settlement agreement and its terms within ninety
(90) days from the date of settlement.
2.8 FEES AND EXPENSES. The TMP shall not engage legal counsel, certified
public accountants, or others without the prior consent of the Management
Committee. Either Member may engage legal counsel, certified public accountants,
or others in its own behalf and at its sole cost and expense. Any reasonable
item of expense, including but not limited to fees and expenses for legal
counsel, certified public accountants, and others which the TMP incurs (after
proper consent by the Management Committee as provided above) in connection with
any audit, assessment, litigation, or other proceeding regarding any partnership
item, shall constitute proper charges to the Business Account and shall be borne
by the Members as any other item which constitutes a direct charge to the
Business Account pursuant to the Agreement.
2.9 SURVIVAL. The provisions of the foregoing paragraphs, including but not
limited to the obligation to pay fees and expenses contained in PARAGRAPH 2.8
-------------
above, shall survive the termination of the Company or the termination of either
Member's interest in the Company and shall remain binding on the Members for a
period of time necessary to resolve with the Internal Revenue Service or the
Department of the Treasury any and all matters regarding the federal income
taxation of the Company for the applicable tax year(s).
ARTICLE III TAX ELECTIONS AND ALLOCATIONS
3.1 COMPANY ELECTION. It is understood and agreed that the Members
intend to create a partnership for United States federal and state income tax
purposes, and, unless otherwise agreed to hereafter by both Members, no Member
shall take any action to change the status of the Company as a partnership under
Treas. Reg. 1.7701-3 or similar provision of state law. It is understood and
agreed that the Members intend to create a partnership for federal and state
income tax purposes only. The Manager shall file with the appropriate office of
the Internal Revenue Service a partnership income tax return covering the
Operations. The Members recognize that the Agreement may be subject to state
income tax statutes. The Manager shall file with the appropriate offices of the
state agencies any required partnership state income tax returns. Each Member
agrees to furnish to the Manager any information it may have relating to
Operations as shall be required for proper preparation of such returns. The
Manager shall furnish to the other Member for its review a copy of each proposed
income tax return at least two weeks prior to the date the return is filed.
3.2 TAX ELECTIONS. The Company shall make the following elections for
purposes of all partnership income tax returns:
(a) To use the cash method of accounting, unless required otherwise by
regulatory statute.
(b) Pursuant to the provisions at Section 706(b)(1) of the Code, to use as its
taxable year the year ended December. In this connection, BMGE represents
that its taxable year is the year ending December and NGXS represents that
its taxable year is the year ending December.
(c) To deduct currently all development expenses to the extent possible under
Section 616 of the Code.
(d) Unless the Members unanimously agree otherwise, to compute the allowance
for depreciation in respect of all depreciable Assets using the maximum
accelerated tax depreciation method and the shortest life permissible or,
at the election of the Manager, using the units of production method of
depreciation.
(e) To treat advance royalties as deductions from gross income for the year
paid or accrued to the extent permitted by law.
(f) To adjust the basis of property of the Company under Section 754 of the
Code at the request of either Member;
(g) To amortize over the shortest permissible period all organizational
expenditures and business start-up expenses under Sections 195 and 709 of
the Code;
Any other election required or permitted to be made by the Company under
the Code or any state tax law shall be made as determined by the Management
Committee.
Each Member shall elect under Section 617(a) of the Code to deduct
currently all exploration expenses. Each Member reserves the right to capitalize
its share of development and/or exploration expenses of the Company in
accordance with Section 59(e) of the Code, provided that a Member's election to
capitalize all or any portion of such expenses shall not affect the Member's
Capital Account.
3.3 ALLOCATIONS TO MEMBERS. Allocations for Capital Account purposes
shall be in accordance with the following:
(a) Exploration expenses and development cost deductions shall be allocated
among the Members in accordance with their respective contributions to such
expenses and costs.
(b) Depreciation and amortization deductions with respect to a depreciable
Asset shall be allocated among the Members in accordance with their
respective contributions to the adjusted basis of the Asset
(c) Production and operating cost deductions shall be allocated among the
Members in accordance with their respective contributions to such costs.
(d) Deductions for depletion (to the extent of the amount of such deductions
that would have been determined for Capital Account purposes if only cost
depletion were allowable for federal income tax purposes) shall be
allocated to the Members in accordance with their respective contributions
to the adjusted basis of the depletable property. Any remaining depletion
deductions shall be allocated to the Members so that, to the extent
possible, the Members receive the same total amounts of percentage
depletion as they would have received if percentage depletion were
allocated to the Members in proportion to their respective shares of the
gross income used as the basis for calculating the federal income tax
deduction for percentage depletion.
(e) Subject to SUBPARAGRAPH 3.3(G) below, gross income on the sale of
production shall be allocated in accordance with the Members' rights to
share in the proceeds of such sale.
(f) Except as provided in SUBPARAGRAPH 3.3(G) below, gain or loss on the sale
of a depreciable or depletable asset shall be allocated so that, to the
extent possible, the net amount reflected in the Members' Capital Account
with respect to such property (taking into account the cost of such
property, depreciation, amortization, depletion or other cost recovery
deductions and gain or loss) most closely reflects the Members' Ownership
Interests.
(g) Gains and losses on the sale of all or substantially all the Assets of the
Company shall be allocated so that, to the extent possible, the Members'
resulting Capital Account balances are in the same ratio as their Ownership
Interests at the time of such sale.
(h) The Members acknowledge that expenses and deductions allocable under the
preceding provisions of this Paragraph may be required to be capitalized
into production under Section 263A of the Code. With respect to such
capitalized expenses or deductions, the allocation of gross income on the
sale of production shall be adjusted, in any reasonable manner consistently
applied by the Manager, so that the same net amount (subject possibly to
timing differences) is reflected in the Capital Accounts as if such
expenses or deductions were instead deductible and allocated pursuant to
the preceding provisions of this Paragraph.
(i) All deductions and losses that are not otherwise allocated in this
Paragraph shall be allocated among the Members in accordance with their
respective contributions to the costs producing each such deduction or to
the adjusted basis of the Asset producing each such loss.
(j) Any recapture of exploration expenses under Section 617(b)(1)(A) of the
Code, and any disallowance of depletion under Section 617(b)(1)(B) of the
Code, shall be borne by the Members in the same manner as the related
exploration expenses were allocated to, or claimed by, them.
(k) All other items of income and gain shall be allocated to the Members in
accordance with their Ownership Interests.
(l) If a reduced Ownership Interest is restored pursuant to SECTION 10.6 of the
------------
Agreement, the Manager shall endeavor to allocate items of income, gain,
loss, and deduction (in the same year as the restoration of such Ownership
Interest or, if necessary, in subsequent years) so as to cause the Capital
Account balances of the Members to be the same as they would have been if
the restored Ownership Interest had never been reduced.
(m) If the Members' Ownership Interests change during any taxable year of the
Company, the distributive share of items of income, gain, loss and
deduction of each Member shall be determined in any manner (1) permitted by
Section 706 of the Code, and (2) agreed by both Members. If the Members
cannot agree on a method, the method shall be determined by the Manager in
consultation with the Company's tax advisers, with preference given to the
interim closing-of-the-books method except where application of that method
would result in undue administrative expense in relationship to the amount
of the items to be allocated.
(n) For purposes of this PARAGRAPH 3.3, items financed through indebtedness of,
-------------
or from revenues of, the Company shall be treated as funded from
contributions made by the Members to the Company in accordance with their
Ownership Interests. "NONRECOURSE DEDUCTIONS," as defined by Treas. Reg.
1.704-2(b)(1) shall be allocated between the Members in proportion to their
Ownership Interests.
3.4 REGULATORY ALLOCATIONS. Notwithstanding the provisions of Paragraph
3.3 to the contrary, the following special allocations shall be given effect for
purposes of maintaining the Members' Capital Accounts.
(a) If either Member unexpectedly receives any adjustments, allocations, or
distributions described in Treas. Reg. 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), which result in a
deficit Capital Account balance, items of income and gain shall be
specially allocated to each such Member in an amount and manner sufficient
to eliminate, to the extent required by the Treasury Regulations, the
Capital Account deficit of such Member as quickly as possible. For the
purposes of this SUBPARAGRAPH 3.4(A), each Member's Capital Account balance
shall be increased by the sum of (i) the amount such Member is obligated to
restore pursuant to any provision of the Agreement, and (ii) the amount
such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Treas. Reg. 1.704-2(g)(1) and 1.704-2(i)(5).
(b) If there is a net decrease in partnership minimum gain for a taxable year
of the Company, each Member shall be allocated items of income and gain for
that year equal to that Member's share of the net decrease in partnership
minimum gain, all in accordance with Treas. Reg. 1.704-2(f). If, during a
taxable year of the Company, there is a net decrease in partner nonrecourse
debt minimum gain, any Member with a share of that partner nonrecourse debt
minimum gain as of the beginning of the year shall be allocated items of
income and gain for the year (and, if necessary, for succeeding years)
equal to that partner's share of the net decrease in partner nonrecourse
debt minimum gain, all in accordance with Treas. Reg. 1.704-2(i)(4).
Pursuant to Treas. Reg. 1.704-2(i)(1), deductions attributable to "PARTNER
NONRECOURSE LIABILITY" shall be allocated to the Member that bears the
economic risk of loss for such liability (or is treated as bearing such
risk).
(c) If the allocation of deductions to either Member would cause such Member to
have a deficit Capital Account balance at the end of any taxable year of
the Company (after all other allocations provided for in this ARTICLE III
-----------
have been made and after giving effect to the adjustments described in
SUBPARAGRAPH 3.4(A)), such deductions shall instead be allocated to the
--------------------
other Member.
3.5 CURATIVE ALLOCATIONS. The allocations set forth in PARAGRAPH 3.4
-------------
(the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements
of the Treasury Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of income,
gain, loss or deduction pursuant to this Paragraph. Therefore, notwithstanding
any other provisions of this ARTICLE III (other than the Regulatory
------------
Allocations), the Manager shall make such offsetting special allocations of
income, gain, loss or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all items were allocated pursuant to PARAGRAPH 3.3 without regard
-------------
to PARAGRAPH 3.4.
--------------
3.6 TAX ALLOCATIONS. Except as otherwise provided in this PARAGRAPH 3.6,
items of taxable income, deduction, gain and loss shall be allocated in the same
manner as the corresponding item is allocated for book purposes under PARAGRAPHS
----------
3.3, 3.4 and 3.5 of the corresponding item determined for Capital Account
-------------------
purposes.
(a) Recapture of tax deductions arising out of a disposition of property shall,
to the extent consistent with the allocations for tax purposes of the gain
or amount realized giving rise to such recapture, be allocated to the
Members in the same proportions as the recaptured deductions were
originally allocated or claimed.
(b) To the extent required by Section 704(c) of the Code, income, gain, loss,
and deduction with respect to property contributed to the Company by a
Member shall be shared among both Members so as to take account of the
variation between the basis of the property to the Company and its fair
market value at the time of contribution. The Members intend that Section
704(c) shall effect no allocations of tax items that are different from the
allocations under PARAGRAPHS 3.3, 3.4 and 3.5 of the corresponding items
----------------------------
for Capital Account purposes; provided that gain or loss on the sale of
property contributed to the Company shall be allocated to the contributing
member to the extent of built-in gain or loss, respectively, as determined
under Treas. Reg. 1.704-3(a). However, to the extent that allocations of
other tax items are required pursuant to Section 704(c) of the Code to be
made other than in accordance with the allocations under PARAGRAPHS 3.3,
---------------
3.4 and 3.5 of the corresponding items for Capital Account purposes,
-------------
Section 704(c) shall be applied in accordance with the method available
under Treas. Reg. 1.704-3 which most closely approximates the allocations
set forth in PARAGRAPHS 3.3, 3.4 and 3.5.
--------------------------------
(c) Depletion deductions with respect to contributed property shall be
determined without regard to any portion of the property's basis that is
attributable to precontribution expenditures by BMGE that were capitalized
under Code Sections 616(b), 59(e) and 291(b). Deductions attributable to
precontribution expenditures by BMGE shall be calculated under such Code
Sections as if BMGE continued to own the depletable property to which such
deductions are attributable, and such deductions shall be reported by the
Company and shall be allocated solely to BMGE.
(d) The Members understand the allocations of tax items set forth in this
PARAGRAPH 3.6, and agree to report consistently with such allocations for
--------------
federal and state tax purposes.
ARTICLE IV CAPITAL ACCOUNTS; LIQUIDATION
4.1 CAPITAL ACCOUNTS.
(a) A separate Capital Account shall be established and maintained by the TMP
for each Member. Such Capital Account shall be increased by (i) the amount
of money contributed by the Member to the Company, (ii) the fair market
value of property contributed by the Member to the Company (net of
liabilities secured by such contributed property that the Company is
considered to assume or take subject to under Code Section 752) and (iii)
allocations to the Member under in PARAGRAPHS 3.3, 3.4 and 3.5 of Company
---------------------------
income and gain (or items thereof), including income and gain exempt from
tax; and shall be decreased by (iv) the amount of money distributed to the
Member by the Company, (v) the fair market value of property distributed to
the Member by the Company (net of liabilities secured by such distributed
property and that the Member is considered to assume or take subject to
under Code Section 752), (vi) allocations to the Member under in PARAGRAPHS
----------
3.3, 3.4 and 3.5 of expenditures of the Company not deductible in computing
----------------
its taxable income and not properly chargeable to a Capital Account, and
(vii) allocations of Company loss and deduction (or items thereof),
excluding items described in (vi) above and percentage depletion to the
extent it exceeds the adjusted tax basis of the depletable property to
which it is attributable.
(b) In the event that the Capital Accounts of the Members are computed with
reference to the book value of any Asset which differs from the adjusted
tax basis of such Asset, then the Capital Accounts shall be adjusted for
depreciation, depletion, amortization and gain or loss as computed for book
purposes with respect to such Asset in accordance with Treas. Reg.
1.704-1(b) (2)(iv)(g).
(c) In the event any interest in the Company is transferred in accordance with
the terms of the Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
interest, except as provided in Treas. Reg. 1.704-1(b)(2)(iv)(1).
(d) In the event property, other than money, is distributed to a Member, the
Capital Accounts of the Members shall be adjusted to reflect the manner in
which the unrealized income, gain, loss and deduction inherent in such
property (that has not been reflected in the Capital Accounts previously)
would be allocated among the Members if there was a taxable disposition of
such property for the fair market value of such property (taking Section
7701(g) of the Code into account) on the date of distribution. For this
purpose the fair market value of the property shall be determined as set
forth in PARAGRAPH 4.2(A) below.
-----------------
(e) In the event the Management Committee designates a Supplemental Business
Arrangement area within the Area of Interest as described in SECTION 10.13
-------------
of the Agreement, the Management Committee shall appropriately segregate
Capital Accounts to reflect that designation and shall make such other
modifications to the Agreement as are appropriate to reflect the manner of
administering Capital Accounts in accordance with the terms of this EXHIBIT
-------
C.
--
(f) BMGE is contributing to the Agreement certain depletable properties with
respect to which BMGE currently has an adjusted tax basis which may consist
in part of depletable expenditures and in part of expenditures capitalized
under Code Sections 616(b), 291(b) and/or 59(e). For purposes of
maintaining the Capital Accounts, the Company's deductions with respect to
contributed property in each year for (i) depletion, (ii) deferred
development expenditures under Section 616(b) attributable to
pre-contribution expenditures, (iii) amortization under Section 291(b)
attributable to pre-contribution expenditures, and (iv) amortization under
Section 59(e) attributable to pre-contribution expenditures shall be the
amount of the corresponding item determined for tax purposes pursuant to
SUBPARAGRAPH 3.6(C) multiplied by the ratio of (A) the book value at which
--------------------
the contributed property is recorded in the Capital Accounts to (B) the
adjusted tax basis of the contributed property (including basis resulting
from capitalization of pre-contribution development expenditures under
Sections 616(b), 291(b), and 59(e)).
(g) The foregoing provisions, and the other provisions of the Agreement
relating to the maintenance of Capital Accounts and the allocations of
income, gain, loss, deduction and credit, are intended to comply with
Treasury Regulations Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the
Management Committee shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto, are
computed in order to comply with such Regulations, the Management Committee
may make such modification, provided that it is not likely to have a
material effect on the amount distributable to either Member upon
liquidation of the Company pursuant to PARAGRAPH 4.2.
---------------
(h) If the Members so agree, upon the occurrence of an event described in
Treas. Reg. 1.704-1(b)(2)(iv)(5), the Capital Accounts shall be restated in
accordance with Treas. Reg. 1.704-1(b)(2)(iv)(f) to reflect the manner in
which unrealized income, gain, loss or deduction inherent in the assets of
the Company (that has not been reflected in the Capital Accounts
previously) would be allocated among the Members if there were a taxable
disposition of such assets for their fair market values, as determined in
accordance with SUBPARAGRAPH 4.2(A). For purposes of PARAGRAPH 3.3, a
-------------------- -------------
Member shall be treated as contributing the portion of the book value of
any property that is credited to the Member's Capital Account pursuant to
the preceding sentence. Following a revaluation pursuant to this
SUBPARAGRAPH 4.1(H), the Members' shares of depreciation, depletion,
--------------------
amortization and gain or loss, as computed for tax purposes, with respect
to property that has been revalued pursuant to this SUBPARAGRAPH 4.1(H)
-------------------
shall be determined in accordance with the principles of Code Section
704(c) as applied pursuant to the final sentence of SUBPARAGRAPH 3.6(B).
--------------------
4.2 LIQUIDATION. In the event the Company is dissolved pursuant to SECTION
-------
14.1 of the Agreement then, notwithstanding any other provision of the Agreement
----
to the contrary, the following steps shall be taken (after taking into account
any transfers of Capital Accounts pursuant to SECTIONS 3.2(A), 4.4(A) or 14.2 of
-------------------------------
the Agreement):
(a) The Capital Accounts of the Members shall be adjusted to reflect any gain
or loss which would be realized by the Company and allocated to the Members
pursuant to the provisions of ARTICLE III OF THIS EXHIBIT C if the Assets
-----------------------------
had been sold at their fair market value at the time of liquidation. The
fair market value of the Assets shall be determined by agreement of both
Members provided, however, that in the event that the Members fail to agree
on the fair market value of any Asset, its fair market value shall be
determined by a nationally recognized independent engineering firm or other
qualified independent party approved by both Members.
(b) After making the foregoing adjustments and/or contributions, all remaining
Assets shall be distributed to the Members in accordance with the balances
in their Capital Accounts (after taking into account all allocations under
ARTICLE III, including SUBPARAGRAPH 3.3(G)). Unless otherwise expressly
------------ ---------------------
agreed by both Members, each Member shall receive an undivided interest in
each and every Asset determined by the ratio of the amount in each Member's
Capital Account to the total of both of the Members' Capital Accounts.
Assets distributed to the Members shall be deemed to have a fair market
value equal to the value assigned to them pursuant to SUBPARAGRAPH 4.2(A)
-------------------
above.
(c) All distributions to the Members in respect of their Capital Accounts shall
be made in accordance with the time requirements of Treas. Reg.
1.704-1(b)(2)(ii)(b)(2) and (3).
4.3 DEEMED TERMINATIONS. Notwithstanding the provisions of PARAGRAPH 4.2,
--------------
if the "liquidation" of the Company results from a deemed termination under
Section 708(b)(1)(B) of the Code, then (i) SUBPARAGRAPHS 4.2(A) and (B) shall
-------------------
not apply, (ii) the Company shall be deemed to have contributed its assets to a
new partnership in exchange for an interest therein, and immediately thereafter,
distributing interests therein to the purchasing party and the non-transferring
Members in proportion to their interests in the Company in liquidation thereof,
(iii) the new partnership shall continue pursuant to the terms of the Agreement
and this Exhibit.
ARTICLE V SALE OR ASSIGNMENT
The Members agree that if either one of them makes a sale or assignment of
its Ownership Interest under the Agreement, and such sale or assignment causes a
termination under Section 708(b)(1)(B) of the Code, the terminating Member shall
indemnify the non-terminating Member and save it harmless on an after-tax basis
for any increase in taxes to the non-terminating Member caused by the
termination of the Company.
EXHIBIT D
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT D DEFINITIONS
"ACT" means the Nevada Limited Liability Company Act, under Chapter 86 of
the Nevada Revised Statutes (the "Act").
"AFFILIATE" means any person, partnership, limited liability company, joint
venture, corporation, or other form of enterprise which Controls, is Controlled
by, or is under common Control with a Member.
"AGREEMENT" means this Exploration, Development and Mining Limited
Liability Company Operating Agreement, including all amendments and
modifications, and all schedules and exhibits, all of which are incorporated by
this reference.
"APPROVED ALTERNATIVE" means a Development and Mining alternative selected
by the Management Committee from various Development and Mining alternatives
analyzed in the Pre-Feasibility Studies.
"AREA OF INTEREST" means the area described in PARAGRAPH 1.3 OF EXHIBIT A.
--------------------------
"ASSETS" means the Properties, Products, Business Information, and all
other real and personal property, tangible and intangible, including existing or
after-acquired properties and all contract rights held for the benefit of the
Members hereunder.
"BUDGET" means a detailed estimate of all costs to be incurred and a
schedule of cash advances to be made by the Members with respect to a Program.
"BUSINESS" means the conduct of the business of the Company in furtherance
of the purposes set forth in SECTION 2.3 and in accordance with this Agreement.
-----------
"BUSINESS ACCOUNT" means the account maintained by the Manager for the
Business in accordance with EXHIBIT B.
-----------
"BUSINESS INFORMATION" means the terms of this Agreement, and any other
agreement relating to the Business, the Existing Data, and all information,
data, knowledge and know-how, in whatever form and however communicated
(including, without limitation, Confidential Information), developed, conceived,
originated or obtained by either Member in performing its obligations under this
Agreement. The term "Business Information" shall not include any improvements,
enhancements, refinements or incremental additions to Member Information that
are developed, conceived, originated or obtained by either Member in performing
its obligations under this Agreement.
"CAPITAL ACCOUNT" means the account maintained for each Member in
accordance with EXHIBIT C.
----------
"COMPANY" means [PEDIMENT GOLD LLC], a Nevada limited liability company formed
in accordance with, and governed by, this Agreement.
"CONFIDENTIAL INFORMATION" means all information, data, knowledge and
know-how (including, but not limited to, formulas, patterns, compilations,
programs, devices, methods, techniques and processes) that derives independent
economic value, actual or potential, as a result of not being generally known
to, or readily ascertainable by, third parties and which is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy,
including without limitation all analyses, interpretations, compilations,
studies and evaluations of such information, data, knowledge and know-how
generated or prepared by or on behalf of either Member.
"CONTINUING OBLIGATIONS" mean obligations or responsibilities that are
reasonably expected to continue or arise after Operations on a particular area
of the Properties have ceased or are suspended, such as future monitoring,
stabilization, or Environmental Compliance.
"CONTROL" used as a verb means, when used with respect to an entity, the
ability, directly or indirectly through one or more intermediaries, to direct or
cause the direction of the management and policies of such entity through (i)
the legal or beneficial ownership of voting securities or membership interests;
(ii) the right to appoint managers, directors or corporate management; (iii)
contract; (iv) operating agreement; (v) voting trust; or otherwise; and, when
used with respect to a person, means the actual or legal ability to control the
actions of another, through family relationship, agency, contract or otherwise;
and "Control" used as a noun means an interest which gives the holder the
ability to exercise any of the foregoing powers.
"COVER PAYMENT" shall have the meaning as set forth in SECTION 11.4 of the
------------
Agreement.
"DEVELOPMENT" means all preparation (other than Exploration) for the
removal and recovery of Products, including construction and installation of a
mill or any other improvements to be used for the mining, handling, milling,
processing, or other beneficiation of Products, and all related Environmental
Compliance.
"EFFECTIVE DATE" means the date set forth in the preamble to this
Agreement.
"ENCUMBRANCE" or "Encumbrances" means mortgages, deeds of trust, security
interests, pledges, liens, net profits interests, royalties or overriding
royalty interests, other payments out of production, or other burdens of any
nature.
"ENVIRONMENTAL COMPLIANCE" means actions performed during or after
Operations to comply with the requirements of all Environmental Laws or
contractual commitments related to reclamation of the Properties or other
compliance with Environmental Laws.
"ENVIRONMENTAL COMPLIANCE FUND" means the account established pursuant to
PARAGRAPH 2.14 OF EXHIBIT B.
------------------------------
"ENVIRONMENTAL LAWS" means Laws aimed at reclamation or restoration of the
Properties; abatement of pollution; protection of the environment; protection of
wildlife, including endangered species; ensuring public safety from
environmental hazards; protection of cultural or historic resources; management,
storage or control of hazardous materials and substances; releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances as wastes into the environment, including without
limitation, ambient air, surface water and groundwater; and all other Laws
relating to the manufacturing, processing, distribution, use, treatment,
storage, disposal, handling or transport of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.
"ENVIRONMENTAL LIABILITIES" means any and all claims, actions, causes of
action, damages, losses, liabilities, obligations, penalties, judgments, amounts
paid in settlement, assessments, costs, disbursements, or expenses (including,
without limitation, attorneys' fees and costs, experts' fees and costs, and
consultants' fees and costs) of any kind or of any nature whatsoever that are
asserted against either Member, by any person or entity other than the other
Member, alleging liability (including, without limitation, liability for
studies, testing or investigatory costs, cleanup costs, response costs, removal
costs, remediation costs, containment costs, restoration costs, corrective
action costs, closure costs, reclamation costs, natural resource damages,
property damages, business losses, personal injuries, penalties or fines)
arising out of, based on or resulting from (i) the presence, release, threatened
release, discharge or emission into the environment of any hazardous materials
or substances existing or arising on, beneath or above the Properties and/or
emanating or migrating and/or threatening to emanate or migrate from the
Properties to off-site properties; (ii) physical disturbance of the environment;
or (iii) the violation or alleged violation of any Environmental Laws.
"EQUITY ACCOUNT" means the account maintained for each Member by the
Manager in accordance with SUBSECTION 9.2(O) of the Agreement.
------------------
"EXISTING DATA" means maps, drill logs and other drilling data, core,
pulps, reports, surveys, assays, analyses, production reports, operations,
technical, accounting and financial records, and other material information
developed in operations on the Properties prior to the Effective Date.
"EXPANSION" or "MODIFICATION" means (i) a material increase in mining or
production capacity; (ii) a material change in the recovery process; or (iii) a
material change in waste or tailings disposal methods. An increase or change
shall be deemed "material" if it is anticipated to cost more than 115% of
original capital costs attributable to the Development of the mining or
production capacity, recovery process or waste or tailings disposal facility to
be expanded or modified.
"EXPLORATION" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products, including but not limited to additional drilling required after
discovery of potentially commercial mineralization, and including related
Environmental Compliance.
"FEASIBILITY CONTRACTORS" means one or more engineering firms approved by
the Management Committee for purposes of preparing or auditing any
Pre-Feasibility Study or Feasibility Study.
"FEASIBILITY STUDY" means a report to be prepared following selection by
the Management Committee of one or more Approved Alternatives. The Feasibility
Study shall include a review of information presented in any Pre-Feasibility
Studies concerning the Approved Alternative(s). The Feasibility Study shall be
in a form and of a scope generally acceptable to reputable financial
institutions that provide financing to the mining industry.
"GOVERNMENTAL FEES" means all location fees, mining claim rental fees,
mining claim maintenance payments and similar payments required by Law to locate
and hold unpatented mining claims.
"INITIAL CAPITAL CONTRIBUTION" means that contribution each Member has made
or agrees to make pursuant to SECTION 3.1 of the Agreement.
"INTELLECTUAL PROPERTIES" means those intellectual properties defined in
PARAGRAPH 1.1 OF EXHIBIT A.
-----------------------
"LAW" or "LAWS" means all applicable federal, state and local laws
(statutory or common), rules, ordinances, regulations, grants, concessions,
franchises, licenses, orders, directives, judgments, decrees, and other
governmental restrictions, including permits and other similar requirements,
whether legislative, municipal, administrative or judicial in nature.
"MANAGEMENT COMMITTEE" means the committee established under Article VIII
of the Agreement.
"MANAGER" means the Member appointed under ARTICLE IX of the Agreement to manage
----------
Operations, or any successor Manager.
"MEMBER" means BMGE or NGXS, any permitted successor or assign of BMGE or
NGXS, or any other person admitted as a Member of the Company under this
Agreement.
"MEMBER INFORMATION" means all information, data, knowledge and know-how,
in whatever form and however communicated (including, without limitation,
Confidential Information but excluding the Existing Data), which, as shown by
written records, was developed, conceived, originated or obtained by a Member:
(a) prior to entering into this Agreement, or (b) independent of its performance
under the terms of this Agreement excluding PARAGRAPH 1.1 OF EXHIBIT A.
----------------------------
"MINING" means the mining, extracting, producing, beneficiating, handling,
milling or other processing of Products.
"NET PROCEEDS" means certain amounts calculated as provided in Exhibit E,
which may be payable to a Member under SUBSECTIONS 4.4(B) or 11.5(B)(II) of the
------------------ -----------
Agreement.
"OPERATIONS" means the activities carried out by the Company under this
Agreement.
"OWNERSHIP INTEREST" means the percentage interest representing the
ownership interest of a Member in the Company, and all other rights and
obligations arising under this Agreement, as such interest may from time to time
be adjusted hereunder. Ownership Interests shall be calculated to three decimal
places and rounded to two decimal places as follows: Decimals of .005 or more
shall be rounded up (e.g., 1.519% rounded to 1.52%); decimals of less than .005
shall be rounded down (e.g., 1.514% rounded to 1.51%). The initial Ownership
Interests of the Members are set forth in SECTION 4.1 of the Agreement.
------------
"PAYOUT" means the date on which the Equity Account balance of each of the
Members has become zero or a negative number, regardless of whether the Equity
Account balance of either or both Members subsequently becomes a positive
number. If one Member's Equity Account balance becomes zero or a negative number
before the other Member's, "Payout" shall not occur until the date that the
other Member's Equity Account balance first becomes zero or a negative number.
"PRE-FEASIBILITY STUDIES" means one or more studies prepared to analyze
whether economically viable Mining Operations may be possible on the Properties,
as described in SECTIONS 10.7 and 10.8 of the Agreement.
-------------- ----
"PRIME RATE" means the interest rate quoted and published as "Prime" as
published in The Wall Street Journal, under the heading "Money Rate," as the
rate may change from day to day.
"PRODUCTS" means all ores, minerals and mineral resources produced from the
Properties.
"PROGRAM" means a description in reasonable detail of Operations to be
conducted and objectives to be accomplished by the Manager for a period
determined by the Management Committee.
"PROGRAM AND BUDGET STAGE" means those Stages of the Initial Program and
Budget described in EXHIBIT G and used to define BMGE's Initial Contributions,
---------
Ownership Interest Calculations and Failure to Make Contributions Dilution
Schedule in accordance with EXHIBIT I.
----------
"PROGRAM PERIOD" means the time period covered by an adopted Program and
Budget.
"PROJECT FINANCING" means any financing approved by the Management
Committee and obtained by the Members for the purpose of placing a mineral
deposit situated on the Properties into commercial production, but shall not
include any such financing obtained individually by either Member to finance
payment or performance of its obligations under the Agreement.
"PROPERTIES" means those interests in real property described in PARAGRAPH
---------
1.1 OF EXHIBIT A and all other interests in real property within the Area of
-------------------
Interest that are acquired and held subject to this Agreement.
---
"RECALCULATED OWNERSHIP INTEREST" means the reduced Ownership Interest of a
Member as recalculated under SECTION 10.5, 10.6 or 11.5 of the Agreement.
------------- ---- ----
"REDUCED MEMBER" means a Member whose Ownership Interest is reduced under
SECTION 10.5, 10.6 or 11.5 of the Agreement.
-----------------------
"ROYALTY PROPERTIES" means properties owned by PGL on which a production
royalty is paid under PARAGRAPH 1.3 OF EXHIBIT I.
-------------------------------
"TRANSFER" means, when used as a verb, to sell, grant, assign or create an
Encumbrance, pledge or otherwise convey, or dispose of or commit to do any of
the foregoing, or to arrange for substitute performance by an Affiliate or third
party (except as permitted under SUBSECTION 9.2(J) and SECTION 9.6 of the
------------------ -----------
Agreement), either directly or indirectly; and, when used as a noun, means such
a sale, grant, assignment, Encumbrance, pledge or other conveyance or
disposition, or such an arrangement.
EXHIBIT E
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT E NET SMELTER ROYALTY CALCULATION
ARTICLE I MEANING OF TERMS
As used herein, unless otherwise defined herein, the terms used herein
shall have the same meaning as given to them in the Operating Agreement of
Pediment Gold LLC ("Operating Agreement") dated June __, 2004 pursuant to which
the Deed with Reservation of Net Smelter Returns Royalty was executed and
delivered. The following terms shall have the meanings specified below:
1.1 COMMERCIAL PRODUCTION. As used herein, the term "Commercial Production"
shall mean the milling, or leaching, and sale of ores and concentrates which
result from Ore extracted from the Property, but will not include milling or
leaching for the purposes of testing by a pilot plant or during an initial tune
up period of a plant. Commercial Production on the Property or any part hereof
will be deemed, for all purposes of this Agreement, to have commenced when, if
there is a concentrator or other mill ("Concentrator") on the Property, or any
part thereof, such Concentrator has for the first time operated at 60% of its
rated concentrating capacity for 30 out of 40 consecutive days, or if there is
no such Concentrator, Ore from the Property or any part thereof has been shipped
there from on a reasonably regular basis for a 30 day period for the purpose of
earning revenues, but in any event Commercial Production on the Property will be
deemed to have commenced 90 days after Ore has first been shipped from the
Property for the purpose of earning revenues.
1.2 GRANTEE. As used herein, the term "Grantee" shall mean a Member whose
Ownership Interest is converted to a Net Smelter Royalty in accordance with the
terms of the Operating Agreement, and shall include all of the Grantee's
successors-in-interest, including without limitation assignees, partners, joint
venture partners, lessees and when applicable mortgagees and affiliated
companies having or claiming an interest in the Property or Projects or the
Operating Agreement.
1.3 GRANTOR. As used herein, the term "Grantor" shall mean PGL and shall
include all of Grantor's successors-in-interest, including without limitation,
assignees, partners, joint venture partners, lessees and when applicable
mortgagees and affiliated companies having or claiming an interest in the
Property or the Operating Agreement.
1.4 NET SMELTER RETURN. As used herein, the term "Net Smelter Return" or
"NSR" with respect to the Property shall mean the gross proceeds received by the
Grantor in any year from the sale of Product from the mining operation on the
Property:
(a) For Precious Metals. In the case of gold, silver, and platinum group metals
("Precious Metals"), means the gross spot price of the appropriate Precious
Metal (London Bullion Market, Afternoon Fix, for gold; New York Commodities
Exchange for all other Precious Metals), on the day the smelter, refiner,
processor, purchaser or other recipient of such production, or an insurer
as a result of casualty to such production (collectively, "Payor") makes
payment to or otherwise credits the account of Grantor.
(b) For Other Minerals. In the case of all metals, minerals, mineral
substances, and the beneficiated products thereof, which are not or do not
contain economically recoverable Precious Metals ("Other Minerals"), means
the gross spot price of the appropriate Other Mineral (New York Commodities
Exchange) on the day the Payor makes payment to or otherwise credits the
account of Grantor.
Less successively:
(a) custom smelting costs, treatment charges and penalties including, but not
being limited to, metal losses, penalties for impurities and charges for
refining, selling and handling by the smelter, refinery or other purchaser
provided; and
(b) all costs of handling, transporting and insuring concentrates and dore
metal from the point of concentration or reduction of Property, to a
smelter or refinery.
1.5 ORE. As used herein, the term "Ore" shall mean any materials
containing a mineral or minerals of commercial economic value.
1.6 PRODUCTION. As used herein, the term "Production" shall mean Ore mined
from the Property and any concentrates or other materials or products derived
there from provided, however, that if any such Ore, concentrates or other
materials or products are further treated as part of the mining operation in
respect of the Property, such Ore, concentrates or other materials or products
shall not be considered to be "Product" until after they have been so treated.
ARTICLE II TERM
The term of this Deed shall be perpetual, it being the intent of the
Parties hereto that the NSR constitutes a covenant running with the land and
affecting each of the Property and all successions thereof whether created
privately or through governmental action. In the event a court of competent
jurisdiction determines that the term of this Deed violates the Rule Against
Perpetuities, the term of this Deed shall automatically be revised and reformed
to coincide with the maximum term permitted by the Rule Against Perpetuities,
and this Deed shall not be terminated solely as a result of a violation of the
Rule Against Perpetuities.
ARTICLE III PRODUCTION ROYALTY
3.1 Calculation of NSR. The percentage rate of the Production Royalty
payable to the Grantee shall be the rate described in the PARAGRAPH 1.3 and
-------------
PARAGRAPH 1.9 OF EXHIBIT I. The Production Royalty shall be determined and
--------------------------
payable in accordance with the provisions of this EXHIBIT E.
3.2 INSURANCE PROCEEDS. In the event Grantor receives insurance proceeds
for loss of production due to a casualty event which, without insurance, would
adversely affect the amount of the Production Royalty, Grantor shall pay to
Grantee the Production Royalty percentage of any such insurance proceeds which
are received by Grantor for such loss of production after making the deductions
provided under paragraphs (A) AND (B) OF PARAGRAPH 1.4 OF THIS EXHIBIT E
---------------------------------------------------
3.3 TIME AND MANNER; IN-KIND OR CASH PAYMENT. At a time of making payment
to or otherwise crediting the account of Grantor, (but within the time provided
in PARAGRAPH 3.4 below) the smelter, refiner, processor, purchaser, or other
user ("Payor") of the ore shall contemporaneously pay the Production Royalty in
accordance with written instructions given to the Payor by Grantee as provided
in (A) and (B) below. Once the Payor has received instructions from the Grantee,
such instructions shall remain in effect until the Payor has received different
instructions from Grantee. Grantor acknowledges its primary obligation to pay
the NSR, that no undertaking by the Payor shall relieve Grantor of that
obligation, and agrees to indemnify, protect and defend Grantee from and against
any loss, cost (including the attorney's fees incurred) or liability arising
from the performance or failure of performance by Payor hereunder or under any
contractual or other arrangements entered into by Grantor with the Payor
pursuant to or for the purposes of complying with this PARAGRAPH 3.3. Grantee
may, from time to time in its discretion, change the place or account number
provided in (A) and (B) below by giving written notice thereof to Grantor and
the Payor, such notice shall be effective upon actual receipt by Grantor or the
Payor, or upon the fourth day after deposit of such notice in the mail, first
class postage prepaid, addressed to Grantor or the Payor, whichever occurs
first. The Payor shall pay the NSR:
(a) Precious Metals. For each shipment of Precious Metals either A) in the form
of gold bullion (995 + fine gold) directly to Grantee's account maintained
with the Payor as directed by Grantee, or (B) by delivery of a check or
draft payable to Grantee's account with a bank to be designated in writing
by Grantee.
(b) Other Minerals. For each shipment of Other Minerals by delivery of a check
or draft payable to Grantee's account with a bank to be designated in
writing by Grantee.
3.4 PAYMENT ACCOUNTING; INTERIM SETTLEMENTS; LATE CHARGES. All credits
or payments of the Production Royalty shall be accompanied by a detailed
statement explaining the manner in which the payment was calculated together
with any available settlement sheets from the Payor. In no event shall payment
of the Production Royalty be made later than thirty (30) days after the delivery
to the Payor, or use by the Grantor, of the Gold, Precious Metal Products, or
Other Minerals. Such payments and statements shall be deemed conclusively
correct unless Grantee objects to them in writing within eighteen (18) months
after receipt thereof. On those occasions when all necessary information is not
available to the Payor within the thirty (30) day period, the Payor shall make
an interim settlement of the Production Royalty for such payment of not less
than ninety percent (90%) of the anticipated final settlement Production Royalty
as determined by the assays and quantities of the Precious Metals, Precious
Metal Products, or Other Minerals received by the Payor with respect to which
such interim settlement is being made. Final settlement of the Production
Royalty shall be promptly made upon receipt by the Payor of all information
necessary or appropriate to make final settlement for such shipment. In the
event payment of the Production Royalty is not made with the time set forth
above, Grantee may give the Grantor notice in writing of such default, and
unless within five (5) days of receipt of such notice Grantee shall have
received such Production Royalty payment, then Grantor shall pay interest on the
delinquent payment at an annual rate equal to ten (10) percentage points over
the Prime Rate, but in no event shall the rate of interest exceed the maximum
permitted by Law, which shall accrue from the day the delinquent payment was due
to the date of payment of the Production Royalty and accrued interest. Attorney
fees resulting from the collection of the delinquent payment by the Grantee
shall be paid by Grantor, without exception.
3.5 HEDGING TRANSACTIONS; FUTURES, OPTIONS AND OTHER TRADING. All profits
and losses resulting from Grantor engaging in any commodity futures trading,
option trading, or metal trading, or any combination thereof, and any other
hedging transactions (collectively "hedging transactions") are specifically
excluded from the Production Royalty calculations pursuant to this Deed. All
hedging transactions by Grantor and all profits or losses associated therewith,
if any, shall be solely for Grantor's account.
3.6 COMMINGLING. Before any Ore produced from the Property is commingled
with Ore from other properties, the Ore produced from the Property shall be
measured and sampled in accordance with sound mining and metallurgical practices
for metal, commercial minerals and other appropriate content. Detailed records
shall be kept by Grantor showing measures, assays of metal, commercial minerals,
and other appropriate content and penalty substances, and gross metal content of
the Ore. From this information, Grantor shall determine the amount of Production
Royalty due and payable to Grantee from Ore produced from the Property
commingled with Ore from other properties. Following the expiration of the
period for objection described above in PARAGRAPH 3.4 above above, and absent
timely objection, if any, made by Grantee, Grantor may dispose of the materials
and data required to be kept and produced by this Paragraph.
ARTICLE IV BOOKS; RECORDS; INSPECTIONS; CONFIDENTIALITY
4.1 BOOKS. Grantor shall keep true and accurate books and records of
all of its operations and activities on the Properties and under this Deed.
Such books and records shall be kept on the accrual basis in accordance with
generally accepted accounting principles consistently applied. Not more
frequently than annually and within the time provided in PARAGRAPH 3.4 of this
Deed, Grantee may, perform an audit or other examination of all of Grantor's
books and records kept as required by this Deed. The audit will be at Grantee's
sole expense unless a discrepancy of plus or minus 10% is discovered, then the
cost of the audit shall be reimbursed by Grantor. All financial information
shall conclusively be deemed correct for purposes of this Deed unless Grantee
has given timely notice that it desires to audit or examine Grantor's books and
records in the manner and within the time provided in PARAGRAPH 3.4 of this
Deed. Grantee shall promptly commence any such audits and shall diligently
prosecute the same to conclusion.
4.2 REPORTS. Not later than February 1 following the end of each calendar
year, Grantor shall provide Grantee with an annual report of all activities and
operations conducted upon or with respect to the Property during the preceding
calendar year. Such annual report shall include estimates of proposed
expenditures upon, anticipated production from, and estimated remaining ore
reserves on the Property for the succeeding calendar year. Additionally and
within 30 days of the end of each calendar quarter, Grantor shall provide
Grantee access to all data and information generated with respect to the
Property during the calendar quarter just ended.
4.3 INSPECTIONS. Grantee, or its authorized agents or representatives, on
not less than two (2) days notice to Grantor, may enter upon all surface and
subsurface portions of the Property for the purpose of inspecting the Property,
all improvements thereto and operations thereon, as well as inspecting and
copying all records and data, including without limitation such records and data
which are maintained electronically, pertaining to all activities and operations
on or with respect to the Property, improvement thereto and operations thereon.
Grantee, or its authorized agents or representatives, shall enter the Property
at Grantee's own risk and expense and may not unreasonably hinder operations on
or pertaining to the Property. Grantee shall indemnify and hold Grantor harmless
from any damage, claim or demand by reason of injury to Grantee or Grantor or
any of their respective invitees, employees, officers, directors, agents, or
representative caused by Grantee's exercise of its rights under this Paragraph.
4.4 INVESTOR TOURS. Upon reasonable notice to Grantor and not more
frequently than semi-annually, Grantee shall have the right to conduct an
investors tour on the Property and facilities associated therewith; provided
that such tours shall not unreasonably interfere with Grantor's activities and
operations. Such investors' tours shall be at the sole risk of Grantee and its
invitees, and Grantee shall indemnify and hold Grantor harmless from any
liability, damage, claim or demand by reason of injury to Grantee or Grantor or
any of their respective invitees, employees, officers, directors, agents or
representatives caused by Grantee's exercise of its rights under this Paragraph.
4.5 CONFIDENTIALITY. During the term of this Deed, all information
concerning this Agreement or any matters arising from this Deed shall be treated
as confidential by Grantee and shall not be disclosed by Grantee to any other
party without the previous written consent of Grantor, such consent not to be
unreasonably withheld, except: (i) to the extent that such disclosure may be
necessary for observance of the requirements of securities commissions, stock
exchanges or other legal requirements, or (ii) for the accomplishment of the
purposes of this Deed, or (iii) to any of Grantee's accounting, legal and tax
advisors, or (iv) to any third party to whom Grantee, in good faith, anticipates
selling or assigning Grantee's interest hereunder, provided that Grantee
requires such third party to maintain the disclosed information confidential on
the same basis as herein provided. If Grantor does not give a definitive
written reply to any request for permission to disclose on the second business
day following the date request for same is deemed delivered, consent to such
disclosure shall be deemed to have been given.
ARTICLE V COMPLIANCE WITH LAWS, RECLAMATION, ENVIRONMENTAL OBLIGATIONS AND
INDEMNITIES
5.1 COMPLIANCE WITH LAWS. Grantor shall at all times comply with all
applicable present or future federal, provincial and local laws, statutes,
rules, regulations, permits, ordinances, certificates, licenses and other
regulatory requirements, policies and guidelines relating to Grantor's
operations and activities on or with respect to the Property; provided, however,
Grantor shall have the right to contest any of the same if such contest does not
jeopardize the Property or Grantee's rights thereto or under this Deed.
5.2 RECLAMATION, ENVIRONMENTAL OBLIGATIONS AND INDEMNITIES. Grantor shall,
from and after the date this Deed takes effect, timely and fully perform all
reclamation required by all governmental authorities pertaining or related to
Grantor's operations or activities on or with respect to the Property or
required this Deed. Grantor, from and after the date this Deed takes effect,
covenants and agrees not to undertake, cause, suffer or permit any condition or
activity at, on or in the vicinity of the Property which constitutes a nuisance
or which results in a violation of or liability under any present or future
applicable provincial, federal or local environmental laws, statutes, rules,
regulations, permits, ordinances, certificates, licensed and other regulatory
requirements, policies and guidelines (collectively "Environmental
Obligations"). From and after the date this Deed takes effect, and in the event
Grantor fails to comply with any Environmental Obligations, or otherwise
breaches any Environmental Obligations, Grantor shall promptly remedy and
correct such failure to comply, satisfy such liability, and cure such breach and
satisfy all obligations in connection therewith. Grantor covenants and agrees to
indemnify and hold harmless from any and all liabilities, obligations, claims
(including administrative claims and claims for injunctive relief), losses,
costs, damages, expenses, attorney fees and causes of action asserted against
Grantee related to Grantor's failure to comply with and satisfy Environmental
Obligations or other obligations under this Deed from and after the date this
Deed takes effect; provided, however, that this indemnification by Grantor shall
not apply to environmental and reclamation conditions existing on the Property
prior to the date this Deed takes effect. The covenants and agreements of this
PARAGRAPH 5.2 shall survive the termination of the Grantor's rights under this
Deed or to the Property.
ARTICLE VI STOCKPILING
The rights of Grantor to stockpile, store or place Ore, off of the Property
pursuant to any of the provisions of this Deed shall not be exercisable until
Grantor has first paid Grantee the Production Royalty, provided however that the
Grantor may remove reasonable quantities of Ore from the Property for the
purposes of bulk sampling and testing and there shall be no NSR payable to the
Grantee with respect thereto unless revenues are derived there from.
ARTICLE VII TAILINGS AND RESIDUE
All tailings, residues, waste rock, spoiled ▇▇▇▇▇ materials and other
materials (collectively "Materials") resulting from Grantor's operations and
activities on the Property shall be the sole property of Grantor, but shall
remain subject to the Production Royalty should the same be processed or
reprocessed, as the case may be, in the future and result in the production of
Ore. Notwithstanding the foregoing, Grantor shall have the right to dispose of
Materials from the Property on or off the Property and to commingle the same
Material from other properties. In the event Materials are processed or
reprocessed, as the case may be, the Production Royalty payable thereon shall be
determined on a pro rata basis as determined by using the best engineering and
technical practices then available.
ARTICLE VIII TITLE MAINTENANCE, MAINTENANCE AND TAXES, ABANDONMENT,;
CONVERSION AND EXCHANGE RIGHTS
8.1 TITLE MAINTENANCE AND TAXES. From the date this Deed takes effect,
Grantor shall maintain title to the Property, including without limitation,
paying when due all taxes on or with respect to the Property and doing all
things and making all payments necessary or appropriate to maintain the right,
title and interest of Grantor and Grantee, respectively, in the Property and
under this Deed.
8.2 ASSESSMENT WORK. Grantor shall perform all required assessment work on,
pay all claim maintenance fees and maintain title to the Property in accordance
with applicable federal and state laws; provided, however, that Grantor shall
not be liable for the loss of title to any of the mining claims comprising a
portion of the Property as a result of a determination that assessment work
performed by Grantor in good faith does not qualify as assessment work under
applicable statutes.
8.3 ABANDONMENT. In the event Grantor intends to abandon any of the
unpatented mining claims or fee land comprising the Property ("Abandonment
Property"), Grantor shall first give notice of such intention to Grantee at
least 90 days in advance of the proposed date of abandonment. If not later than
10 days before the proposed date of abandonment Grantor receives from Grantee
written notice that Grantee desires Grantor to convey the Abandonment Property
to Grantee, Grantor shall, without additional consideration, convey the
Abandonment Property in good standing by quit claim, deed, without warranty, to
Grantee and shall therefore have no further obligation to maintain the title to
the Abandonment Property; provided, however, if Grantor reacquires any of the
ground covered by the Abandonment Property at any time within five (5) years
following abandonment, the production of Ore from such ground shall be subject
to this Deed.
8.4 CONVERSION AND EXCHANGE RIGHTS. The terms and provisions of this Deed
shall apply to a conversion of any of the unpatented mining claims comprising
all or a portion of the Properties to a different form of mineral, surface and
associated rights pursuant to (i) patent, (ii) exchange or (iii) another form of
claim or right pursuant to amendment, repeal of, or other Act of Congress
affecting the Mining Act of 1872 (30 U.S.C. Sec.Sec. 21 et seq.). Grantor shall
have the right to convert any of the unpatented mining claims to a different
form of mineral, surface and associated rights pursuant to (i) patent, (ii)
exchange or (iii) another form of claim or right pursuant to amendment, repeal
of, or other Act of Congress affecting the Mining Act of 1872, provided the
rights granted to Grantee with respect to the Properties under this Deed are
affected as little as possible given the constraints of any such new
legislation. Any action taken by Grantor under this Paragraph shall not affect
Grantor's obligations with respect to those portions of the Property subject to
such actions, given the law applicable to patents and exchanges or the
constraints of any such new legislation. Any action taken by Grantor under this
Paragraph shall not affect Grantor's obligations with respect to those portions
of the Property subject to such actions, given the law applicable to patents and
exchanges or the constraints of any such new legislation. New deeds, reflecting
Grantees continued interest, must be recorded within 30 days of availability.
ARTICLE IX INSURANCE
Grantor shall purchase or otherwise arrange at its own expense and shall
keep in force at all times, directly or through the services of an independent
contractor, insurance, including but not limited to, the following:
9.1 ▇▇▇▇▇▇▇'▇ COMPENSATION INSURANCE. ▇▇▇▇▇▇▇'▇ compensation insurance or
the like covering all person's engaged in the performance of activities or
operations as is required or appropriate under law or local governmental bodies
or agencies.
9.2 GENERAL LIABILITY. Comprehensive general public liability insurance
against claims for bodily injury or death or property damage arising out of or
resulting from Grantor's activities or operations on or with respect to the
Property, in such amounts as will adequately protect Grantor, Grantee, the NSR
and the Property from any and all claims, liabilities and damages which may
arise with respect to this Deed or the Property. Grantee shall be named as a
co-insured.
ARTICLE X GENERAL PROVISIONS
10.1 ARBITRATION. Any dispute arising out of or related to any report,
payment, calculation or audit shall be resolved solely by the arbitration
procedure provided in ARTICLE XV of the Operating Agreement.
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10.2 CONFLICT. In the event of a conflict between the provisions of this
Deed and the provisions of the Operating Agreement prior to the Exercise Date as
specified in the Operating Agreement, the provisions of the Operating Agreement
shall prevail.
10.3 ADDITIONAL DOCUMENTS. The Parties shall from time to time execute all
such further instruments and documents and do all such further actions as may be
necessary to effectuate the purposes of this Deed.
10.4 COVENANT RUNNING WITH LAND; BINDING EFFECT. All of the covenants,
conditions, and terms of this Deed shall (i) be of benefit to the Parties, (ii)
run as a covenant with the Property and the ground covered thereby, and (iii)
bind and inure to the benefit of the Parties.
10.5 NO PARTNERSHIP. Nothing in this Deed shall be construed to create,
expressly or by implication, a joint venture, mining partnership, commercial
partnership, or other partnership relationship between Parties.
10.6 GOVERNING LAW. This Deed is to be governed by and construed under the
laws of the State of Nevada.
10.7 ATTORNEY FEES. In the event a dispute between the Parties results in
litigation, the prevailing Party in such litigation shall, in addition to any
other relief granted by the court, be entitled to a judgment against the
non-prevailing party for reasonable attorney fees and costs of suit.
10.8 NOTICES. SECTION 16.1 of the Operating Agreement provides for notices.
------------
Either Party may change its address for the purpose of notices or communications
by furnishing notice thereof to the other Party in the manner described under
SECTION 16.1 of the Operating Agreement.
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10.9 TIME OF ESSENCE. Time is of essence in this Deed.
10.10 ENTIRE AGREEMENT. This Deed and the Operating Agreement between the
Parties, and no oral agreement, promise, statement or representation which is
not contained herein shall be binding on the Parties unless subsequently reduced
to writing and signed by the Parties. The provisions of this Deed shall
supersede all previous oral or written agreements between the Parties hereto.
EXHIBIT F
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT F INSURANCE
The Manager shall, at all times while conducting Operations, comply fully
with the applicable workers' compensation laws and purchase, or provide
protection for the Company comparable to that provided under standard form
insurance policies for the following risk categories: (i) comprehensive public
liability and property damage with combined limits of not less than one million
Dollars ($1,000,000) for bodily injury and property damage; (ii) automobile
insurance with combined limits of not less than one million Dollars
($1,000,000); and (iii) adequate and reasonable insurance against risk of fire
and other risks ordinarily insured against in similar operations. If the Manager
elects to self-insure, it shall charge to the Business Account an amount equal
to the premium it would have paid had it secured and maintained a policy or
policies of insurance on a competitive bid basis in the amount of such coverage.
Each Member shall self-insure or purchase for its own account such additional
insurance as it deems necessary. The limits of $1,000,000 in (i) and (ii) above
will be increased to $5,000,000 during Development and Mining.
EXHIBIT G
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT G INITIAL PROGRAM AND BUDGET
See Under Separate Enclosure Excel WorkBook:
EXHIBIT G INITIAL PROGRAM & BUDGET.XLS
EXHIBIT H
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT H PREEMPTIVE RIGHTS
1.1 PREEMPTIVE RIGHTS. If either Member intends to Transfer all or any
part of its Ownership Interest, or an Affiliate of either Member intends to
Transfer Control of such Member ("TRANSFERRING ENTITY"), such Member shall
promptly notify the other Member of such intentions. The notice shall state the
price and all other pertinent terms and conditions of the intended Transfer, and
shall be accompanied by a copy of the offer or the contract for sale. If the
consideration for the intended transfer is, in whole or in part, other than
monetary, the notice shall describe such consideration and its monetary
equivalent (based upon the fair market value of the nonmonetary consideration
and stated in terms of cash or currency). The other Member shall have thirty
(30) days from the date such notice is delivered to notify the Transferring
Entity (and the Member if its Affiliate is the Transferring Entity) whether it
elects to acquire the offered interest at the same price (or its monetary
equivalent in cash or currency) and on the same terms and conditions as set
forth in the notice. If it does so elect, the acquisition by the other Member
shall be consummated promptly after notice of such election is delivered.
(a) If the other Member fails to so elect within the period provided for above,
the Transferring Entity shall have thirty (30) days following the
expiration of such period to consummate the Transfer to a third party at a
price and on terms no less favorable to the Transferring Entity than those
offered by the Transferring Entity to the other Member in the
aforementioned notice.
(b) If the Transferring Entity fails to consummate the Transfer to a third
party within the period set forth above, the preemptive right of the other
Member in such offered interest shall be deemed to be revived. Any
subsequent proposal to Transfer such interest shall be conducted in
accordance with all of the procedures set forth in this Paragraph.
1.2 EXCEPTIONS TO PREEMPTIVE RIGHT. PARAGRAPH 1.1 above shall not apply
to the following:
(a) Transfer by either Member of all or any part of its Ownership Interest to
an Affiliate;
(b) Incorporation of either Member, or corporate consolidation or
reorganization of either Member by which the surviving entity shall possess
substantially all of the stock or all of the property rights and interests,
and be subject to substantially all of the liabilities and obligations of
that Member;
(c) Corporate merger or amalgamation involving either Member by which the
surviving entity or amalgamated company shall possess all of the stock or
all of the property rights and interests, and be subject to substantially
all of the liabilities and obligations of that Member; provided, however,
that the value of the merging or amalgamating Member's interest in the
Company, evidenced by its Capital Account balance (as described in EXHIBIT
-------
C), does not exceed fifty percent of the Net Worth of the surviving entity
--
or amalgamated company;
(d) The transfer of Control of either Member by an Affiliate to such Member or
to another Affiliate;
(e) Subject to SUBSECTION 7.2(G) of the Agreement, the grant by either Member
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of a security interest in its Ownership Interest by Encumbrance;
(f) The creation by any Affiliate of either Member of an Encumbrance affecting
its Control of such Member; or
For purposes hereof, the term "NET WORTH" shall mean the remainder after
total liabilities are deducted from total assets. In the case of a corporation,
Net Worth includes both capital stock and surplus. In the case of a limited
liability company, Net Worth includes member contributions. In the case of a
partnership or sole proprietorship, Net Worth includes the original investment
plus accumulated and re-invested profits.
EXHIBIT I
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT I SCHEDULE OF BMGE INITIAL CONTRIBUTIONS, OWNERSHIP INTEREST
CALCULATIONS AND FAILURE TO MAKE CONTRIBUTIONS DILUTION SCHEDULE
BMGE will contribute a total of $3,250,000.00 to the Program to earn up to
a total of seventy percent (70%) interest PGL according to the following
schedule and be subject to the following dilution schedule for election to
discontinue funding.
1.1 FIELD EXAMINATION STAGE. BMGE shall contribute $325,000 less any
non-refundable payments in PARAGRAPH 1.13 OF THIS EXHIBIT I during the field
examination stage. This sum is due in PGL's bank account within five business
days after the Effective Date. Funds expenditure from the PGL bank account or
any subsequent investments of those funds, will require at least one signature
each from NGXS and BMGE, for the duration of this LLC. BMGE's obligation is
unconditional and the sum of $325,000 is nonrefundable. Upon completion of the
Field Examination Stage, BMGE may elect to continue funding or to discontinue
funding. If BMGE elects to discontinue funding, the Operating Agreement shall
terminate and BMGE shall have no interest in PGL or any of its assets.
1.2 LAND ACQUISITION STAGE. BMGE shall deposit $840,000 into PGL's bank
account within 60 days of the Effective Date. On BMGE's deposit of $840,000 and
PGL's expenditure of such funds for the Land Acquisition Stage, BMGE will have
earned a 50% interest in PGL. If BMGE does not complete funding of the Land
Acquisition Stage, the Operating Agreement shall terminate and BMGE shall have
no interest in PGL or its assets. If BMGE completes funding of the Land
Acquisition Stage, BMGE shall have the election to continue funding in
accordance with SECTIONS 1.3 THROUGH 1.6 OF THIS EXHIBIT I.
1.3 DILUTION. Following BMGE's completion of funding for the Land Acquisition
Stage and PGL's acquisition of properties, BMGE must elect (a) to continue to
contribute funds to NGXS for additional Stages as prescribed in Sections 1.4
through 1.6 of this Exhibit I; or (b) to discontinue additional funding, in
which case BMGE shall have a 50% Ownership Interest in BMG, subject to dilution
in accordance with the formula prescribed in this Section 1.3 below. If BMGE
elects to continue funding in accordance with Sections 1.4 through 1.6 of this
Exhibit I, on BMGE's completion of funding for each Stage, BMGE will earn the
additional Ownership Interests described in Sections 1.4 through 1.6 of this
Exhibit I. The formula for determination and dilution of BMGE's Ownership
Interest if it elects to discontinue funding shall be:
BMGE's % interest in PGL = ((A - (B/2)) x C%)/A;
Where: A = Total of BMGE's initial and subsequent contributions.
B = Total of third party plus NGXS expenditures on PGL Properties.
C% = BMGE's % interest at the last completed funding point.
If BMGE's percent (%) interest in PGL is diluted to less than or equal to
25%, BMGE's interest shall be converted to a production royalty on PGL's
properties (the "ROYALTY PROPERTIES") owned at the time of dilution which were
generated by the exploration program funded by BMGE under this agreement; the
royalty shall not apply to any property generated after BMGE elects not to fund.
The production royalty shall be a 1.25% net smelter royalty ("NSR") from
production of minerals from the Royalty Properties. BMGE shall be deemed to
have withdrawn from PGL and shall transfer to NGXS all of its right, title and
interest in PGL and its properties, subject to the royalty on the Royalty
Properties;
If BMGE elects to discontinue funding of any Stage, NGXS shall have the
authority to admit additional members to PGL and BMGE will no longer have any
voting rights on the Management Committee. BMGE's interest in PGL will be
converted from a Member's Ownership Interest to an Economic Interest.
1.4 WATER PLUME DEFINITION STAGE. BMGE shall deposit $385,000 into PGL's
bank account by the 1st day of month 8 of the Effective Date and upon
expenditure will earn a 55% interest in the properties generated by the ongoing
exploration Program. Upon completion of expenditure BMGE must elect to continue
funding or elect to discontinue funding. If BMGE elects to discontinue funding
after that expenditure, BMGE's 55% interest will be reduced according to the
dilution formula outlined above;
1.5 WATER PLUME DRILLING STAGE. BMGE shall deposit USD $385,000 into PGL's
bank account by the 1st day of month 12 of the Effective Date and upon
expenditure will earn a 60% interest in PGL. Upon completion of expenditure BMGE
must elect to continue funding or elect to discontinue funding. If BMGE elects
to discontinue funding after that expenditure, BMGE's 60% interest will be
reduced according to the dilution formula outlined above;
1.6 DISCOVERY DRILLING STAGE. BMGE shall deposit in the escrow account USD
$1,315,000 by the 1st day of month 17 of the Effective Date and upon expenditure
will earn a 70% interest in PGL which will own the properties generated by
NGXS's exploration Program. BMGE will be deemed fully vested upon completion of
those expenditures.
1.7 RELEASE OF FUNDS PROCEDURE. NGXS will present a report to and meet with
BMGE upon completion of each Program and Budget Stage. BMGE will then have ten
(10) days to decide if they will elect to continue next Stage funding. If NGXS
does not receive notification to cease funding within the ten (10) day period,
the funds will be automatically released to PGL's working account and the next
Program and Budget Stage will commence. In the event BMGE elects to cease
funding, those funds that were advanced for the next Stage will be released back
to BMGE with ten (10) days, less any outstanding liabilities.
1.8 FAILURE TO MAKE CONTRIBUTIONS. BMGE's failure to deposit funds in PGL's
bank account within 10 days of the scheduled deposit due date shall constitute a
default. BMGE's failure to cure a default within 10 more days shall be BMGE's
automatic election to cease funding. If BMGE does not complete funding for a
particular Stage, its Ownership Interest remains fixed at the percentage
immediately preceding commencement of the Stage. BMGE is not entitled to a
prorated additional Ownership Interest based upon partial funding of a Stage.
1.9 OWNERSHIP INTEREST AT COMPLETION OF INITIAL PROGRAM AND BUDGET. After
BMGE completes its Initial Contribution of $3,250,000, BMGE will own 70% and
NGXS will own 30% of PGL. PGL will own the properties generated by NGXS's
Initial Program and Budget according to EXHIBIT G, except for those properties
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quitclaimed to BMGE in PARAGRAPH 1.10 OF THIS EXHIBIT I below.
NGXS's interest in PGL will not be diluted to less than 30%, except that
BMGE may earn an additional 10% from each additionally funded property(ies),
according to PARAGRAPH 1.12 OF THIS EXHIBIT I below. If a property is suitable
for development it will be separated from PGL within 60 days of BMGE earning
either 70% of the LLC or BMGE earning the additional 10% interest and treated as
a Supplemental Business Arrangement in accordance with SECTION 5.3 OF THE
------------------
MEMBERS' AGREEMENT and SECTION 10.13 OF THE AGREEMENT. When BMGE and NGXS decide
------------------ ------------------------------
to develop the separated property (themselves or with a financing partner) or to
transfer interest in the separated property, such development or transfer must
be a third party, arm's length transaction negotiated in good faith with due
regard for each parties rights under this Agreement. PGL will control 100% of
the property disposition. NGXS may elect to participate in the PGL property
transfer outcome on a 30% working basis OR NGXS may retain an undiluted 30%
carried interest through production in each Property that may be converted, at
NGXS's discretion, to a 15% "NPI" ("Net Profits Interest" as calculated in
accordance with EXHIBIT K) or a 6% "NSR" ("Net Smelter Return" as calculated in
----------
accordance with EXHIBIT E) or a 4% "GBR" ("Gross Bullion Royalty" as calculated
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in accordance with EXHIBIT L) at production decision time. If BMGE has exercised
---------
its additional 10% earn-in, NGXS may elect to participate in the PGL property
disposition outcome on a 20% working basis OR NGXS may retain an undiluted 20%
carried interest through production in each Property that may be converted, at
NGXS's discretion, to a 10% NPI (as calculated in accordance with EXHIBIT K) or
---------
a 5% NSR (as calculated in accordance with EXHIBIT E) or a 2.5% GBR (as
-----------
calculated in accordance with EXHIBIT L) at production decision time. NGXS
-----------
recognizes that each asset may require additional negotiation with an oncoming
developer/producer and NGXS will be committed to negotiate final terms in good
faith, in concert with BMGE.
1.10 PROPERTIES IDENTIFIED, BUT NOT ACQUIRED BY NGXS PROGRAM AND BUDGET.
Properties identified, but not recommended by NGXS to be acquired by the Program
and Budget of Exhibit G may be acquired exclusively by BMGE and will not involve
NGXS in any capacity. Such exclusivity will expire upon BMGE's election to cease
funding in accordance with this EXHIBIT I or 24 months, whichever comes first.
Properties initially acquired in accordance with Exhibit G that do not advance
will be quitclaimed to BMGE and no further Program and Budget resources will be
expended on land holding or other costs. NGXS will participate in these
identified and quitclaimed properties through BMGE stock and stock options as
outlined in EXHIBIT J. NGXS will also have one director position and one
management position in BMGE.
1.11 FORMATION OF PGL. BMGE will cause PGL to be formed and be responsible
for all costs associated with that formation, to maintain it in good standing,
and all other day to day costs. Properties generated by the Initial Program and
Budget will be held in the name of PGL subject to the terms and conditions of
the OA.
1.12 RIGHT TO EARN ADDITIONAL INTEREST. Once BMGE has completed its Initial
Contribution, BMGE will have the right to earn an additional ten percent (10%)
interest in each of the PGL properties by funding $750,000 of additional work
per property. BMGE must elect to earn the additional interest within sixty (60)
days of earning 70% in PGL and that work to commence not less than one hundred
and twenty (120) days after indicating election. BMGE's additional ten percent
(10%) interest will be the right to the return from each additionally funded
property. NGXS will retain the option, but not the obligation, to conduct that
work.
1.13 NON-REFUNDABLE PRE-PAYMENT OF INITIAL CONTRIBUTION. NGXS acknowledges
that BMGE has previously transferred $50,000 by wire and or check to NGXS as a
non-refundable, pre-payment on its Initial Contribution in accordance with
EXHIBIT G and EXHIBIT I.
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EXHIBIT J
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT J SCHEDULE OF BMGE STOCK GRANTED TO NGXS
NGXS OWNER GIFTED SEC RULE 144 STOCK
---------- -------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇ 400,000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 400,000
▇▇▇▇ ▇. ▇▇▇▇▇▇ 200,000
1.1 DELIVERY DATE OF BMGE STOCK. The specified stock shall be delivered by
July 5, 2004.
1.2 RESTRICTIONS ON BMGE STOCK. The BMGE stock will be restricted according
to SEC rule 144 that applies to public resales of restricted securities, as well
as all sales by affiliates. The requirements include: (1) current public
information about the issuer, (2) a one-year holding period for "Restricted
Securities," (3) unsolicited brokers' transactions, (4) an amount limitation --
the greater of 1% of the outstanding stock or the average weekly trading volume
may be sold during any three-month period, and (5) a Form 144 filing. Under Rule
144(k), a non-affiliate individual who has held restricted securities for at
least two years can sell his or her stock without meeting Rule 144 conditions.
The seller can't be an affiliate at any time in the three months prior to the
sale. Before the sale, under Rule 144(k), the holder of the securities will need
to have the restricted legend removed from the stock.
1.3 REPRESENTATIONS AND WARRANTIES. BMGE represents and warrants that the
shares will be fully paid and non-assessable and that the shares will be listed,
registered and otherwise available for trading.
EXHIBIT K
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT K NET PROFITS CALCULATION
ARTICLE I MEANING OF TERMS
As used herein, unless otherwise defined herein, the terms used herein
shall have the same meaning as given to them in the Operating Agreement of PGL
("Operating Agreement") dated June , 2004 pursuant to which the Deed with
---
Reservation of Net Smelter Returns Royalty was executed and delivered. The
following terms shall have the meanings specified below:
1.1 COMMERCIAL PRODUCTION. As used herein, the term "Commercial Production"
shall mean the milling, or leaching, and sale of ores and concentrates which
result from Ore extracted from the Property, but will not include milling or
leaching for the purposes of testing by a pilot plant or during an initial tune
up period of a plant. Commercial Production on the Property or any part hereof
will be deemed, for all purposes of this Agreement, to have commenced when, if
there is a concentrator or other mill ("Concentrator") on the Property, or any
part thereof, such Concentrator has for the first time operated at 60% of its
rated concentrating capacity for 30 out of 40 consecutive days, or if there is
no such Concentrator, Ore from the Property or any part thereof has been shipped
there from on a reasonably regular basis for a 30 day period for the purpose of
earning revenues, but in any event Commercial Production on the Property will be
deemed to have commenced 90 days after Ore has first been shipped from the
Property for the purpose of earning revenues.
1.2 GRANTEE. As used herein, the term "Grantee" shall mean a party to whom
PGL has granted a Net Profits Interest in accordance with the Operating
Agreement, and shall include all of Grantee's successors-in-interest, including
without limitation assignees, partners, joint venture partners, lessees and when
applicable mortgagees and affiliated companies having or claiming an interest in
the Property or Projects or the Operating Agreement.
1.3 GRANTOR. As used herein, the term "Grantor" shall mean PGL and shall
include all of Grantor's successors-in-interest, including without limitation,
assignees, partners, joint venture partners, lessees and when applicable
mortgagees and affiliated companies having or claiming an interest in the
Property or the Operating Agreement.
1.4 NET PROFIT. "Net Profit" or "Net Profit Interest" or "NPI" shall be
calculated by deducting from the Gross Revenue (as defined below) realized (or
deemed to be realized), such costs and expenses attributable to Exploration,
Development, Mining, the marketing of Products and other Operations as would be
deductible under generally accepted accounting principles and practices
consistently applied, including without limitation:
(a) All costs and expenses of replacing, expanding, modifying, altering or
changing from time to time the Mining facilities. Costs and expenses of
improvements (such as haulage ways or mill facilities) that are also used
in connection with workings other than the Properties shall be charged to
the Properties only in the proportion that their use in connection with the
Properties bears to their total use;
(b) Ad valorem real property and unsecured personal property taxes, and all
taxes, other than income taxes, applicable to Mining of the Properties,
including without limitation all state mining taxes, sales taxes, severance
taxes, license fees and governmental levies of a similar nature;
(c) Allowance for overhead in accordance with PARAGRAPH 2.13 OF EXHIBIT B;
----------------------------
(d) All expenses incurred relative to the sale of Products, including an
allowance for commissions at rates which are normal and customary in the
industry;
(e) All amounts payable to the remaining Member during Mining pursuant to any
applicable operating or similar agreement in force with respect thereto;
(f) The actual cost of investment under the Agreement but prior to beginning of
Mining, which shall include all expenditures for Exploration and
Development of the Properties incurred by the non-withdrawing Member both
prior and subsequent to the withdrawing Member acquiring a Net Proceeds
interest;
(g) Interest on monies borrowed or advanced for costs and expenses, but in no
event in excess of the maximum permitted by law;
(h) An allowance for reasonable working capital and inventory;
(i) Costs of funding the Environmental Compliance Fund as provided in PARAGRAPH
---------
2.14 OF EXHIBIT B;
---------------------
(j) Actual costs of Operations; and
(k) Rental, royalty, production, and purchase payments.
For purposes hereof, the term "Gross Revenue" shall mean the sum of (i)
gross receipts from sale of Products, less any charges for sampling, assaying,
or penalties; (ii) gross receipts from the sale or other disposition of Assets;
(iii) insurance proceeds; (iv) compensation for expropriation of Assets; and (v)
judgment proceeds. Gross receipts for sale of Products shall be determined by
multiplying spot prices for Products as quoted by the Chicago Mercantile
Exchange on the date of a sale of Products.
It is intended that the remaining Member shall recoup from Gross Revenue
all of its on-going contributions for Exploration, Development, Mining,
Expansion and Modification and marketing Products before any Net Proceeds are
distributed to any person holding a Net Proceeds interest. No deduction shall be
made for income taxes, depreciation, amortization or depletion. If in any year
after the beginning of Mining of the Properties an operating loss relative
thereto is incurred, the amount thereof shall be considered as and be included
with outstanding costs and expenses and carried forward in determining Net
Proceeds for subsequent periods. If Products are processed by the remaining
Member, or are sold to an Affiliate of the remaining Member, then, for purposes
of calculating Net Proceeds, such Products shall be deemed conclusively to have
been sold at a price equal to fair market value to arm's length purchaser FOB
the concentrator for the Properties, and Net Proceeds relative thereto shall be
calculated without reference to any profits or losses attributable to smelting
or refining.
1.5 ORE. As used herein, the term "Ore" shall mean any materials containing
a mineral or minerals of commercial economic value.
1.6 PRODUCTION. As used herein, the term "Production" shall mean Ore mined
from the Property and any concentrates or other materials or products derived
there from provided, however, that if any such Ore, concentrates or other
materials or products are further treated as part of the mining operation in
respect of the Property, such Ore, concentrates or other materials or products
shall not be considered to be "Product" until after they have been so treated.
ARTICLE II TERM
The term of this Deed shall be perpetual, it being the intent of the
Parties hereto that the GBR constitutes a covenant running with the land and
affecting each of the Properties and all successions thereof whether created
privately or through governmental action. In the event a court of competent
jurisdiction determines that the term of this Deed violates the Rule Against
Perpetuities, the term of this Deed shall automatically be revised and reformed
to coincide with the maximum term permitted by the Rule Against Perpetuities,
and this Deed shall not be terminated solely as a result of a violation of the
Rule Against Perpetuities.
ARTICLE III PRODUCTION ROYALTY
3.1 CALCULATION OF NPI. Grantor shall pay to Grantee a perpetual
Production Royalty in the amount of either fifteen percent (15%) of Net Profit
or a Production Royalty of ten percent (10%) of Net Profits according to the
terms and conditions of PARAGRAPH 1.9 OF EXHIBITI, from the sale or other
----------------------------
disposition of all locatable minerals produced from the Property, determined in
accordance with the provisions set forth in this Paragraph and, if applicable,
PARAGRAPH 6 and PARAGRAPH 7 below.
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3.2 INSURANCE PROCEEDS. In the event Grantor receives insurance proceeds
for loss of production due to a casualty event which, without insurance, would
adversely affect the amount of the Production Royalty, Grantor shall pay to
Grantee the Production Royalty percentage of any such insurance proceeds which
are received by Grantor for such loss of production.
3.3 TIME AND MANNER OF PAYMENT OF NPI. Payments of Production Royalty
Proceeds shall commence in the calendar year following the calendar year in
which Net Profits are first realized, and shall be made forty-five (45) days
following the end of each calendar quarter during which Net Profits are
realized, and shall be subject to adjustment, if required, at the end of each
calendar year. The Grantee will provide written instructions given to the Payor.
Once the Payor has received instructions from the Grantee, such instructions
shall remain in effect until the Payor has received different instructions from
Grantee. Grantor acknowledges its primary obligation to pay the Production
Royalty, that no undertaking by the Payor shall relieve Grantor of that
obligation, and agrees to indemnify, protect and defend Grantee from and against
any loss, cost (including attorney's fees incurred) or liability arising from
the performance or failure of performance by Payor hereunder or under any
contractual or other arrangements entered into by Grantor with the Payor
pursuant to or for the purposes of complying with this Paragraph. Grantee may,
from time to time in its discretion, change the place or account number by
giving written notice thereof to Grantor and the Payor; such notice shall be
effective upon actual receipt by Grantor or the Payor, or upon the fourth day
after deposit of such notice in the mail, first class postage prepaid, addressed
to Grantor or the Payor, whichever occurs first.
3.4 PAYMENT ACCOUNTING; INTERIM SETTLEMENTS; LATE CHARGES. All credits or
payments of the Production Royalty shall be accompanied by a detailed statement
explaining the manner in which the payment was calculated together with any
available settlement sheets from the Payor. In no event shall payment of the
Production Royalty be made later than thirty (30) days after the delivery to the
Payor, or use by the Grantor, of the Gold, Precious Metal Products, or Other
Minerals. Such payments and statements shall be deemed conclusively correct
unless Grantee objects to them in writing within eighteen (18) months after
receipt thereof. On those occasions when all necessary information is not
available to the Payor within the thirty (30) day period, the Payor shall make
an interim settlement of the Production Royalty for such payment of not less
than ninety percent (90%) of the anticipated final settlement Production Royalty
as determined by the assays and quantities of the Precious Metals, Precious
Metal Products, or Other Minerals received by the Payor with respect to which
such interim settlement is being made. Final settlement of the Production
Royalty shall be promptly made upon receipt by the Payor of all information
necessary or appropriate to make final settlement for such shipment. In the
event payment of the Production Royalty is not made with the time set forth
above, Grantee may give the Grantor notice in writing of such default, and
unless within five (5) days of receipt of such notice Grantee shall have
received such Production Royalty payment, then Grantor shall pay interest on the
delinquent payment at an annual rate equal to ten (10) percentage points over
the Prime Rate, but in no event shall the rate of interest exceed the maximum
permitted by Law, which shall accrue from the day the delinquent payment was due
to the date of payment of the Production Royalty and accrued interest. Attorney
fees resulting from the collection of the delinquent payment by the Grantee
shall be paid by Grantor, without exception.
3.5 HEDGING TRANSACTIONS; FUTURES, OPTIONS AND OTHER TRADING. All profits
and losses resulting from Grantor engaging in any commodity futures trading,
option trading, or metal trading, or any combination thereof, and any other
hedging transactions (collectively "hedging transactions") are specifically
excluded from the Production Royalty calculations pursuant to this Deed. All
hedging transactions by Grantor and all profits or losses associated therewith,
if any, shall be solely for Grantor's account.
3.6 COMMINGLING. Before any Ore produced from the Property is commingled
with Ore from other properties, the Ore produced from the Property shall be
measured and sampled in accordance with sound mining and metallurgical practices
for metal, commercial minerals and other appropriate content. Detailed records
shall be kept by Grantor showing measures, assays of metal, commercial minerals,
and other appropriate content and penalty substances, and gross metal content of
the Ore. From this information, Grantor shall determine the amount of NSR due
and payable to Grantee from Ore produced from the Property commingled with Ore
from other properties. Following the expiration of the period for objection
described above in PARAGRAPH 3.4 above, and absent timely objection, if any,
made by Grantee, Grantor may dispose of the materials and data required to be
kept and produced by this Paragraph.
ARTICLE IV BOOKS; RECORDS; INSPECTIONS; CONFIDENTIALITY
4.1 BOOKS. Grantor shall keep true and accurate books and records of
all of its operations and activities on the Properties and under this Deed.
Such books and records shall be kept on the accrual basis in accordance with
generally accepted accounting principles consistently applied. Not more
frequently than annually and within the time provided in PARAGRAPH 3.4 of this
Deed, Grantee may, perform an audit or other examination of all of Grantor's
books and records kept as required by this Deed. The audit will be at Grantee's
sole expense unless a discrepancy of plus or minus 10% is discovered, then the
cost of the audit shall be reimbursed by Grantor. All financial information
shall conclusively be deemed correct for purposes of this Deed unless Grantee
has given timely notice that it desires to audit or examine Grantor's books and
records in the manner and within the time provided in PARAGRAPH 3.4 of this
Deed. Grantee shall promptly commence any such audits and shall diligently
prosecute the same to conclusion.
4.2 REPORTS. Not later than February 1 following the end of each calendar
year, Grantor shall provide Grantee with an annual report of all activities and
operations conducted upon or with respect to the Property during the preceding
calendar year. Such annual report shall include estimates of proposed
expenditures upon, anticipated production from, and estimated remaining ore
reserves on the Property for the succeeding calendar year. Additionally and
within 30 days of the end of each calendar quarter, Grantor shall provide
Grantee access to all data and information generated with respect to the
Property during the calendar quarter just ended.
4.3 INSPECTIONS. Grantee, or its authorized agents or representatives, on
not less than two (2) days notice to Grantor, may enter upon all surface and
subsurface portions of the Property for the purpose of inspecting the Property,
all improvements thereto and operations thereon, as well as inspecting and
copying all records and data, including without limitation such records and data
which are maintained electronically, pertaining to all activities and operations
on or with respect to the Property, improvement thereto and operations thereon.
Grantee, or its authorized agents or representatives, shall enter the Property
at Grantee's own risk and expense and may not unreasonably hinder operations on
or pertaining to the Property. Grantee shall indemnify and hold Grantor harmless
from any damage, claim or demand by reason of injury to Grantee or Grantor or
any of their respective invitees, employees, officers, directors, agents, or
representative caused by Grantee's exercise of its rights under this Paragraph.
4.4 INVESTOR TOURS. Upon reasonable notice to Grantor and not more
frequently than semi-annually, Grantee shall have the right to conduct an
investors tour on the Property and facilities associated therewith; provided
that such tours shall not unreasonably interfere with Grantor's activities and
operations. Such investors' tours shall be at the sole risk of Grantee and its
invitees, and Grantee shall indemnify and hold Grantor harmless from any
liability, damage, claim or demand by reason of injury to Grantee or Grantor or
any of their respective invitees, employees, officers, directors, agents or
representatives caused by Grantee's exercise of its rights under this Paragraph.
4.5 CONFIDENTIALITY. During the term of this Deed, all information
concerning this Agreement or any matters arising from this Deed shall be treated
as confidential by Grantee and shall not be disclosed by Grantee to any other
party without the previous written consent of Grantor, such consent not to be
unreasonably withheld, except: (i) to the extent that such disclosure may be
necessary for observance of the requirements of securities commissions, stock
exchanges or other legal requirements, or (ii) for the accomplishment of the
purposes of this Deed, or (iii) to any of Grantee's accounting, legal and tax
advisors, or (iv) to any third party to whom Grantee, in good faith, anticipates
selling or assigning Grantee's interest hereunder, provided that Grantee
requires such third party to maintain the disclosed information confidential on
the same basis as herein provided. If Grantor does not give a definitive written
reply to any request for permission to disclose on the second business day
following the date request for same is deemed delivered, consent to such
disclosure shall be deemed to have been given.
ARTICLE V COMPLIANCE WITH LAWS; RECLAMATION, ENVIRONMENTAL OBLIGATIONS, AND
INDEMNITIES
5.1 COMPLIANCE WITH LAWS. Grantor shall at all times comply with all
applicable present or future federal, provincial, and local laws, statutes,
rules, regulations, permits, ordinances, certificates, licenses and other
regulatory requirements, policies and guidelines relating to Grantor's
operations and activities on or with respect to the Properties; provided,
however, Grantor shall have the right to contest any of the same if such contest
does not jeopardize the Properties or Grantee's rights thereto or under this
Deed.
5.2 RECLAMATION, ENVIRONMENTAL OBLIGATIONS, AND INDEMNITIES. Grantor shall,
from and after the date this Deed takes effect, timely and fully perform all
reclamation required by all governmental authorities pertaining or related to
Grantor's operations or activities on or with respect to the Properties or
required under this Deed. Grantor, from and after the date this Deed takes
effect, covenants and agrees not to undertake, cause, suffer, or permit any
condition or activity at, on or in the vicinity of the Properties which
constitutes a nuisance or which results in a violation of or liability under any
present or future applicable provincial, federal or local environmental laws,
statutes, rules, regulations, permits, ordinances, certificates, licensed and
other regulatory requirements, policies, and guidelines (collectively
"Environmental Obligations"). From and after the date this Deed takes effect,
and in the event Grantor fails to comply with any Environmental Obligations, or
otherwise breaches any Environmental Obligations, Grantor shall promptly remedy
and correct such failure to comply, satisfy such liability, and cure such breach
and satisfy all obligations in connection therewith. Grantor covenants and
agrees to indemnify and hold Grantee harmless from any and all liabilities,
obligations, claims (including administrative claims and claims for injunctive
relief), losses, costs, damages, expenses, attorney fees and causes of action
asserted against Grantee related to Grantor's failure to comply with and satisfy
Environmental Obligations or other obligations under this Deed from and after
the date this Deed takes effect; provided, however, that this indemnification by
Grantor shall not apply to environmental and reclamation conditions existing on
the Properties prior to the date of this Deed takes effect. The covenants and
agreements of this PARAGRAPH 5.2 OF THIS EXHIBIT K shall survive the termination
of the Grantor's rights under this Deed or to the Properties.
ARTICLE VI STOCKPILING
The rights of Grantor to stockpile, store or place Ore, off of the Property
pursuant to any of the provisions of this Deed shall not be exercisable until
Grantor has first paid Grantee the Production Royalty, provided however that the
Grantor may remove reasonable quantities of Ore from the Property for the
purposes of bulk sampling and testing and there shall be no NSR payable to the
Grantee with respect thereto unless revenues are derived there from.
ARTICLE VII TAILINGS AND RESIDUES
All tailings, residues, waste rock, spoiled ▇▇▇▇▇ materials and other
materials (collectively "Materials") resulting from Grantor's operations and
activities on the Property shall be the sole property of Grantor, but shall
remain subject to the Production Royalty should the same be processed or
reprocessed, as the case may be, in the future and result in the production of
Ore. Notwithstanding the foregoing, Grantor shall have the right to dispose of
Materials from the Property on or off the Property and to commingle the same
Material from other properties. In the event Materials are processed or
reprocessed, as the case may be, the Production Royalty payable thereon shall be
determined on a pro rata basis as determined by using the best engineering and
technical practices then available.
ARTICLE VIII TITLE MAINTENANCE AND TAXES; ASSESSMENT WORK; ABANDONMENT;
CONVERSION AND EXCHANGE RIGHTS
8.1 TITLE MAINTENANCE AND TAXES. From the date this Deed takes effect,
Grantor shall maintain title to the Properties, including without limitation,
paying when due all taxes on or with respect to the Properties and doing all
things and making all payments necessary or appropriate to maintain the right,
title and interest of Grantor and Grantee, respectively, in the Properties and
under this Deed.
8.2 ASSESSMENT WORK. Grantor shall perform all required assessment work on,
pay all claim maintenance fees, and maintain title to the Property in accordance
with applicable federal and state laws: provided, however, that Grantor shall
not be liable for the loss of title to any of the mining claims comprising a
portion of the Property as a result of a determination that assessment work
performed by Grantor in good faith does not qualify as assessment work under
applicable statutes.
8.3 ABANDONMENT. In the event Grantor intends to abandon any of the
unpatented mining claims or fee land comprising the Property ("Abandonment
Property"), Grantor shall first give notice of such intention to Grantee at
least 90 days in advance of the proposed date of abandonment. If not later than
10 days before the proposed date of abandonment Grantor receives from Grantee
written notice that Grantee desires Grantor to convey the abandonment Property
to Grantee, Grantor shall, without additional consideration, convey the
Abandonment Property in good standing by quit claim, deed, without warranty, to
Grantee and shall thereafter have no further obligation to maintain the title to
the Abandonment Property; provided, however, if Grantor reacquires any of the
ground covered by the Abandonment Property at any time within five (5) years
following abandonment, the production of Precious Metals and Other Minerals from
such ground shall be subject to this Deed.
8.4 CONVERSION AND EXCHANGE RIGHTS. The terms and provisions of this Deed
shall apply to a conversion of any of the unpatented mining claims comprising
all or a portion of the Properties to a different form of mineral, surface and
associated rights pursuant to (i) patent, (ii) exchange or (iii) another form of
claim or right pursuant to amendment, repeal of, or other Act of Congress
affecting the Mining Act of 1872 (30 U.S.C. Sec.Sec. 21 et seq.). Grantor shall
have the right to convert any of the unpatented mining claims to a different
form of mineral, surface and associated rights pursuant to (i) patent, (ii)
exchange or (iii) another form of claim or right pursuant to amendment, repeal
of, or other Act of Congress affecting the Mining Act of 1872, provided the
rights granted to Grantee with respect to the Properties under this Deed are
affected as little as possible given the constraints of any such new
legislation. Any action taken by Grantor under this Paragraph shall not affect
Grantor's obligations with respect to those portions of the Property subject to
such actions, given the law applicable to patents and exchanges or the
constraints of any such new legislation. Any action taken by Grantor under this
Paragraph shall not affect Grantor's obligations with respect to those portions
of the Property subject to such actions, given the law applicable to patents and
exchanges or the constraints of any such new legislation. New deeds, reflecting
Grantees continued interest, must be recorded within 30 days of availability.
ARTICLE IX INSURANCE
Grantor shall purchase or otherwise arrange at its own expense and shall
keep in force at all times, directly or through the services of an independent
contractor, insurance, including but not limited to, the following:
9.1 ▇▇▇▇▇▇▇'▇ COMPENSATION INSURANCE. ▇▇▇▇▇▇▇'▇ compensation insurance or
the like covering all person's engaged in the performance of activities or
operations as is required or appropriate under law or local governmental bodies
or agencies.
9.2 GENERAL LIABILITY. Comprehensive general public liability insurance
against claims for bodily injury or death or property damage arising out of or
resulting from Grantor's activities or operations on or with respect to the
Properties, in such amounts as will adequately protect Grantor, Grantee, the
Royalty, and the Properties from any and all claims, liabilities and damages
which may arise with respect to this Deed or the Properties. Grantee shall be
named as a co-insured.
ARTICLE X GENERAL PROVISIONS
10.1 ARBITRATION. Any dispute arising out of or related to any report,
payment, calculation or audit shall be resolved solely by the arbitration
procedure provided in ARTICLE XV of the Operating Agreement.
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10.2 CONFLICT. In the event of a conflict between the provisions of this
Deed and the provisions of the Operating Agreement prior to the Exercise Date as
specified in the Operating Agreement, the provisions of the Operating Agreement
shall prevail.
10.3 ADDITIONAL DOCUMENTS. The Parties shall from time to time execute all
such further instruments and documents and do all such further actions as may be
necessary to effectuate the purposes of this Deed.
10.4 COVENANT RUNNING WITH LAND; BINDING EFFECT. All of the covenants,
conditions, and terms of this Deed shall (i) be of benefit to the Parties, (ii)
run as a covenant with the Property and the ground covered thereby, and (iii)
bind and inure to the benefit of the Parties.
10.5 NO PARTNERSHIP. Nothing in this Deed shall be construed to create,
expressly or by implication, a joint venture, mining partnership, commercial
partnership, or other partnership relationship between Parties.
10.6 GOVERNING LAW. This Deed is to be governed by and construed under the
laws of the State of Nevada.
10.7 ATTORNEY FEES. In the event a dispute between the Parties results in
litigation, the prevailing Party in such litigation shall, in addition to any
other relief granted by the court, be entitled to a judgment against the
non-prevailing party for reasonable attorney fees and costs of suit.
10.8 NOTICES. SECTION 16.1 of the Operating Agreement provides for notices.
Either Party may change its address for the purpose of notices or communications
by furnishing notice thereof to the other Party in the manner described under
SECTION 16.1 of the Operating Agreement.
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10.9 TIME OF ESSENCE. Time is of essence in this Deed.
10.10 ENTIRE AGREEMENT. This Deed and the Operating Agreement between the
Parties, and no oral agreement, promise, statement or representation which is
not contained herein shall be binding on the Parties unless subsequently reduced
to writing and signed by the Parties. The provisions of this Deed shall
supersede all previous oral or written agreements between the Parties hereto.
EXHIBIT L
TO
EXPLORATION, DEVELOPMENT AND MINING
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
By And Between
BMGE
And
NGXS
EXHIBIT L GROSS BULLION ROYALTY CALCULATION
ARTICLE I MEANING OF TERMS.
As used herein, unless otherwise defined herein, the terms used herein
shall have the same meaning as given to them in the Operating Agreement of PGL
("Operating Agreement") dated June __, 2004 pursuant to which the Deed with
Reservation of Net Smelter Returns Royalty was executed and delivered. The
following terms shall have the meanings specified below:
1.1 COMMERCIAL PRODUCTION. As used herein, the term "Commercial Production"
shall mean the milling, or leaching, and sale of ores and concentrates which
result from Ore extracted from the Property, but will not include milling or
leaching for the purposes of testing by a pilot plant or during an initial tune
up period of a plant. Commercial Production on the Property or any part hereof
will be deemed, for all purposes of this Agreement, to have commenced when, if
there is a concentrator or other mill ("Concentrator") on the Property, or any
part thereof, such Concentrator has for the first time operated at 60% of its
rated concentrating capacity for 30 out of 40 consecutive days, or if there is
no such Concentrator, Ore from the Property or any part thereof has been shipped
there from on a reasonably regular basis for a 30 day period for the purpose of
earning revenues, but in any event Commercial Production on the Property will be
deemed to have commenced 90 days after Ore has first been shipped from the
Property for the purpose of earning revenues.
1.2 GRANTEE. As used herein, the term "Grantee" shall mean a party to whom
PGL has granted a Gross Bullion Royalty Interest in accordance with the
Operating Agreement and shall include all of Grantee's successors-in-interest,
including without limitation assignees, partners, joint venture partners,
lessees and when applicable mortgagees and affiliated companies having or
claiming an interest in the Properties or Projects or the Participating Interest
of the Grantee.
1.3 GRANTOR. As used herein, the term "Grantor" shall mean PGL under the
provisions of the Operating Agreement, and shall include all of Grantor's
successors-in-interest, including without limitation, assignees, partners, joint
venture partners, lessees and when applicable mortgagees and affiliated
companies having or claiming an interest in the Properties or Projects.
1.4 GROSS BULLION ROYALTY. As used herein, the term "Gross Bullion Royalty"
with respect to the Property:
(a) For Precious Metals. "Gross Bullion Royalty" or "GBR", in the case of gold,
silver, and platinum group metals ("Precious Metals"), means the gross spot
price of the appropriate Precious Metal (London Bullion Market, Afternoon
Fix, for gold; New York Commodities Exchange for all other Precious
Metals), on the day the smelter, refiner, processor, purchaser or other
recipient of such production, or an insurer as a result of casualty to such
production (collectively, "Payor") makes payment to or otherwise credits
the account of Grantor.
(b) For Other Minerals. "Gross Bullion Royalty" or "GBR", in the case of all
metals, minerals, mineral substances, and the beneficiated products
thereof, which are not or do not contain economically recoverable Precious
Metals ("Other Minerals"), means the gross spot price of the appropriate
Other Mineral (New York Commodities Exchange) on the day the Payor makes
payment to or otherwise credits the account of Grantor.
1.5 ORE. As used herein, the term "Ore" shall mean any materials
containing a mineral or minerals of commercial economic value.
1.6 PRODUCTION. As used herein, the term "Production" shall mean Ore mined
from the Property and any concentrates or other materials or products derived
there from provided, however, that if any such Ore, concentrates or other
materials or products are further treated as part of the mining operation in
respect of the Property, such Ore, concentrates or other materials or products
shall not be considered to be "Product" until after they have been so treated.
ARTICLE II TERM
The term of this Deed shall be perpetual, it being the intent of the
Parties hereto that the GBR constitutes a covenant running with the land and
affecting each of the Properties and all successions thereof whether created
privately or through governmental action. In the event a court of competent
jurisdiction determines that the term of this Deed violates the Rule Against
Perpetuities, the term of this Deed shall automatically be revised and reformed
to coincide with the maximum term permitted by the Rule Against Perpetuities,
and this Deed shall not be terminated solely as a result of a violation of the
Rule Against Perpetuities.
ARTICLE III PRODUCTION ROYALTY
3.1 CALCULATION OF GBR. Grantor shall pay to Grantee a perpetual
Production Royalty in the amount of either four percent (4%) of Gross Bullion or
a royalty of 2.5 percent (2.5%) of Gross Bullion according to the terms and
conditions of PARAGRAPH 1.9 OF EXHIBITI, from the sale or other disposition of
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all locatable minerals produced from the Property, determined in accordance with
the provisions set forth in THIS PARAGRAPH and, if applicable, PARAGRAPH 6 AND
-----------
PARAGRAPH 7 OF THIS EXHIBIT L.
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3.2 INSURANCE PROCEEDS. In the event Grantor receives insurance proceeds
for loss of production due to a casualty event which, without insurance, would
adversely affect the amount of the Production Royalty, Grantor shall pay to
Grantee the Production Royalty percentage of any such insurance proceeds which
are received by Grantor for such loss of production.
3.3 TIME AND MANNER; IN-KIND OR CASH PAYMENT. At a time of making payment
to or otherwise crediting the account of Grantor (but within the time provided
in PARAGRAPH 3.4 below), the smelter, refiner, processor, purchaser, or other
user ("Payor") of the Precious Metals, Precious Metal Products, or Other
Minerals shall contemporaneously pay the Production Royalty in accordance with
written instructions given to the Payor by Grantee as provided in (A) and (B)
below. Once the Payor has received instructions from the Grantee, such
instructions shall remain in effect until the Payor has received different
instructions from Grantee. Grantor acknowledges its primary obligation to pay
the Production Royalty, that no undertaking by the Payor shall relieve Grantor
of that obligation, and agrees to indemnify, protect and defend Grantee from and
against any loss, cost (including attorney's fees incurred) or liability arising
from the performance or failure of performance by Payor hereunder or under any
contractual or other arrangements entered into by Grantor with the Payor
pursuant to or for the purposes of complying with this PARAGRAPH 3.3. Grantee
may, from time to time in its discretion, change the place or account number
listed in (A) and (B) below by giving written notice thereof to Grantor and the
Payor; such notice shall be effective upon actual receipt by Grantor or the
Payor, or upon the fourth day after deposit of such notice in the mail, first
class postage prepaid, addressed to Grantor or the Payor, whichever occurs
first.
(a) Precious Metals. The Payor shall pay the Production Royalty for each
shipment of Precious Metals either (i) to an account maintained with the
Payor as directed by Grantee, or (ii) by delivery of a check or draft
payable to Grantee's account with a bank to be designated in writing by
Grantee, or (iii) by delivery of a check or draft payable to Grantee's
account with a bank to be designated in writing by Grantee. In the event
Grantee instructs the Payor to deliver the Production Royalty in the form
of gold bullion, the Production Royalty payable on silver or platinum group
metals shall be converted to the gold equivalent of such silver or platinum
group metals by application of the provisions of PARAGRAPH 1.4(A) OF THIS
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EXHIBIT L.
(b) Other Minerals. The Payor shall pay the Production Royalty for each
shipment of Other Minerals by delivery of a check or draft payable to
Grantee's account with a bank to be designated in writing by Grantee.
3.4 PAYMENT ACCOUNTING; INTERIM SETTLEMENTS; LATE CHARGES. All credits
or payments of the Production Royalty shall be accompanied by a detailed
statement explaining the manner in which the payment was calculated together
with any available settlement sheets from the Payor. In no event shall payment
of the Production Royalty be made later than thirty (30) days after the delivery
to the Payor, or use by the Grantor, of the Gold, Precious Metal Products, or
Other Minerals. Such payments and statements shall be deemed conclusively
correct unless Grantee objects to them in writing within eighteen (18) months
after receipt thereof. On those occasions when all necessary information is not
available to the Payor within the thirty (30) day period, the Payor shall make
an interim settlement of the Production Royalty for such payment of not less
than ninety percent (90%) of the anticipated final settlement Production Royalty
as determined by the assays and quantities of the Precious Metals, Precious
Metal Products, or Other Minerals received by the Payor with respect to which
such interim settlement is being made. Final settlement of the Production
Royalty shall be promptly made upon receipt by the Payor of all information
necessary or appropriate to make final settlement for such shipment. In the
event payment of the Production Royalty is not made with the time set forth
above, Grantee may give the Grantor notice in writing of such default, and
unless within five (5) days of receipt of such notice Grantee shall have
received such Production Royalty payment, then Grantor shall pay interest on the
delinquent payment at an annual rate equal to ten (10) percentage points over
the Prime Rate, but in no event shall the rate of interest exceed the maximum
permitted by Law, which shall accrue from the day the delinquent payment was due
to the date of payment of the Production Royalty and accrued interest. Attorney
fees resulting from the collection of the delinquent payment by the Grantee
shall be paid by Grantor, without exception.
3.5 HEDGING TRANSACTIONS; FUTURES, OPTIONS AND OTHER TRADING. All profits
and losses resulting from Grantor engaging in any commodity futures trading,
option trading, or metal trading, or any combination thereof, and any other
hedging transactions (collectively "hedging transactions") are specifically
excluded from the Production Royalty calculations pursuant to this Deed. All
hedging transactions by Grantor and all profits or losses associated therewith,
if any, shall be solely for Grantor's account.
3.6 COMMINGLING. Before any Ore produced from the Property is commingled
with Ore from other properties, the Ore produced from the Property shall be
measured and sampled in accordance with sound mining and metallurgical practices
for metal, commercial minerals and other appropriate content. Detailed records
shall be kept by Grantor showing measures, assays of metal, commercial minerals,
and other appropriate content and penalty substances, and gross metal content of
the Ore. From this information, Grantor shall determine the amount of Production
Royalty due and payable to Grantee from Ore produced from the Property
commingled with Ore from other properties. Following the expiration of the
period for objection described above in PARAGRAPH 3.4 above, and absent timely
objection, if any, made by Grantee, Grantor may dispose of the materials and
data required to be kept and produced by this Paragraph.
ARTICLE IV BOOKS; RECORDS; INSPECTIONS; CONFIDENTIALITY
4.1 BOOKS. Grantor shall keep true and accurate books and records of all of
its operations and activities on the Properties and under this Deed. Such books
and records shall be kept on the accrual basis in accordance with generally
accepted accounting principles consistently applied. Not more frequently than
annually and within the time provided in PARAGRAPH 3.4 of this Deed, Grantee
may, perform an audit or other examination of all of Grantor's books and records
kept as required by this Deed. The audit will be at Grantee's sole expense
unless a discrepancy of plus or minus 10% is discovered, then the cost of the
audit shall be reimbursed by Grantor. All financial information shall
conclusively be deemed correct for purposes of this Deed unless Grantee has
given timely notice that it desires to audit or examine Grantor's books and
records in the manner and within the time provided in PARAGRAPH 3.4 of this
Deed. Grantee shall promptly commence any such audits and shall diligently
prosecute the same to conclusion.
4.2 REPORTS. Not later than February 1 following the end of each calendar
year, Grantor shall provide Grantee with an annual report of all activities and
operations conducted upon or with respect to the Property during the preceding
calendar year. Such annual report shall include estimates of proposed
expenditures upon, anticipated production from, and estimated remaining ore
reserves on the Property for the succeeding calendar year. Additionally and
within 30 days of the end of each calendar quarter, Grantor shall provide
Grantee access to all data and information generated with respect to the
Property during the calendar quarter just ended.
4.3 INSPECTIONS. Grantee, or its authorized agents or representatives, on
not less than two (2) days notice to Grantor, may enter upon all surface and
subsurface portions of the Property for the purpose of inspecting the Property,
all improvements thereto and operations thereon, as well as inspecting and
copying all records and data, including without limitation such records and data
which are maintained electronically, pertaining to all activities and operations
on or with respect to the Property, improvement thereto and operations thereon.
Grantee, or its authorized agents or representatives, shall enter the Property
at Grantee's own risk and expense and may not unreasonably hinder operations on
or pertaining to the Property. Grantee shall indemnify and hold Grantor harmless
from any damage, claim or demand by reason of injury to Grantee or Grantor or
any of their respective invitees, employees, officers, directors, agents, or
representative caused by Grantee's exercise of its rights under this Paragraph.
4.4 INVESTOR TOURS. Upon reasonable notice to Grantor and not more
frequently than semi-annually, Grantee shall have the right to conduct an
investors tour on the Property and facilities associated therewith; provided
that such tours shall not unreasonably interfere with Grantor's activities and
operations. Such investors' tours shall be at the sole risk of Grantee and its
invitees, and Grantee shall indemnify and hold Grantor harmless from any
liability, damage, claim or demand by reason of injury to Grantee or Grantor or
any of their respective invitees, employees, officers, directors, agents or
representatives caused by Grantee's exercise of its rights under this Paragraph.
4.5 CONFIDENTIALITY. During the term of this Deed, all information
concerning this Agreement or any matters arising from this Deed shall be treated
as confidential by Grantee and shall not be disclosed by Grantee to any other
party without the previous written consent of Grantor, such consent not to be
unreasonably withheld, except: (i) to the extent that such disclosure may be
necessary for observance of the requirements of securities commissions, stock
exchanges or other legal requirements, or (ii) for the accomplishment of the
purposes of this Deed, or (iii) to any of Grantee's accounting, legal and tax
advisors, or (iv) to any third party to whom Grantee, in good faith, anticipates
selling or assigning Grantee's interest hereunder, provided that Grantee
requires such third party to maintain the disclosed information confidential on
the same basis as herein provided. If Grantor does not give a definitive written
reply to any request for permission to disclose on the second business day
following the date request for same is deemed delivered, consent to such
disclosure shall be deemed to have been given.
ARTICLE V COMPLIANCE WITH LAWS; RECLAMATION, ENVIRONMENTAL OBLIGATIONS, AND
INDEMNITIES
5.1 COMPLIANCE WITH LAWS. Grantor shall at all times comply with all
applicable present or future federal, provincial, and local laws, statutes,
rules, regulations, permits, ordinances, certificates, licenses and other
regulatory requirements, policies and guidelines relating to Grantor's
operations and activities on or with respect to the Properties; provided,
however, Grantor shall have the right to contest any of the same if such contest
does not jeopardize the Properties or Grantee's rights thereto or under this
Deed.
5.2 RECLAMATION, ENVIRONMENTAL OBLIGATIONS, AND INDEMNITIES. Grantor shall,
from and after the date this Deed takes effect, timely and fully perform all
reclamation required by all governmental authorities pertaining or related to
Grantor's operations or activities on or with respect to the Properties or
required under this Deed. Grantor, from and after the date this Deed takes
effect, covenants and agrees not to undertake, cause, suffer, or permit any
condition or activity at, on or in the vicinity of the Properties which
constitutes a nuisance or which results in a violation of or liability under any
present or future applicable provincial, federal or local environmental laws,
statutes, rules, regulations, permits, ordinances, certificates, licensed and
other regulatory requirements, policies, and guidelines (collectively
"Environmental Obligations"). From and after the date this Deed takes effect,
and in the event Grantor fails to comply with any Environmental Obligations, or
otherwise breaches any Environmental Obligations, Grantor shall promptly remedy
and correct such failure to comply, satisfy such liability, and cure such breach
and satisfy all obligations in connection therewith. Grantor covenants and
agrees to indemnify and hold Grantee harmless from any and all liabilities,
obligations, claims (including administrative claims and claims for injunctive
relief), losses, costs, damages, expenses, attorney fees and causes of action
asserted against Grantee related to Grantor's failure to comply with and satisfy
Environmental Obligations or other obligations under this Deed from and after
the date this Deed takes effect; provided, however, that this indemnification by
Grantor shall not apply to environmental and reclamation conditions existing on
the Properties prior to the date of this Deed takes effect. The covenants and
agreements of this PARAGRAPH 5.2 OF THIS EXHIBIT L shall survive the termination
of the Grantor's rights under this Deed or to the Properties.
ARTICLE VI STOCKPILING
The rights of Grantor to stockpile, store or place Ore, off of the Property
pursuant to any of the provisions of this Deed shall not be exercisable until
Grantor has first paid Grantee the Production Royalty, provided however that the
Grantor may remove reasonable quantities of Ore from the Property for the
purposes of bulk sampling and testing and there shall be no NSR payable to the
Grantee with respect thereto unless revenues are derived there from.
ARTICLE VII TAILINGS AND RESIDUES
All tailings, residues, waste rock, spoiled ▇▇▇▇▇ materials and other
materials (collectively "Materials") resulting from Grantor's operations and
activities on the Property shall be the sole property of Grantor, but shall
remain subject to the Production Royalty should the same be processed or
reprocessed, as the case may be, in the future and result in the production of
Ore. Notwithstanding the foregoing, Grantor shall have the right to dispose of
Materials from the Property on or off the Property and to commingle the same
Material from other properties. In the event Materials are processed or
reprocessed, as the case may be, the Production Royalty payable thereon shall be
determined on a pro rata basis as determined by using the best engineering and
technical practices then available.
ARTICLE VIII TITLE MAINTENANCE AND TAXES; ASSESSMENT WORK; ABANDONMENT;
CONVERSION AND EXCHANGE RIGHTS
8.1 TITLE MAINTENANCE AND TAXES. From the date this Deed takes effect,
Grantor shall maintain title to the Properties, including without limitation,
paying when due all taxes on or with respect to the Properties and doing all
things and making all payments necessary or appropriate to maintain the right,
title and interest of Grantor and Grantee, respectively, in the Properties and
under this Deed.
8.2 ASSESSMENT WORK. Grantor shall perform all required assessment work on,
pay all claim maintenance fees, and maintain title to the Property in accordance
with applicable federal and state laws: provided, however, that Grantor shall
not be liable for the loss of title to any of the mining claims comprising a
portion of the Property as a result of a determination that assessment work
performed by Grantor in good faith does not qualify as assessment work under
applicable statutes.
8.3 ABANDONMENT. In the event Grantor intends to abandon any of the
unpatented mining claims or fee land comprising the Property ("Abandonment
Property"), Grantor shall first give notice of such intention to Grantee at
least 90 days in advance of the proposed date of abandonment. If not later than
10 days before the proposed date of abandonment Grantor receives from Grantee
written notice that Grantee desires Grantor to convey the abandonment Property
to Grantee, Grantor shall, without additional consideration, convey the
Abandonment Property in good standing by quit claim, deed, without warranty, to
Grantee and shall thereafter have no further obligation to maintain the title to
the Abandonment Property; provided, however, if Grantor reacquires any of the
ground covered by the Abandonment Property at any time within five (5) years
following abandonment, the production of Precious Metals and Other Minerals from
such ground shall be subject to this Deed.
8.4 CONVERSION AND EXCHANGE RIGHTS. The terms and provisions of this Deed
shall apply to a conversion of any of the unpatented mining claims comprising
all or a portion of the Properties to a different form of mineral, surface and
associated rights pursuant to (i) patent, (ii) exchange or (iii) another form of
claim or right pursuant to amendment, repeal of, or other Act of Congress
affecting the Mining Act of 1872 (30 U.S.C. Sec.Sec. 21 et seq.). Grantor shall
have the right to convert any of the unpatented mining claims to a different
form of mineral, surface and associated rights pursuant to (i) patent, (ii)
exchange or (iii) another form of claim or right pursuant to amendment, repeal
of, or other Act of Congress affecting the Mining Act of 1872, provided the
rights granted to Grantee with respect to the Properties under this Deed are
affected as little as possible given the constraints of any such new
legislation. Any action taken by Grantor under this Paragraph shall not affect
Grantor's obligations with respect to those portions of the Property subject to
such actions, given the law applicable to patents and exchanges or the
constraints of any such new legislation. Any action taken by Grantor under this
Paragraph shall not affect Grantor's obligations with respect to those portions
of the Property subject to such actions, given the law applicable to patents and
exchanges or the constraints of any such new legislation. New deeds, reflecting
Grantees continued interest, must be recorded within 30 days of availability.
ARTICLE IX INSURANCE
Grantor shall purchase or otherwise arrange at its own expense and shall
keep in force at all times, directly or through the services of an independent
contractor, insurance, including but not limited to, the following:
9.1 ▇▇▇▇▇▇▇'▇ COMPENSATION INSURANCE. ▇▇▇▇▇▇▇'▇ compensation insurance or
the like covering all person's engaged in the performance of activities or
operations as is required or appropriate under law or local governmental bodies
or agencies.
9.2 GENERAL LIABILITY. Comprehensive general public liability insurance
against claims for bodily injury or death or property damage arising out of or
resulting from Grantor's activities or operations on or with respect to the
Properties, in such amounts as will adequately protect Grantor, Grantee, the
Royalty, and the Properties from any and all claims, liabilities and damages
which may arise with respect to this Deed or the Properties. Grantee shall be
named as a co-insured.
ARTICLE X GENERAL PROVISIONS
10.1 ARBITRATION. Any dispute arising out of or related to any report,
payment, calculation or audit shall be resolved solely by the arbitration
procedure provided in ARTICLE XV of the Operating Agreement.
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10.2 CONFLICT. In the event of a conflict between the provisions of this
Deed and the provisions of the Operating Agreement prior to the Exercise Date as
specified in the Operating Agreement, the provisions of the Operating Agreement
shall prevail.
10.3 ADDITIONAL DOCUMENTS. The Parties shall from time to time execute all
such further instruments and documents and do all such further actions as may be
necessary to effectuate the purposes of this Deed.
10.4 COVENANT RUNNING WITH LAND; BINDING EFFECT. All of the covenants,
conditions, and terms of this Deed shall (i) be of benefit to the Parties, (ii)
run as a covenant with the Property and the ground covered thereby, and (iii)
bind and inure to the benefit of the Parties.
10.5 NO PARTNERSHIP. Nothing in this Deed shall be construed to create,
expressly or by implication, a joint venture, mining partnership, commercial
partnership, or other partnership relationship between Parties.
10.6 GOVERNING LAW. This Deed is to be governed by and construed under the
laws of the State of Nevada.
10.7 ATTORNEY FEES. In the event a dispute between the Parties results in
litigation, the prevailing Party in such litigation shall, in addition to any
other relief granted by the court, be entitled to a judgment against the
non-prevailing party for reasonable attorney fees and costs of suit.
10.8 NOTICES. SECTION 16.1 of the Operating Agreement provides for notices.
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Either Party may change its address for the purpose of notices or communications
by furnishing notice thereof to the other Party in the manner described under
SECTION 16.1 of the Operating Agreement.
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10.9 TIME OF ESSENCE. Time is of essence in this Deed.
10.10 ENTIRE AGREEMENT. This Deed and the Operating Agreement between the
Parties, and no oral agreement, promise, statement or representation which is
not contained herein shall be binding on the Parties unless subsequently reduced
to writing and signed by the Parties. The provisions of this Deed shall
supersede all previous oral or written agreements between the Parties hereto.