Exhibit 10.4
OPERATING AGREEMENT
OF
CRESCENT RED CAPS, LLC,
a Nevada Limited Liability Company
Exhibit 10.4
TABLE OF CONTENTS
1. FORMATION AND NAME........................................................................1
2. PRINCIPAL OFFICE/REGISTERED OFFICE........................................................1
Section 2.1 Principal Office........................................................1
Section 2.2 Registered Office.......................................................1
3. PURPOSE AND POWERS........................................................................1
Section 3.1 Purposes................................................................1
Section 3.2 Powers..................................................................2
Section 3.3 Ownership of Company Property...........................................2
4. TERM......................................................................................2
5. MANAGEMENT................................................................................2
Section 5.1 Number of Manager.......................................................2
Section 5.2 Election and Term of Manager............................................2
Section 5.3 Removal, Resignation and Vacancies......................................2
Section 5.4 General Obligations.....................................................3
Section 5.5 General Authority.......................................................3
Section 5.6 Scope of Duties.........................................................5
Section 5.7 Limitation of Liability of Manager......................................5
Section 5.8 Binding Authority.......................................................6
Section 5.9 Restrictions on Manager Authority.......................................6
Section 5.10 Waiver of Self-Dealing..................................................7
6. PAYMENTS TO Manager.......................................................................8
Section 6.1 Reimbursement of Expenses...............................................8
Section 6.2 Compensation for Services...............................................8
7. RIGHTS AND RESTRICTIONS OF MEMBERS........................................................8
Section 7.1 Rights of Members.......................................................8
Section 7.2 Restrictions on Members.................................................8
Section 7.3 Withdrawal of Member not Permitted......................................9
Section 7.4 Other Breaches by Member................................................9
Section 7.5 Limitation of Liability................................................10
Section 7.6 Other Investment Activities of Members.................................10
Section 7.7 Admission of New Members...............................................10
8. MEETINGS.................................................................................10
Section 8.1 Annual Meetings........................................................10
Section 8.2 Special Meetings.......................................................11
Section 8.3 Notice................................................................11
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Exhibit 10.4
Section 8.4 Waiver of Notice.......................................................11
Section 8.5 Adjourned Meetings and Notice Thereof..................................11
Section 8.6 Action by the Members Meetings; Quorum; Majority.......................11
Section 8.7 Action by Written Consent..............................................12
Section 8.8 Participation by Conference Telephone..................................12
Section 8.9 Place of Meeting of Members............................................12
9. CAPITAL CONTRIBUTIONS AND MEMBER'S INTERESTS.............................................12
Section 9.1 Initial Capital Contributions..........................................12
Section 9.2 Membership Interest....................................................12
Section 9.3 Optional Contributions.................................................12
Section 9.4 Required Contributions.................................................12
Section 9.5 Remedies if Member Fails to Make Required Capital Contribution.........12
Section 9.6 Delinquent Member Grants Security Interest in Company Interest.........13
Section 9.7 No Right to Demand Return of Capital Contribution......................14
10. CAPITAL ACCOUNTS.........................................................................14
Section 10.1 Composition of Capital Account.........................................14
Section 10.2 Capital Account of Transferred Membership Interest....................15
Section 10.3 No Deficit Restoration Obligation......................................15
11. PROFITS AND LOSSES.......................................................................15
Section 11.1 Net Profits and Losses.................................................15
Section 11.2 Special Allocations....................................................15
Section 11.3 Curative Allocations...................................................16
Section 11.4 Transfers During Taxable Year.........................................17
Section 11.5 Right to Use Alternative Method of Allocation.........................17
12. INTEREST AND COMPENSATION, LOANS.........................................................17
Section 12.1 Interest and Compensation..............................................17
Section 12.2 Loans..................................................................17
13. DISTRIBUTIONS TO MEMBERS.................................................................18
Section 13.1 Distributable Cash.....................................................18
Section 13.2 Restrictions on Distributions..........................................18
Section 13.3 Allocation of Distributions............................................19
Section 13.4 Amounts not Withdrawn..................................................19
14. RESTRICTIONS ON TRANSFER OF A MEMBER'S INTEREST..........................................19
Section 14.1 Conditions to Transfer.................................................19
Section 14.2 Company's Unilateral Option to Purchase Interest.......................19
Section 14.3 Admission of Substitute Members........................................20
Section 14.4 Permitted Transfers....................................................21
Section 14.5 Transfer Upon Death of Member..........................................21
Section 14.6 Purchase Price.........................................................22
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Exhibit 10.4
Section 14.7 Payment Terms..........................................................22
Section 14.8 Nonrecognition of an Unauthorized Transfer.............................23
Section 14.9 Governmental Approvals.................................................23
15. DISSOLUTION AND LIQUIDATION..............................................................23
Section 15.1 Events Requiring Dissolution...........................................23
Section 15.2 Liquidation............................................................23
Section 15.3 Manager's Powers During Liquidation....................................23
Section 15.4 Distribution of Assets.................................................24
Section 15.5 Gains or Losses........................................................24
Section 15.6 Compliance with Timing Requirements of Treasury Regulation.............25
Section 15.7 Accounting.............................................................25
Section 15.8 Rights of Lenders......................................................25
16.
INDEMNIFICATION..........................................................................25
Section 16.1 Indemnification of Member, Employee or Agent: Proceeding Other than
by Company.............................................................25
Section 16.2 Indemnification of Member, Employee or Agent: Proceeding
by Company.............................................................25
Section 16.3 Advance of Expenses....................................................26
Section 16.4 Determination of Indemnification.......................................26
Section 16.5 Cooperation of Indemnitee..............................................26
Section 16.6 Non-Exclusivity........................................................27
Section 16.7 Insurance..............................................................27
Section 16.8 Additional Indemnification.............................................27
17. COMPANY RECORDS AND REPORTS..............................................................27
Section 17.1 Books and Records......................................................27
18. ALTERNATIVE DISPUTE RESOLUTION...........................................................28
Section 18.1 Agreement to Use Procedure.............................................28
Section 18.2 Initiation of Procedure................................................28
Section 18.3 Direct Negotiations....................................................29
Section 18.4 Mediator Selection.....................................................29
Section 18.5 Mediation Time and Place...............................................29
Section 18.6 Information Exchange...................................................29
Section 18.7 Summary of Views.......................................................29
Section 18.8 Parties to be Represented..............................................30
Section 18.9 Conduct of Mediation...................................................30
Section 18.10 Termination of Procedure...............................................30
Section 18.11 Arbitration............................................................31
Section 18.12 Mediation Fees; Disqualification.......................................31
Section 18.13 Confidentiality........................................................31
19. MISCELLANEOUS PROVISIONS.................................................................31
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Exhibit 10.4
Section 19.1 Agreement to Perform Necessary Acts....................................31
Section 19.2 Amendments.............................................................31
Section 19.3 Notices................................................................32
Section 19.4 Binding Effect.........................................................32
Section 19.5 Severability...........................................................32
Section 19.6 Governing Law..........................................................32
Section 19.7 Foreign Qualification..................................................33
Section 19.8 Federal Law Disclosure and Limitations.................................33
Section 19.9 Tax Matters............................................................33
Section 19.10 Counterparts...........................................................33
Section 19.11 Headings, Gender and Number............................................34
Section 19.12 Construction...........................................................34
Section 19.13 Waiver.................................................................34
Section 19.14 Attorney's Fees........................................................34
Section 19.15 Creditors..............................................................34
Section 19.16 Offset.................................................................34
Section 19.17 Disclosure.............................................................34
Section 19.18 Complete Agreement.....................................................35
20. DEFINITIONS..............................................................................35
Section 20.1 The Act................................................................35
Section 20.2 Additional Proceedings.................................................35
Section 20.3 Agreement..............................................................35
Section 20.4 Code...................................................................35
Section 20.5 Company................................................................36
Section 20.6 Default Interest Rate..................................................36
Section 20.7 Delinquent Member......................................................36
Section 20.8 Determination Date.....................................................36
Section 20.9 Dispute................................................................36
Section 20.10 Distributable Cash.....................................................36
Section 20.11 Effective Date.........................................................36
Section 20.12 Initiating Party.......................................................36
Section 20.13 Interest...............................................................36
Section 20.14 Interest Holder........................................................37
Section 20.15 Lending Member.........................................................37
Section 20.16 Manager................................................................37
Section 20.17 Member.................................................................37
Section 20.18 Membership Interest....................................................37
Section 20.19 Net Losses.............................................................37
Section 20.20 Net Profits............................................................37
Section 20.21 Qualified Appraiser....................................................37
Section 20.22 Payment Terms..........................................................37
Section 20.23 Procedure..............................................................37
Section 20.24 Purchase Price.........................................................37
Section 20.25 Regulations............................................................37
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Exhibit 10.4
Section 20.26 Responding Party.......................................................38
Section 20.27 Transferee.............................................................38
Section 20.28 Transferring Member....................................................38
Section 20.29 Valuation Date.........................................................38
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Exhibit 10.4
OPERATING AGREEMENT
OF
Crescent Red Caps, LLC,
a Nevada Limited Liability Company
This Operating Agreement (the "Agreement") is entered by and among the
undersigned Members and Manager who have formed a limited liability company (the
"Company") to be governed according to the terms and conditions as hereinafter
set forth.
1. FORMATION AND NAME
------------------
On February 9, 2006, the Members formed the Company by causing an
organizer to file Articles of Organization pursuant to Chapter 86 of the Nevada
Revised Statutes, as amended (the "Act"), under the Company name of Crescent Red
Caps, LLC. The Members hereby approve and ratify the Articles of Organization
and all actions of the Organizer in preparing and filing the same. The effective
date of this Agreement (the "Effective Date") shall be the date this Agreement
is signed by the Members and Manager.
2. PRINCIPAL OFFICE/REGISTERED OFFICE
----------------------------------
Section 2.1 Principal Office. The principal office of the Company in
the State of Nevada shall be established at location as shall be determined by
the Manager from time to time. The Company may have such other offices, either
within or without the State of Nevada, as the Manager may designate or as the
business of the Company may from time to time require.
Section 2.2 Registered Office. The address of the initial registered
office of the Company is ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, and the
Registered Agent at such address is ▇▇▇▇▇ ▇▇▇▇▇, Esq. The registered office and
agent may be changed from time to time by action of the Manager and by filing
the prescribed form with the Nevada Secretary of State.
3. PURPOSE AND POWERS
------------------
Section 3.1 Purposes. The Company is formed primarily for the purpose
of exploration, development, financing, and mining of the certain mining claims
commonly referred to as the "Crescent Valley" and "Red Caps" claims which are
located in Lander County, Nevada and are more particularly described in Exhibit
A hereof (the "Claims"), and to engage in any and all activities related or
incident thereto. Nevertheless, the authorized activities of the Company are not
intended to be limited solely to its primary purpose, and the Company is more
generally authorized to engage in any and all business activities permitted by
the Articles of Organization and the Act.
Section 3.2 Powers. The Company shall have all the powers granted to a
limited
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Exhibit 10.4
liability company under the laws of the State of Nevada. If the Company
qualifies to do business in a foreign jurisdiction, the Company may transact all
business permitted in that jurisdiction.
Section 3.3 Ownership of Company Property. All Company property will be
owned by and in the Company's name. Each Member expressly waives any right to
require partition of any Company property. The Members will execute any
documents necessary to reflect the Company's ownership of all Company property
and will record the documents in the public offices that may be necessary or
desirable in the Manager's discretion. No Member may demand or receive Company
property other than cash in return for the Member's contribution.
4. TERM
----
The Company shall commence its existence on the date its Articles of
Organization are filed with the Nevada Secretary of State. The term of the
Company shall be perpetual, and the Company shall dissolve only as specified in
the Articles of Organization.
5. MANAGEMENT
----------
Section 5.1 Designation of Manager. The Company shall be managed by one
(1) Manager. A Manager need not be a Member. Until its successor is elected and
qualified pursuant to the terms of this Agreement, the Manager of the Company
shall be Newgold, Inc., a Delaware corporation.
Section 5.2 Removal, Resignation and Vacancies. If Newgold, Inc. fails
to make its capital contributions when due within a grace period of forty-five
(45) days, then Newgold, Inc. may be removed upon the written request of the
remaining Members other than Newgold, Inc. Any successor Manager who is not
Newgold, Inc. may be removed from office with or without cause by the
affirmative vote of the Members holding a majority of the Membership Interests.
Any Manager may resign as a Manager at any time by giving written notice to the
Members. Any such resignation shall take effect on the date of the receipt of
such notice or any later time specified therein. Unless otherwise specified in
such notice, the acceptance of such resignation shall not be necessary to make
it effective. The Members, and only the Members, may fill any vacancy in the
office of any Manager by the affirmative vote or written consent of Members
holding a majority of the Membership Interests.
Section 5.3 General Obligations. The Manager shall execute and cause to
be filed original or amended documents and shall take any and all other actions
as may be reasonably necessary to perfect and maintain the status of the Company
as a limited liability company under the laws of the State of Nevada and any
other states or jurisdictions in which the Company engages in business.
Section 5.4 General Authority. Subject to the provisions of Section 5.3
and Section 5.9 hereof, the Manager shall have the complete and exclusive
control over the management of the business and affairs of the Company. If there
is more than one Manager, the rights and powers of the Manager shall be
exercised among them as they may agree among themselves, but in the absence of
such an agreement or in the event of deadlock or other lack of decision
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Exhibit 10.4
pursuant to such other agreement, they shall be bound by the majority vote of
the Manager then in office. Except as provided in Section 5.3 and Section 5.9
hereof, the Members shall have no right to participate in the management or
control of the business and affairs of the Company, and shall have only the
voting rights specifically set forth in this Agreement or as otherwise required
and not subject to waiver under the Act. A Manager may grant a proxy to another
Manager to vote on any matter requiring the vote of Manager hereunder. In
addition to this general management authority, the Manager shall have the
following specific rights, subject to compliance with the other provisions of
this Agreement:
1. To contract to sell, sell, lease, exchange, grant any
option on, subdivide, or otherwise transfer or dispose of any Company real or
personal property or any portion thereof or any interest therein;
2. To operate, manage, and collect income from any real or
personal property owned by the Company in accordance with this Agreement;
3. To retain, without liability, any property in the form it
is received without regard to its productivity or the proportion that any one
asset or class of assets may bear to the whole;
4. To borrow money from banks, other third party lenders or
the Members on terms and conditions which the Manager deem reasonable, and to
pledge, mortgage and grant security interests or deeds of trust in or on any
property owned by the Company as security for the payment of indebtedness
authorized by this Agreement;
5. To mortgage, pledge, hypothecate or authorize or grant any
security interest or lien in or on Company property other than to secure
repayment of indebtedness authorized by this Agreement;
6. To make any reasonable expenditures for the organization,
operation and conduct of the business and affairs of the Company and to
negotiate, execute, acknowledge, file, record, deliver and perform any
agreements and instruments considered necessary or appropriate by the Manager
for the conduct of the Company business and affairs in accordance with this
Agreement or for the implementation of the powers granted under this Agreement;
7. To prepay, modify, amend, renew, or extend any authorized
Company indebtedness;
8. To carry out the purposes of the Company through other
partnerships, corporations, limited liability companies, or other entities;
9. To compromise claims against the Company;
10. To make any and all elections for federal, state and local
tax purposes including any election, if permitted by applicable law to adjust
the basis of property pursuant to
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Exhibit 10.4
Sections 754, 734(b) and 743(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), or comparable provisions of state or local law, in connection with
transfers of any Membership Interest in the Company and Company distributions;
11. To execute and accept any instrument, conveyance, or
agreement incident to the Company's business or property without the joinder,
ratification, or consent of any Member;
12. To maintain insurance for the benefit of the Company;
13. To perform the Company's obligations, and exercise all the
Company's rights, under any agreement to which the Company or its nominee is a
party, including the Red Caps Lease and Crescent Valley Lease as hereinafter
defined, and the Company's right to exercise any option to purchase an Interest
in the Company under Article XIV of this Agreement;
14. To loan funds to any Member on terms and conditions deemed
reasonable by the Manager;
15. To advance any monies to the Company required for the
Company's business, but with no obligation to do so;
16. To enter into contracts and business undertakings to
further the purposes of the Company, including the Claims;
17. To open and maintain bank and investment accounts and
arrangements, drawing checks and other orders for paying money, and designating
individuals with authority to sign or give instructions with respect to those
accounts and arrangements;
18. To maintain the Company property in good order;
19. To collect sums due the Company;
20. To invest and reinvest liquid assets of the Company to
accomplish Company purposes,
21. To distribute Distributable Cash subject to other
provisions of this Agreement;
22. To execute and file certificates or instruments as
required or permitted by the Act and any other laws of Nevada or any other
jurisdiction where the Company does business;
23. To withhold any funds due to a Member who is a foreign
person, as may be required by the Internal Revenue Code and its promulgated
regulations;
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Exhibit 10.4
24. To invest Company funds in commercial paper, government
securities, certificates of deposit, time deposits, banker's acceptances, money
market funds, or similar investments having a maturity generally considered
being short term;
25. To arrange for securities acquired by the Company to be
held by an established securities brokerage firm, trust department, or other
custodian chosen by the Manager in an account or accounts in the name of the
Company and to direct such custodian to invest, hold, sell, exchange, and
reinvest the funds of the Company and to collect dividends, interest, royalties,
rent and other income payable to the Company, and to present securities at
maturity, to vote proxies solicited by or with respect to securities and to
otherwise act in the best interests of the Company; and
26. To employ or engage and compensate persons in addition to
the Manager to manage or operate Company property and to perform Company
administrative services, accounting services, independent auditing services,
legal services, and other services, whether discretionary or otherwise, for the
benefit of the Company.
Section 5.5 Scope of Duties. The Manager shall not be required to
devote its full time to the business or affairs of the Company, but shall devote
the time reasonably necessary to perform the duties of the Manager under this
Agreement and to prudently manage and operate the Company's business and
properties.
Section 5.6 Limitation of Liability of Manager.
1. The Manager shall not be liable for the return of any
contribution of capital of any Member or for any profits thereon, and any return
of capital and profits shall be made, if at all, solely from the assets and
business of the Company.
2. Except as otherwise provided herein, no Manager shall be
liable to the Company or the Members or other Interest Holders for any act or
omission in connection with the business or affairs of the Company including,
without limitation, any breach of fiduciary duty as a Manager, any mistake of
judgment and any business decision (including any decision regarding the timing
of any acquisition or disposition of any property of the Company), so long as
the Manager against whom liability is asserted acted in good faith on behalf of
the Company and in a manner reasonably believed by the Manager to be within the
scope of authority under this Agreement and in the best interests of the
Company, unless such act or omission constitutes gross negligence, intentional
misconduct, fraud or a knowing violation of law.
Section 5.7 Binding Authority. Whether or not there is more than one
Manager, the signature of any one Manager under this Agreement shall be
sufficient to bind the Company to any agreement or on any document or
instrument. Each Member and other Interest Holder agrees not to assert any claim
to the effect that execution or performance of any such instrument or document
breached this Agreement or the duties of the Manager, against any person dealing
with the Manager in good faith and without actual notice of the asserted claim
at the time of the delivery of the instrument or document, provided that this
Section 5.8 shall not be construed to
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Exhibit 10.4
limit any recourse by any Member against the Manager or the Company for any
breach of this Agreement or the duties of the Manager. Any person dealing with
the Company may rely upon a certificate signed by any Manager as to (a) the
identity of any Member, (b) any fact relevant to the Company, and (c) the due
authority of persons purporting to act on behalf of the Company.
Section 5.8 Restrictions on Manager Authority. Except as otherwise
stated herein, no Manager shall directly or indirectly perform any of the
following actions without the vote or written consent of a majority in interest
of the Members:
1. Do any act in contravention of this Agreement, as amended
from time to time;
2. Do any act which would make it impossible to carry on the
ordinary business of the Company, provided that actions of the Manager in
accordance with the purposes of the Company or rights and powers granted under
this Agreement shall not be considered to breach this clause;
3. Confess a judgment against the Company;
4. Possess Company property, or assign rights in specific
Company property, for other than a Company purpose;
5. Knowingly perform any act that would subject any Member to
general liability for the debts and liabilities of the Company in any
jurisdiction;
6. Amend this Agreement or the number of Manager set forth in
Section 5.1 hereof;
7. Extend the statute of limitations for assessment of tax
deficiencies against the Company and its Members with respect to adjustments to
the Company's federal, state or local tax returns; or
8. Merge or otherwise engage in any kind or business
combination or reorganization with another entity or other person.
9. Incur debt on behalf of the Company or otherwise encumber
the assets of the Company in an amount in excess of $100,000.
10. Sell, mortgage, lease or otherwise transfer the Company's
interest in the Claims.
Section 5.9 Waiver of Self-Dealing.
1. Provided the transaction terms are no less favorable than
those the Company may obtain from unrelated third parties, the Manager may enter
into any transaction on the Company's behalf despite the fact that another party
to the transaction may be:
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Exhibit 10.4
1. A trust of which a Manager or Member is a trustee
or beneficiary;
2. An estate of which a Manager or Member is a
personal representative or beneficiary;
3. A business controlled by one or more Manager or
Member or a business of which any Manager or Member is also a director, officer,
or employee;
4. Any affiliate, employee, stockholder, associate,
manager, partner, member or business associate or a Manager or Member;
5. Any Manager or Member acting individually; or
6. Any relative of a Manager or Member.
2. Other than with respect to the purposes of the Company as
defined above, Manager may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, whether
such ventures are competitive with the Company or otherwise, and the pursuit of
such ventures shall not be wrongful or improper, and neither the Company nor any
Member shall have any right by virtue of this Agreement in or to any of such
ventures, or in or to the income, gains, losses or deductions derived or to be
derived therefrom. The Manager shall not be obligated to offer or present any
particular investment or business opportunity to the Company, even where such
opportunity is of a character which, if presented to the Company, could be taken
and exploited by the Company, but rather the Manager shall have the right to
take for their own account or to recommend to others any such particular
investment or business opportunity. Notwithstanding anything to the contrary
herein, the Manager or any Member may present any such opportunity to the
Company as a transaction for the Company to pursue or participate as an
investor, broker, adviser, consultant or otherwise.
6. PAYMENTS TO MANAGER
-------------------
Section 6.1 Reimbursement of Expenses. The Company shall pay or
reimburse the Manager for all reasonable legal, accounting, travel, and other
fees and expenses incurred by the Manager in connection with the performance of
its obligations under this Agreement other than amounts considered capital
contribution made by the Manager in its capacity as a Member.
Section 6.2 Compensation for Services. The Manager shall receive
reasonable compensation, paid at least annually, for services rendered to the
Company. Reasonable compensation is to be measured by the time required in
administering the business of the Company, the value of property under the
Manager's administration, and the responsibilities assumed in discharging the
duties of office. Additionally, the compensation must comply with Code Section
704(e), if applicable. The Manager's compensation shall be treated as a
guaranteed payment for Federal income tax purposes where the Manager is also a
Member. The Members holding a majority of the Membership Interests shall
determine and adjust the Manager's compensation based upon the Manager's
performance and dedication of time to
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Exhibit 10.4
Company business. If the Company cash flow is insufficient to pay the
compensation, the unpaid portion of the compensation may be deferred and bear
interest at the Default Interest Rate. Payments to a Manager who is also a
Member for services rendered to the Company will not be a return on invested
capital, but will be paid as compensation for services rendered.
7. RIGHTS AND RESTRICTIONS OF MEMBERS
----------------------------------
Section 7.1 Rights of Members. In addition to the other rights to which
Members are entitled pursuant to the Act or the Articles of Organization, the
Members shall have the right to vote on the matters which are required by this
Agreement to be approved by the Members.
Section 7.2 Restrictions on Members.
1. No Member shall have any power or authority to act on
behalf of or to bind the Company or any other Member, or to pledge the Company's
credit or to render the Company liable pecuniarily for any purpose. A Member
shall not take any action which would adversely affect the limited liability of
a Member, or affect the status of the Company for Federal income tax purposes.
2. No Member, in the capacity as such, shall do any of the
following:
1. Borrow or lend money on behalf of the Company;
2. Purport to or sell, mortgage, lease, or otherwise
dispose of or encumber property of the Company;
3. Sell, assign, pledge, or mortgage a Member's
Interest in the Company, except as otherwise provided in Article 14;
4. Exercise or represent to any third party that such
Member has the right to exercise any of the powers of the Manager described in
this Agreement; or
5. Exercise any right or power which could not be
exercised by a limited partner of a limited partnership under applicable state
law.
Section 7.3 Withdrawal of Member not Permitted. No Member shall be
permitted to withdraw as a Member of the Company or receive a return of any of
the Member's contributions to capital before the dissolution and winding up of
the Company, except as provided for in Section 9.1. A Member who attempts to
withdraw in violation of this Agreement shall be liable for all damages caused
by such breach and the Manager may, in their discretion, exercise such remedies
against the Member on behalf of the Company as the Manager deem appropriate,
including those remedies set forth in NRS ss.86.335.
Section 7.4 Other Breaches by Member. A Member who breaches this
Agreement will be liable to the Company for all damages caused by the breach.
The Company may offset for the damages against any distributions or return of
capital to the Member who has breached
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Exhibit 10.4
this Agreement. A Member will breach this Agreement if the Member:
1. Attempts to withdraw from the Company;
2. Interferes in the management of the Company affairs;
3. Engages in conduct that may cause the Company to lose its
tax status as a partnership;
4. Engages in conduct that tends to bring the Company into
disrepute;
5. Owns a Membership Interest that becomes subject to a
charging order, attachment, garnishment, or similar legal proceedings;
6. Breaches any confidentiality provisions of this Agreement;
7. Fails to meet any commitment to the Company; or
8. Causes or attempts to cause the Company's dissolution and
winding up by court decree or otherwise, except as expressly permitted in this
Agreement.
Section 7.5 Limitation of Liability. Notwithstanding anything else
contained in this Agreement, a Person who is a Member is not liable solely by
reason of being a Member under a judgment, decree, order of court, or in any
other manner, for a debt, obligation or liability of the Company (whether
arising in contract, tort, or otherwise) or for the acts or omissions of any
other Member, Manager, agent or employee of the Company.
Section 7.6 Other Investment Activities of Members. A Member may have
other business interests and may engage in other activities in addition to those
relating to ownership of an Interest in the Company. Neither the Company nor any
Member shall have any right, by virtue of this Agreement, to share or
participate in such other investments or activities of any other Member or to
income or proceeds derived therefrom. Any Member may engage independently or
with others in other business ventures of every nature and description. Neither
the Company nor any Member shall have any right by virtue of this Agreement or
the relationship created hereby in or to any other ventures or activities in
which any Member is involved or to the income or proceeds derived therefrom. The
pursuit of other ventures and activities by Members is hereby consented to by
the Members and shall not be deemed wrongful or improper. No Member shall be
obligated to present any particular business or investment opportunity to the
Company even if such opportunity is of a character which, if presented to the
Company, could be taken by the Company.
Section 7.7 Admission of New Members. The initial Members are those
Members who executed this Agreement on the Effective Date. New Members may be
admitted to the Company only upon the unanimous vote or written consent of all
existing Members. Before being admitted, each new Member shall first be required
to execute a written consent to be
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Exhibit 10.4
bound by the terms and conditions of the Articles of Organization and this
Agreement, and shall further provide such normal and customary security
representations and restrictions as may be necessary to allow the Company to
lawfully avoid registering the Membership Interest under applicable federal and
state securities regulations. Once a new Member is admitted, the new Member
shall have the rights and obligations of a Member.
8. MEETINGS
--------
Section 8.1 Annual Meetings. The annual meeting of the Members shall be
held each year at such time and place as are determined by the Manager. Failure
to hold an annual meeting shall not constitute a breach of this Agreement or in
any way affect the Company's status as a limited liability company in good
standing.
Section 8.2 Special Meetings. Special meetings of the Members may be
called at any time by the Manager or any Member by delivering written notice of
such meeting to the Manager.
Section 8.3 Notice. The Manager of the Company shall cause notice of
the annual meeting, and any special meeting, to be given to each Member entitled
to vote at the meeting, either in person, by fax, or by first class mail,
postage pre-paid, not less than ten (10) days nor more than sixty (60) days
prior to such meeting. The notice shall specify the place, the day, and the hour
of such meeting. In addition, the notice of any special meeting shall specify
the purpose or purposes for which the meeting is called. Notice shall be deemed
delivered by first class mail if mailed to the address of each Member as such
Member's address appears on the Company's records.
Section 8.4 Waiver of Notice. Any meeting of the Members, however
called and noticed or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present, and if,
either before or after the meeting, each of the Members not present signs a
written waiver of notice or a consent to holding such meeting or an approval of
the minutes thereof. All such waivers, consents or approvals shall be filed with
the records or made a part of the minutes of the meeting.
Section 8.5 Adjourned Meetings and Notice Thereof. Any Members'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority, present in person or represented by
proxy, but in the absence of a quorum no other business may be transacted at any
such meeting. Other than by announcement at the meeting at which such
adjournment is taken, it shall not be necessary to give any notice of an
adjournment or of the business to be transacted at an adjourned meeting.
However, when any Members' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.
Section 8.6 Action by the Members Meetings; Quorum; Majority. The
Members may only vote upon matters as to which the Members are authorized to
take action pursuant to this Agreement or by applicable law and not subject to
modification or waiver. Except as specifically otherwise provided herein,
Members may vote, approve a matter or take any action
-10-
Exhibit 10.4
by the vote of Members at a meeting, in person or by proxy or without a meeting
by written consent. For any meeting of Members, the presence in person or by
proxy of Members owning more than fifty percent (50%) of the total Membership
Interests at the time of the action taken constitutes a quorum for the
transaction of business. If any Membership Interest has been transferred under
this Agreement to persons who are Interest Holders but who have not been
admitted as Members, the voting rights associated with such Interests shall not
be considered outstanding for purposes of any vote by Members under this
Agreement unless by the terms of the transfer the assigning Member retains such
voting rights and the Company received actual written notice of the foregoing.
The voting power or rights of the Members for all purposes of this Agreement
shall be determined as of the date of giving notice of the meeting or as of the
date of the notice for proposed action by written consent without a meeting.
Section 8.7 Action by Written Consent. Any action may be taken by the
Members without a meeting if authorized by the written consent of Members
holding more than fifty percent (50%) of the Membership Interests, or such other
percentage as may be required under the Act or this Agreement. In no instance
where action is authorized by written consent need a meeting of Members be
called or noticed.
Section 8.8 Participation by Conference Telephone. The Members may
participate in a meeting by means of conference telephone or other similar
communications equipment that enables all of the Members participating in the
meeting to hear each other. Such participation shall constitute presence in
person at the meeting.
Section 8.9 Place of Meeting of Members. The meetings of the Members
shall be held at the location stated in the notice thereof.
9. CAPITAL CONTRIBUTIONS AND MEMBER'S INTERESTS
--------------------------------------------
Section 9.1 Initial Capital Contributions. The initial capital
contributions of the Members shall be as follows:
(a) ASDi, LLC's Contribution
1. ASDi, LLC shall contribute, at its cost and
expense, its leasehold interest in the Claims as
set forth and subject to the terms of that
certain lease agreement dated May 16, 2003
attached hereto as Exhibit B as a part hereof
(the "Red Caps Lease") subject to ASDi obtaining
the necessary consents and waivers arising under
Section 12 of the Red Caps Lease ("ASDi's
Contribution - Red Caps").
2. ASDi, LLC shall contribute, at its cost and
expense, its leasehold interest in the Claims as
set forth and subject to the terms of that
certain lease agreement dated September 3, 2003
attached hereto as Exhibit C as a part hereof
(the "Crescent Valley Lease") subject to ASDi
obtaining the necessary consents and waivers
arising under Section 12 of the Crescent Valley
Lease ("ASDi's Contribution -
-11-
Exhibit 10.4
Crescent Valley").
3. Other than the ASDi Contribution - Red Caps and
Crescent Valley, ASDi, LLC shall not be required
to contribute further capital, or undertake
further acts in order to acquire, or hold its
Membership Interest in the Company
(b) Newgold, Inc.'s Contribution Subject to ASDi
obtaining the necessary consents and waivers arising under Section 12 of both
the Red Caps Lease and Crescent Valley Lease, Newgold, Inc. shall contribute
capital in the form of cash, or good funds which shall be applied toward the
exploration and development of mining reserves arising under the Red Caps Lease
and Crescent Valley Lease which shall include the payment of rent, maintenance
fees, and any other costs of maintaining the Red Caps Lease and Crescent Valley
Lease in accordance with the following minimum capital contribution requirements
(singly "Minimum Capital Contribution" and collectively "Minimum Capital
Contributions"):
(i) A payment to ASDi LLC of two million
five hundred thousand shares of Newgold common stock plus a warrant to purchase
a similar amount of common stock for $0.40 for three years from the date of this
agreement.
(ii) During the twenty four month period
after the execution of this Agreement by the Members, the minimum sum of
$1,000,000 (U.S.) which can be expended by the Company or by Newgold, Inc. for
the account of the Company.
(iii) During the twenty fifth through thirty
sixth month period after the execution of this Agreement by the Members, the
minimum sum of $1,700,000 (U.S.) which can be expended by the Company or by
Newgold, Inc. for the account of the Company.
In the event Newgold, Inc. contributes more than the Minimum Capital
Contribution required to be contributed above during any applicable period, such
excess amount shall be credited against the next installment of the Minimum
Capital Contributions to be payable by Newgold, Inc. for any remaining
outstanding period(s). Newgold, Inc. may accelerate its Minimum Capital
Contributions to a period shorter than that provided in this Section 9.1 (b). In
the event Newgold, Inc. fails to contribute the Minimum Capital Contribution for
any applicable period after reflecting any credits, the percentage interest
represented by its Membership Interest shall be pro-rated for the then current
period based on the percentage the actual contribution bears to the Minimum
Capital Contribution required for that twelve month period. Any amounts paid by
Newgold, Inc. in excess of the Minimum Capital Contributions shall be credited
to its capital account, but shall not entitle Newgold, Inc. to increase its
Percentage Interest in the Company represented by its Membership Interest, or
priority return.
(c) Exceptions to Lease Claims In the event that
within twelve months after the execution of this Agreement any exceptions arise
to any of the claims covered by the Red Caps Lease and Crescent Valley Lease,
Newgold, Inc. shall have the following options:
-12-
Exhibit 10.4
(i) To have any capital contributions
returned to it by ASDi and any future obligations of Newgold, Inc. shall become
null and void. If the option to have any capital contributions returned is
exercised by Newgold, Inc. then ASDi shall subordinate to Newgold, Inc. its
interest in this Agreement as well as its interest in the Red Caps Lease and
Crescent Valley Lease until such time as Newgold Inc.'s capital contributions
are repaid in full. Additionally, as compensation to Newgold for its time,
effort and capital contributed to the Company, ASDi shall pay a $500,000 breakup
fee to Newgold, Inc. as full consideration for Newgold's efforts in enhancing
the value of the Red Caps Lease and Crescent Valley Lease.
(ii) Elect for ASDi to make all reasonable
expenditures to eliminate such claims that have arisen. Such expenditures shall
be made with the understanding that time is of the essence in eliminating such
claims. Such expenditures made by ASDi shall not be considered a Capital
Contribution by ASDi.
(iii) Elect to make all reasonable
expenditures to eliminate such claims that have arisen. Such expenditures shall
be made with the understanding that time is of the essence in eliminating such
claims. Such expenditures made by Newgold shall be considered a Capital
Contribution by Newgold and shall be considered to have a priority over any
future distributions otherwise owed to ASDi per this Agreement.
Other than the contributions by the Members set forth above, the Members shall
not be required to contribute further capital, or undertake further acts in
order to acquire, or hold their respective Membership Interest in the Company.
All original contributions have been fully received and credited to the Members'
respective capital accounts as initial contributions to the capital of the
Company.
Section 9.2 Membership Interest. The Membership Interest and the
corresponding percentage interests of the Members in the Company shall be in
accordance with the following:
(a) Upon execution of this Agreement, ASDi's
Membership Interest shall be equal to a percentage interest in the Company of
77.78% and Newgold, Inc.'s Membership Interest shall be equal to a percentage in
the Company of 22.22%.
(b) If Newgold, Inc. contributes the Minimum Capital
Contribution required in Section 9.1(b)(i) and $1,000,000 during the twenty four
month period following the execution of this Agreement in accordance with
Section 9.1(b)(ii), thereafter ASDi's Membership Interest shall be equal to a
percentage interest in the Company of 55.56% and Newgold, Inc.'s Membership
Interest shall be equal to a percentage in the Company of 44.44%.
(d) If Newgold, Inc. contributes the Minimum Capital
Contributions required in Section 9.1(b)(i)-(ii) and $1,700,000 during the
twenty fifth through thirty sixth month period following the execution of this
Agreement in accordance with Section 9.1(b)(iii), thereafter ASDi's Membership
Interest shall be equal to a percentage interest in the Company of 33.34% and
Newgold, Inc.'s Membership Interest shall be equal to a percentage in the
Company of 66.66%.
-13-
Exhibit 10.4
(e) If Newgold, Inc. contributes the Minimum Capital
Contributions required in Section 9.1(b) (i)-(iii) then Newgold may periodically
increase its Membership Interest at any time up to 100% ("Additional Capital
Contributions") after and based on the results of the drilling programs from the
expenditure of $2,700,000. The results shall be determined at the time that
drilling program expenditures reach $2,700,000 (the "valuation date"). The
Additional Capital Contributions shall be based on a value of $10 per ounce of
gold for all indicated resources and a value of $25 per ounce of gold for all
indicated reserves, with Newgold paying 33.34% of the value for the total of
resources and reserves as indicated on the valuation date. The amount of
indicated resources and reserves existing on the valuation date shall be
determined by an independent mining appraiser mutually acceptable to both ASDi
and Newgold, Inc. For example, at completion of the drilling programs, if there
were 400,000 ounces of indicated resources and 600,000 ounces of indicated
reserves, then total value of the indicated resources and reserves would be $19
million, with ASD's proportionate 33.34% interest worth $6,334,600. Accordingly,
in this example by paying up to $6,334,600 Newgold could increase its interest
to 100% in the Red Caps Lease and Crescent Valley Lease.
Section 9.3 Optional Contributions. Subsequent optional contributions
to the capital of the Company may be made in such amounts and at such times as
the Members shall from time to time agree by the unanimous vote of the Members.
Section 9.4 Remedies if Member Fails to Make Required Capital
Contribution. If a Member fails to make a capital contribution by the time
required, that Member shall not be entitled to own percentage interests in the
Company with respect to its Membership Interest other than to what the Member
was entitled in the capital contribution had not been made. Neither the Company,
nor the other Members shall have any further rights under this Agreement, at law
or in equity against the Member who made a required capital contribution
hereunder.
Section 9.5 No Right to Demand Return of Capital Contribution. No
Member may demand the return of all or any part of that Member's capital
contributions.
10. CAPITAL ACCOUNTS
----------------
Section 10.1 Composition of Capital Account. Separate capital accounts
shall be maintained by the Company for each Member in accordance with Code
Section 704(b) and the Regulations promulgated thereunder, representing the
Members' respective capital contributions to the Company.
1. The capital account of each Member shall consist of the
original contribution to capital by the Member, increased by the following:
1. The fair market value of any 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);
2. Additional contributions by the Member of cash;
and
-14-
Exhibit 10.4
3. The Member's share of the Company's Net Profits
allocated to the Members pursuant to Article 11, including income and gain as
computed for book purposes in accordance with Regulations Section
1.704-1(b)(2)(iv)(g).
2. The capital account of the Member shall be decreased by the
following:
1. The amount of money distributed to the Member by
the Company pursuant to Article 13;
2. The fair market value of property distributed to
the Member by the Company (net of liabilities secured by such property that the
Member is considered to assume or take subject to pursuant to Code Section 752);
and
3. Allocations to the Member of Company loss and
deductions, including loss and deductions computed for book purposes described
in Regulations Section 1.704(b)(2)(iv)(g).
3. In cases where Code Section 704(c) applies to property of
the Company, the Members' capital accounts shall be adjusted in accordance with
Regulations Section 1.704-1(b)(2)(iv)(g) for allocations to the Members of
depreciation, depletion, amortization, gain, and loss, as computed for book
purposes, with respect to such property.
4. The capital accounts of the Members may be adjusted to
reflect a revaluation of Company property (including intangible assets such as
goodwill) on the Company's books, to the extent provided in Regulations Section
1.704-1(b)(2)(iv)(f).
5. The Manager may make all elections for federal income tax
purposes, including an election to adjust the basis of the Company property
pursuant to Code Sections 734, 743 and 754, in the event of the transfer of an
Interest in the Company or the distribution of property by the Company. The
Members' capital accounts shall be adjusted to the extent provided in
Regulations Section 1.704-1(b)(2)(iv)(m).
6. The provisions of this Agreement regarding the maintenance
of capital accounts are intended to comply with Code Section 704(b), as amended,
and the Regulations promulgated thereunder. Notwithstanding anything to the
contrary contained in this Article 10, the Members, by unanimous consent may
modify the method in which capital accounts are maintained, provided such
changes are consistent with Code Section 704 and Regulations promulgated
thereunder.
7. Increases or decreases to a Member's capital account shall
not affect the Member's Membership Interest as defined in Section 20.15 of this
Agreement.
Section 10.2 Capital Account of Transferred Membership Interest. Upon
the transfer of all or any part of a Membership Interest as permitted by this
Agreement, the capital account (or portion thereof) of the Transferring Member
that is attributable to the transferred Interest (or portion thereof) shall
carry over to the Transferee, as prescribed by Regulations Section
-15-
Exhibit 10.4
1.704-1(b)(2)(iv)(1).
Section 10.3 No Deficit Restoration Obligation. This Agreement shall
not be construed as creating an obligation to restore a deficit in a Member's
capital account balance.
11. PROFITS AND LOSSES
------------------
Section 11.1 Net Profits and Losses. After giving effect to the special
allocations set forth in Sections 11.2 and 11.3, Net Profits and Net Losses
shall be allocated and credited to the Members' respective capital accounts in
proportion to the respective Membership Interests as set forth in Section 9.2.
Section 11.2 Special Allocations.
1. Qualified Income Offset. No allocation may be made to a
Member to the extent such allocation causes or increases a deficit balance in
such Member's adjusted capital account. Notwithstanding any other provision of
this Agreement except Sections 11.2(b) and 11.2(c), in the event that a Member
unexpectedly receives an adjustment, allocation or distribution described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which results in such
Member having a negative Adjusted Capital Account balance (as determined above),
then such Member shall be allocated items of income and gain in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, such
negative balance in such Member's Adjusted Capital Account as quickly as
possible. This provision is intended to satisfy the "qualified income offset"
items of the Code.
2. Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 11.2, if there is a net decrease in Company minimum
gain for any Company fiscal year, the minimum gain chargeback requirement
contained in Regulations Section 1.704-2 shall apply and each Member must be
allocated items of Company income and gain for that year equal to that Member's
share of the net decrease in Company minimum gain. This Section 11.2(b) is
intended to comply with the minimum gain chargeback requirement of the
Regulations and shall be interpreted consistently therewith.
3. Section 704(c) Allocation. Solely for Federal, state, and
local income tax purposes and not for book or capital account purposes,
depreciation, amortization, gain, or loss with respect to property that is
properly reflected on the Company's books at a value that differs from its
adjusted basis for Federal income tax purposes shall be allocated in accordance
with the principles and requirements of Code Section 704(c) and the Regulations
promulgated thereunder, and in accordance with the requirements of the relevant
provisions of the Regulations issued under Code Section 704(b). For capital
account purposes, depreciation, amortization, gain, or loss with respect to
property that is properly reflected on the Company's books at a value that
differs from its adjusted basis for tax purposes shall be determined in
accordance with the rules of Regulations Section 1.704-1(b)(2)(iv)(g).
4. Risk of Loss Allocation. Any item of Member nonrecourse
deduction (as defined in Regulation Section 1.704-2(i)(2)) with respect to a
Member nonrecourse debt (as
-16-
Exhibit 10.4
defined in Regulation Section 1.704-2(b)(4)) shall be allocated to the Member or
Members who bear the economic risk of loss for such Member nonrecourse debt in
accordance with Regulations Section 1.704-2(i)(1).
5. Allocation of Excess Nonrecourse Liabilities. For the
purpose of determining each Member's share of Company nonrecourse liabilities
pursuant to Regulations Section 1.752-3(a)(3), and solely for such purpose, each
Member's interest in Company profits is hereby specified to be such Member's
Membership Interest.
Section 11.3 Curative Allocations. The allocations set forth in Section
11.2 (the "regulatory allocations") are intended to comply with certain
requirements of Code Section 704 and Regulations promulgated thereunder.
Notwithstanding any other provisions of this Article 11, the regulatory
allocations shall be taken into account in allocating other profits, losses and
items of income, gain, loss and deduction among the Members so that, to the
extent possible, the net amount of such allocations of other profits, losses and
other items and the regulatory allocations to each Member shall be equal to the
net amount that would have been allocated to each such Member if the regulatory
allocations had not occurred.
Section 11.4 Transfers During Taxable Year. All income, gain, loss and
deductions allocable pursuant to this Article 11 for a fiscal year with respect
to any Membership Interest which may have been transferred during such year
shall be allocable between the Transferring Member and the Transferee based upon
the number of days that each was recognized by the Company as the owner of such
Interest, without regard to the results of Company operations during the
particular days of such fiscal year and without regard to which cash
distributions were made to the Transferring Member or the Transferee; provided,
however, that all income, gain, loss and deductions so allocated as the result
of a capital transaction shall be allocated to the recognized owner of the
Membership Interest for the day on which the capital transaction giving rise to
such gain occurred.
Section 11.5 Right to Use Alternative Method of Allocation.
Notwithstanding anything else in this Article 11, the Company shall have the
right to use a different method of allocating Company income and loss if it is
advised by the Company accountant or tax counsel that the method of allocation
provided herein violates the Code or Regulations. The Manager shall notify each
Member of any change in the method of allocating Company income or loss in
accordance with this paragraph promptly after the occurrence thereof.
12. INTEREST AND COMPENSATION, LOANS
--------------------------------
Section 12.1 Interest and Compensation. No Member will be credited with
interest on his or her capital account, and, unless the other Members
unanimously agree, no Member in his or her capacity as a Member shall be
entitled to any payments for services rendered on behalf of the Company.
Section 12.2 Loans. Any Member may, with the approval of the Manager or
as provided by this Agreement, lend or advance money to the Company. If any
Member shall make any loan or loans to the Company or advance money on its
behalf, the amount of any such loan or advance shall not be treated as a
contribution to the capital of the Company but shall be a debt due from the
Company. The amount of any such loan
-17-
Exhibit 10.4
or advance by a lending Member shall be repayable out of the Company's cash, and
shall bear interest at such rate and be payable under such terms as shall be
agreed between the Company and the lending Member at the time of the loan but in
the event of a failure to agree the interest rate shall be the Default Interest
Rate. Except as otherwise provided herein, none of the Members shall be
obligated to make any loan or advance to the Company.
13. DISTRIBUTIONS TO MEMBERS
------------------------
Section 13.1 Distributable Cash.
1. The Manager shall determine the amount of Distributable
Cash, if any, available for distribution at such times as the Manager of the
Company deem advisable in accordance with their fiduciary duty to the Company
and the needs of the Company to operate its business.
2. This determination of Distributable Cash must be made in a
manner consistent with the Company purposes, and must consider:
1. current needs for operating capital;
2. prudent reserves for future operating capital;
3. current investment opportunities;
4. prudent reserves for future investment
opportunities and reclamation requirements;
5. the amounts of Company debts and the necessity or
advisability of paying or reducing Company debts;
6. preserving Company capital as a fund to protect
its creditors; and
7. the character of surplus Company property.
3. Any contributed property or borrowed funds by the Company
will be considered as needed for Company investment purposes. Any cash produced
from selling property contributed to the Company or from selling any property
purchased with borrowed funds, or any reinvestment of any of the property,
including the portion of the sale proceeds representing capital appreciation,
will be considered as needed reserves for Company investment purposes. Any
Distributable Cash derived from income will, to the extent deemed unnecessary
for Company purposes by the Manager under the foregoing standard, be available
for distribution in accordance with this Agreement.
Section 13.2 Restrictions on Distributions. No distribution shall be
made if, after
-18-
Exhibit 10.4
giving effect to the distribution, (1) the Company would not be able to pay its
debts as they become due in the usual course of business or (2) the total fair
market value of the assets of the Company would be less than the sum of its fair
market value of total liabilities.
Section 13.3 Allocation of Distributions. Distributions shall be made
in proportion to the Membership Interests in the Company, as of the date of
distribution, unless agreed otherwise by the unanimous vote of the Members.
Section 13.4 Amounts not Withdrawn. If any Member does not withdraw the
whole or part of their share of any cash distribution made in accordance with
this Article 13, the Member may not receive any interest thereon and the
distribution amount not withdrawn will become an optional capital contribution
under Section 9.3 if permitted at that time.
14. RESTRICTIONS ON TRANSFER OF A MEMBER'S INTEREST
-----------------------------------------------
Section 14.1 Conditions to Transfer. Except as otherwise set forth in
this Agreement, no Member shall have the right voluntarily or involuntarily to
sell, assign, pledge, mortgage, encumber or grant any security interest in or
otherwise transfer all or any portion of any Membership Interest, and no such
purported transfer need be recognized by the Company, unless all of the
following requirements are satisfied:
1. The transfer shall not of itself cause the Company to be in
default under any indebtedness of the Company;
2. The transfer shall not violate any federal or state
securities law;
3. The Transferring Member shall deliver to the Company a
fully executed written agreement of assignment that sets forth the name,
address, and taxpayer identification number of the Transferee, and the terms of
such transfer, provided such terms shall not conflict with any provision of this
Agreement; and
4. If any Member is a closely held corporation, or is an
unincorporated association, limited liability company or partnership, the
transfer, assignment or hypothecation of any stock or interest in such
corporation, association or partnership in the aggregate in excess of fifty
percent (50%) shall be deemed an assignment or transfer within the meaning of
this Agreement, except as provided in Section 14.4 hereof.
Section 14.2 Company's Unilateral Option to Purchase Interest.
1. The Company will have the unilateral option to acquire the
Interest of a Member or Interest Holder if:
1. any Interest Holder acquires a Membership
Interest, or becomes an assignee, as the result of a court order that the
Company is required by law to recognize;
2. a Member's Interest is subjected to a lawful
"charging order"; or
-19-
Exhibit 10.4
3. a Member makes an unauthorized transfer or
assignment of a Membership Interest that the Company is required by law (and by
a court order) to recognize.
2. The unilateral option to acquire the Interest of a
Transferee or assignee shall be exercisable upon the following terms and
conditions:
1. The Company will have the option to acquire the
interest by giving written notice to the Member, Transferee or assignee that it
intends to purchase the interest within ninety (90) days from the event giving
rise to the Company's option. If this event is an event other than a transfer or
assignment, the Company shall give written notice within ninety (90) days from
the date of such event. If this event is a transfer or assignment, the Company
shall give written notice within ninety (90) days from the date it is finally
determined that the Company is required to recognize the transfer or assignment.
2. The "Valuation Date" for determining the Purchase
Price of the interest will be the first day of the month following the month in
which notice of the unauthorized transfer is received. The date notice is given
exercising the option, as determined under Section 19.3, shall be the
"Determination Date".
3. The Purchase Price and Payment Terms will be as
set forth in Section 14.5 and Section 14.6, respectfully.
4. If Newgold, Inc. has made the Minimum
Contributions required by it at the time of such transfer and it is not the
Member whose Membership Interest is being acquired, the Manager shall assign the
Company's option to purchase to Newgold, Inc., or such other entity designated
by Newgold, Inc. When done so, any rights or obligations imposed upon the
Company will instead become, by substitution, the rights and obligations of the
Members who are assigned the option.
5. Neither the Transferee nor assignee of an
unauthorized transfer or assignment or the Member causing the transfer or
assignment may vote on Company matters during the prescribed option period. If
the option to purchase is timely exercised, the Transferee shall have voting
rights only if admitted as a substitute Member.
Section 14.3 Admission of Substitute Members.
1. No Transferee shall become a substitute Member unless the
following additional conditions are met:
1. The Transferee executes, acknowledges and delivers
to the Company a written consent as required in Section 7.7, and executes such
other instruments as the Manager deem necessary or appropriate for admission as
a substitute Member; and
2. Each Transferee reimburses the Company for all
reasonable accounting, legal and other expenses incurred by the Company
regarding the transfer and such
-20-
Exhibit 10.4
admission.
2. A transferee who acquires an interest in the Company
without complying with the requirements of this Article 14 shall not become a
substitute member, but shall have only those rights of a transferee set forth in
NRS ss.86.351.
3. In the event the sale, transfer, assignment or encumbrance
is approved by unanimous written consent of the remaining Members, and the
remaining requirements of this Article 14 are satisfied, the Transferee shall be
admitted to all the rights and powers of a Member, and is subject to all the
restrictions and liabilities of the Transferring Member. However, pursuant to
Nevada Revised Statutes Section 86.351, the Transferring Member is not released
from liability to the Company.
Section 14.4 Permitted Transfers. Any Member may, notwithstanding
Section 14.1 and Section 14.5, without the necessity of complying with the
provisions thereof, transfer all or part of the Member's Interest in the
Company:
1. To the Company;
2. To any other existing Member (including, without
limitation, the vesting by right of survivorship of a Membership Interest held
in joint tenancy upon the death of a deceased joint tenant); or
3. If Newgold, Inc. is the Transferring Member, to a
corporation, limited partnership, limited liability company, or any other entity
as to which it owns more than 50% of the voting control of such entity.
Section 14.5 Purchase Price. The purchase price to be paid for an
Interest subject to this Agreement shall be fair market value as of the
Valuation Date, without taking into account any minority, marketability or other
valuation discounts. The Valuation Date shall be the first day of the month
following the month in which the event requiring a determination of the purchase
price occurs. As defined herein, fair market value shall be determined by
agreement of the respective parties or, in the event of inability to agree, by a
Qualified Appraiser selected by the Company.
Section 14.6 Payment Terms. The consideration for an Interest purchased
by the Company or by one or more Members under this Article 14 shall be paid to
the Transferring Member, assignee or a representative or successor of a
Transferring Member or Assignee, as the case may be, in accordance with the
following Payment Terms:
1. Down Payment. A down payment in cash of not less than
twenty percent (20%) of the purchase price shall be paid within one hundred
eighty (180) days of the Determination Date, provided that if the purchase price
has not been determined within (180) days of the Determination Date the down
payment shall become due and payable thirty (30) days following the date the
purchase price is determined; and
-21-
Exhibit 10.4
2. Promissory Note. The balance of the purchase price shall be
paid pursuant to the terms of a promissory note (the "Note") to be executed by
the Company. The Note shall provide for the payment of a minimum of twenty
percent (20%) of the balance of the purchase price, plus accrued interest, on
the first anniversary date of the Note, and twenty percent (20%) of the initial
unpaid principal balance, plus accrued interest, on each anniversary date
thereafter to and including the date of payment in full. Interest shall accrue
on the declining principal balance of the Note at the Default Interest Rate as
of the Determination Date, and shall accrue from the date of the Note. The Note
shall be dated as of the date on which the down payment is required to be made.
The Note shall provide that its maker may prepay all or any portion of the
unpaid principal balance and accrued interest at any time, without penalty. The
Note shall provide that the entire unpaid principal balance of the Note, and all
accrued interest, shall become due and payable immediately upon the occurrence
of any of the following events:
1. Adjudication of bankruptcy of the Company;
2. Voluntary or involuntary petition by or on behalf
of the Company for arrangement or reorganization or for the protection of
creditors and the debtor, under bankruptcy law; or
3. Upon default in payment or of any of the terms of
the Note.
Section 14.7 Nonrecognition of an Unauthorized Transfer. The Company
will not be required to recognize the interest of any assignee or Transferee who
has obtained a purported Interest as the result of a transfer or assignment that
is not authorized by this Agreement. If there is a doubt as to ownership of an
Interest or who is entitled to Distributable Cash or liquidating proceeds, the
Manager may accumulate Distributable Cash or liquidation proceeds until the
issue is resolved to the Manager' satisfaction.
Section 14.8 Governmental Approvals. The Company shall apply for and
use its best efforts to obtain all governmental and administrative approvals
required, if any, in connection with the purchase and sale of Membership
Interests under this Agreement. The Members shall cooperate in obtaining such
approvals and to execute all documents that may be required to be executed by
the members in connection with such approvals. The Company shall pay all costs
and filing fees in connection with obtaining such approvals.
15. DISSOLUTION AND LIQUIDATION
---------------------------
Section 15.1 Events Requiring Dissolution. The Company shall be
dissolved only as specified in the Articles of Organization or as required under
applicable governing law.
Section 15.2 Liquidation. Upon the occurrence of any event requiring
dissolution as set forth in the Articles of Organization, if the business of the
Company is not continued as allowed in the Articles of Organization, if
applicable, the Manager of the Company shall execute and file with the Secretary
of State such dissolution documents as are required by law, and the Company
shall cease to carry on its business and shall wind up its affairs and
liquidate.
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Exhibit 10.4
Section 15.3 Manager's Powers During Liquidation. During liquidation
the Manager shall continue to have all managerial powers necessary to carry out
their duties and functions in liquidation the Company, including the following
powers:
1. The power to continue to manage any Company business during
the liquidation, including the power to enter into contracts that may extend
beyond the liquidation;
2. The power to execute deeds, bills of sale, assignments, and
transfers to convey Company property to third parties or to the respective
Members incident to finally distributing the remaining Company property (if
any). The Manager may not, however, impose personal liability upon any Member or
their legal representatives or successors in interest under any warranty of
title contained in any instrument;
3. The power to borrow funds, in the Manager' best judgment,
reasonably required to pay any Company obligations, and to execute security
documents encumbering Company property as security for the Company's
indebtedness. The Manager may not, however, create any personal obligation for
any Manager or any Manager's successors-in-interest to repay indebtedness other
than from available proceeds from foreclosure or sales of Company property as to
which a lien is granted; and
4. The power to settle, compromise, or adjust any claim
asserted to be owing by or to the Company and the right to file, prosecute, or
defend lawsuits and legal proceedings in connection with any matters.
Section 15.4 Distribution of Assets. During the liquidation of the
Company, the Members shall continue to share Net Profits and Losses in the same
proportions as before dissolution. In settling accounts after dissolution, the
proceeds from the liquidation of the Company's assets shall be applied as
follows:
1. To creditors of the Company, including Members who are
creditors, in the order of priority as provided by law, other than debts owed to
Members for their contributions;
2. To set up any reserves that the Manager may deem reasonably
necessary for any contingent or unforeseen liabilities or obligations of the
Company;
3. To the Members with respect to their share of profits and
other compensation; and
4. To the Members with respect to their capital account
balances.
Section 15.5 Gains or Losses. During liquidation, any gain or loss on
the disposition of the Company's property shall be credited or charged to the
Members in accordance with the provisions of Article 10. Any property
distributed in kind in liquidation shall be valued and treated as though the
property were sold for its fair market value and the cash proceeds distributed.
The difference between the value of the property distributed in kind and its
book value to the Company shall be treated as a gain or loss on the sale of the
property to be allocated
-23-
Exhibit 10.4
between the Members pursuant to Article 11.
Section 15.6 Compliance with Timing Requirements of Treasury
Regulation. If the Company is "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), distributions will be made under this Article to
the Members in accordance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
Section 15.7 Accounting. Within a reasonable time after completing the
Company's liquidation, the Manager shall supply to each Member a statement
prepared by the Company's accountant that will set forth:
1. the Company assets and liabilities as of the liquidation
date;
2. each Member's portion of distributions in accordance with
liquidation; and
3. the amount, if any, retained as reserves in accordance with
Section 15.4.
Section 15.8 Rights of Lenders. The rights and powers granted to the
Manager and Members are subject to the rights and powers of the holder of first
mortgage liens (if any) against any part of the property owned by the Company.
16. INDEMNIFICATION
---------------
Section 16.1 Indemnification of Member, Employee or Agent: Proceeding
Other than by Company. The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, whether civil, criminal, administrative or
investigative, except an action by or in the right of the Company, by reason of
the fact that he is or was an Organizer, Member, Manager, Officer, employee or
agent of this Company, or is or was serving at the request of this Company as an
organizer, manager, director, officer, employee or agent of another
limited-liability company or corporation, against expenses, including attorneys'
fees, judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of this Company, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of this Company, and that, with respect to any criminal action or proceeding, he
had reasonable cause to believe that his conduct was unlawful.
Section 16.2 Indemnification of Member, Employee or Agent: Proceeding
by Company. The Company shall indemnify any person who was or is party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of this Company to procure a judgment in its favor by
reason of the fact that he is or was an Organizer,
-24-
Exhibit 10.4
Member, Manager, Officer, employee or agent of this Company, or is or was
serving at the request of this Company as an organizer, member, manager,
director, officer, employee or agent of another limited-liability company,
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
actions or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of this Company.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to this Company or for amounts
paid in settlement to this Company, unless and only to the extent that the court
in which the action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
Section 16.3 Advance of Expenses. Expenses incurred in defending a
civil or criminal action, suit or proceeding brought other than by the Company
shall be paid by the Company in advance until the earlier to occur of (a) the
final disposition of the action, suit or proceeding in the specific case, or (b)
a determination that indemnification is not proper under the circumstances
because the applicable standard of conduct set forth in this Article 16 has not
been met. Expenses incurred in defending a civil or criminal action, suit or
proceeding brought by the Company may be paid by the Company in advance of the
final disposition of the action, suit or proceeding, as authorized by the
Company pursuant to Section 16.4 in the specific case. Any advance of expenses
shall not commence until receipt by the Company of an undertaking by or on
behalf of the individual seeking such advance to repay any advanced amount
unless it shall ultimately be determined that such individual is entitled to be
indemnified by the Company as authorized in this Article 16.
Section 16.4 Determination of Indemnification. Any indemnification
under Sections 16.1 and 16.2, unless ordered by a court or advanced by the
Company, must be made by this Company only as authorized in the specific case
upon a determination that indemnification of the Organizer, Member, Manager,
Officer, employee or agent is proper in the circumstances. The determination
must be made:
1. By the Manager who were not parties to the act, suit or
proceeding; or
2. If a quorum consisting of Manager who were not parties to
the act, suit or proceeding cannot be obtained, by a majority of the Members,
disregarding the vote of any Member or Manager who was a party to the act, suit
or proceeding.
Section 16.5 Cooperation of Indemnitee. Any person seeking
indemnification pursuant to this Article 16 shall promptly notify the Company of
any action, suit or proceeding for which indemnification is sought and shall in
all ways cooperate fully with the Company and its insurer, if any, in their
efforts to determine whether or not indemnification is proper in the
circumstances, given the applicable standard of conduct set forth in this
article. Any person seeking indemnification pursuant to this article other than
with respect to (a) a criminal action, suit, or proceeding, or (b) an action,
suit, or proceeding by or in the right of the Company, shall
-25-
Exhibit 10.4
(i) allow the Company and/or its insurer the right to assume direction and
control of the defense thereof, if they elect to do so, including the right to
select or approve defense counsel, (ii) allow the Company and/or its insurer the
right to settle such actions, suits, or proceedings at the sole discretion of
the Company and/or its insurer, and (iii) cooperate fully with the Company and
its insurer in defending against, and settling such actions, suits, or
proceedings.
Section 16.6 Non-Exclusivity. The indemnification provided by this
Article 16 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Act, the Articles of
Organization or this Agreement or any agreement, vote of Members or otherwise,
both as to action in an official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a Member, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 16.7 Insurance. The Company may purchase and maintain insurance
on behalf of any person who is or was an Organizer, Manager, Member, officer,
employee, or agent of the Company, or is or was serving the Company with a
contractual commitment of indemnification, or is or was serving at the request
of the Company as an organizer, member, manager, director, officer, employee or
agent of another limited liability company, corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by him or her in any such capacity, or arising out of
his/her status as such, whether or not the Company would have the power to
indemnify him or her against such liability under the provisions of the Act, as
amended from time to time.
Section 16.8 Additional Indemnification. The Company may provide
further indemnity, in addition to the indemnity provided by this Article 16, to
any person who is or was an Organizer, Manager, Member or officer of the
Company, or is or was serving the Company with a contractual commitment of
indemnification, or is or was serving at the request of the Company as an
organizer, member, manager, director, officer, employee or agent of another
limited liability company, corporation, partnership, joint venture, trust or
other enterprise, provided that no such indemnity shall indemnify any person
from or on account of such person's conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest, or willful misconduct.
17. COMPANY RECORDS AND REPORTS
---------------------------
Section 17.1 Books and Records. The Manager shall cause the Company to
keep the following:
1. Complete books and records of account in which shall be
entered fully and accurately all transactions and other matters relating to the
Company. The Company's books and records shall be kept on an accrual basis,
except as the Manager may otherwise determine to be permitted under the Code;
-26-
Exhibit 10.4
2. A current list of the full name and last known business or
residence address of each Member set forth in alphabetical order listing the
Member's capital contribution to the Company and Interests owned;
3. A current list of the full name and last known business or
residence of each Manager set forth in alphabetical order;
4. A copy of the filed Articles of Organization and all filed
amendments thereto and all filings by the Company in Nevada and other states;
5. Copies of any powers of attorney pursuant to which any
document in (c), above has been executed;
6. Copies of the then effective operating agreement of the
Company; and
7. Any and all records requested to be kept for any statutory,
regulatory or other applicable law.
All such books and records shall be maintained at the
principal executive office of the Company, and as to those designated in
Subparagraphs (b) through (f) above, inclusive, also at the registered office of
the Company. In each location, such books and records shall be available for
inspection and copying by, and at the expense of, the Members, or their duly
authorized representatives, during reasonable business hours.
18. ALTERNATIVE DISPUTE RESOLUTION
------------------------------
Section 18.1 Agreement to Use Procedure. The Members and Manager have
entered into this Agreement in good faith and in the belief that it is mutually
advantageous to them. It is with that same spirit of cooperation that they
pledge to attempt to resolve any dispute amicably without the necessity of
litigation. Accordingly, they agree if any dispute arises between them relating
to this Agreement (the "Dispute"), they will first utilize the alternative
dispute resolution ("ADR") procedures specified in this Article 18 (the
"Procedure") before any Additional Proceedings.
Section 18.2 Initiation of Procedure. The Manager or Member seeking to
initiate the Procedure (the "Initiating Party") will give written notice to the
other Manager and Members. The notice must describe in general terms the nature
of the Dispute and the Initiating Party's claim for relief. Additionally, the
notice must identify one or more individuals with authority to settle the
Dispute on the Initiating Party's behalf. The Manager or Members receiving the
notice (the "Responding Party" whether one or more) will have five (5) business
days within which to designate by written notice to the Initiating Party, one or
more individuals with authority to settle the Dispute on the Responding Party's
behalf. The individuals so designated will be known as the "Authorized
Individuals." The Responding Party may authorize himself or herself as an
Authorized Individual. The Initiating Party and the Responding Party will
collectively be referred to as the "Disputing Parties" or individually
"Disputing Party."
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Exhibit 10.4
Section 18.3 Direct Negotiations. The Authorized Individuals may
investigate the Dispute as they deem appropriate. But they agree to promptly,
and in no event later than thirty (30) days from the date of the Initiating
Party's written notice, meet to discuss the Dispute's resolution. The Authorized
Individuals will meet at the times and places and with the frequency as they may
agree. If the Dispute has not been resolved within thirty (30) days from their
initial meeting date, the Disputing Parties will cease direct negotiations and
will submit the Dispute to mediation in accordance with the following procedure.
Section 18.4 Mediator Selection. The Authorized Individuals will have
five (5) business days from the date they cease direct negotiations to submit to
each other a written list of acceptable qualified attorney-mediators not
affiliated with any Manager or Member. Within five (5) days from the date the
list is received, the Authorized Individuals will rank the mediators in
numerical order of preference and exchange the rankings. If one or more names
are on both lists, the highest ranking person will be designated as the
mediator. If no mediator has been selected under this procedure, the Disputing
Parties agree jointly to request a State or Federal District Judge of their
choosing to supply within ten (10) business days a list of potential qualified
attorney-mediators. If they cannot agree upon a State or Federal Judge, the
Chief State Judge for the county in which the Company's principal office is
located may supply the list. Within five (5) business days from the date the
list is received, the Authorized Individuals will again rank the proposed
mediators in numerical order of preference and will simultaneously exchange the
list and will select as the mediator the individual receiving the highest
combined ranking. If the mediator is not available to serve, they will proceed
to contact the mediator who was next highest in ranking until they are able to
select a mediator.
Section 18.5 Mediation Time and Place. In consultation with the
mediator selected, the Authorized Individuals will promptly designate a mutually
convenient time and place for the mediation. Unless circumstances require
otherwise, the time for mediation may not be later than forty-five (45) days
after selecting the mediator.
Section 18.6 Information Exchange. If any Disputing Party to this
Agreement has substantial need for information in another Disputing Party's
possession in order to prepare for the mediation, all Disputing Parties will
attempt in good faith to agree to procedures to expeditiously exchange the
information, with the mediator's help if required.
Section 18.7 Summary of Views. At least seven (7) days before the first
scheduled mediation session, each Disputing Party will deliver to the mediator
and to the other Disputing Parties a concise written summary of its views on the
matter in Dispute and the other matters required by the mediator. The mediator
may also request that a confidential issue paper be submitted by each Disputing
Party to him or her.
Section 18.8 Parties to be Represented. In the mediation, each
Disputing Party will be represented by an Authorized Individual and may be
represented by counsel. In addition, each Disputing Party may, with the
mediator's permission, bring the additional Persons as needed to respond to
questions, contribute information, and participate in the negotiations.
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Exhibit 10.4
Section 18.9 Conduct of Mediation.
1. The mediator will determine the format for the meetings.
The format must be designed to assure that:
1. Both the mediator and the Authorized Individuals
have an opportunity to hear an oral presentation of each Disputing Party's views
on the matter in dispute; and
2. The authorized parties attempt to negotiate to
resolve the matter in dispute, with or without the assistance of counsel or
others, but with the mediator's assistance.
2. The mediator is authorized to conduct both joint meetings
and separate private caucuses with the Disputing Parties. The mediation session
will be private. The mediator will keep confidential all information learned in
private caucus with any Disputing Party unless specifically authorized by the
Disputing Party to disclose the information to the other Disputing Party. The
Disputing Parties commit to participate in the proceedings in good faith with
the intention of resolving the Dispute, if at all possible.
Section 18.10 Termination of Procedure.
1. Procedure to Terminate Mediation. The Disputing Parties
agree to participate in the mediation procedure to its conclusion. The mediation
will be terminated by:
1. Executing a settlement agreement by the Disputing
Parties;
2. Declaring to the mediator that the mediation is
terminated; or
3. A Disputing Party declaring in writing that the
mediation process is terminated when one full day's mediation session is
concluded.
2. Even if the mediation is terminated without the Dispute's
resolution, the Disputing Parties agree not to terminate negotiations and not to
commence any Additional Proceedings before five (5) days following the mediation
expire. Any Disputing Party may, however, commence Additional Proceedings within
the five (5) day period if the Dispute could be barred by an applicable statute
of limitations.
Section 18.11 Arbitration. The parties agree to participate in good
faith in the ADR to its conclusion. If the Disputing Parties are not successful
in resolving the dispute through the ADR, then the Disputing Parties agree that
the dispute will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction ("Additional Proceedings").
Section 18.12 Mediation Fees; Disqualification. The mediator's fees and
expenses will be shared equally by the Disputing Parties. The mediator will be
disqualified as a witness,
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Exhibit 10.4
consultant, expert, or counsel for any Disputing Party with respect to the
Dispute and any related matters.
Section 18.13 Confidentiality. Mediation is a compromise negotiation
for purposes of Federal and State Rules of Evidence and constitutes privileged
communication under Nevada law. The entire mediation process is confidential,
and no stenographic, visual, or audio record will be made. All conduct,
statements, promises, offers, views, and opinions, whether oral or written, made
in the mediation's course by any Disputing Party, their agents, employees,
representatives or other invitees and by the mediator are confidential and will,
in addition and where appropriate, be deemed privileged. The conduct,
statements, promises, offers, views, and opinions will not be discoverable or
admissible for any purpose, including impeachment, in any litigation or other
proceeding involving the parties, in accordance with Nevada Revised Statutes
Section 48.109. It will not be disclosed to anyone who is not a Manager, Member,
or their agent, employee, expert, witness, or representative. Evidence otherwise
discoverable or admissible is not, however, excluded from discovery or admission
as a result of its use in the mediation.
19. MISCELLANEOUS PROVISIONS
------------------------
Section 19.1 Agreement to Perform Necessary Acts. Each Member agrees to
perform any further acts and execute and deliver any documents that may be
reasonably necessary to carry out the provisions of this Agreement.
Section 19.2 Amendments. This Agreement may be modified or amended at
any time and from time to time as follows:
1. Amendments to this Agreement may be proposed by a Manager
or by Members holding ten percent (10%) or more of the Company's total
Membership Interests. Following such proposal, the Manager shall submit to the
Members a verbatim statement of any proposed amendment, and the Manager shall
include in any such submission a recommendation as to the proposed amendment.
The Manager shall seek the written vote of the Members on the proposed amendment
or shall call a meeting to vote thereon and to transact any other business that
it may deem appropriate in accordance with this Agreement. For purposes of
obtaining a written vote, the Manager may require response within a reasonable
specified time, but not less than fifteen (15) days, and failure to respond in
such time period shall constitute a vote which is consistent with the Manager
recommendation with respect to the proposal. A proposed amendment shall be
adopted and be effective as an amendment hereto if it receives the affirmative
vote or written consent of Members holding a majority of the Membership
Interests.
2. Notwithstanding the foregoing, this Agreement shall not be
amended without the consent of each Member adversely affected if such amendment
would modify the limited liability of a Member or alter the Interest of a Member
in Profits and Losses, or any Company distributions.
Section 19.3 Notices. All notices or other communications required or
permitted to be given under this Agreement shall be in writing and shall be (a)
delivered personally, (b) sent via Federal Express (or via another comparable
overnight messenger service), or (c) mailed, certified
-30-
Exhibit 10.4
or registered mail, return receipt requested, to the parties hereto at the
addresses set forth in relation to the signature lines of this Agreement.
Personally-delivered notices shall be deemed given upon actual personal delivery
to the intended recipient. Notices sent via Federal Express (or via another
comparable overnight messenger service) shall be deemed given on the business
day immediately following the day of dispatch. Mailed notices shall be deemed
given upon the earliest of three (3) business days after deposit into the United
States Mail registered or certified, with postage fully-prepaid, or the date of
actual receipt as evidenced by the return receipt. Notices and communications to
Newgold and ASDi LLC will, unless another address is specified in writing, be
sent to the addresses below:
Notices to Newgold:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Notices to ASDi LLC:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: A. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Section 19.4 Binding Effect. Subject to the provisions hereof, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. The parties hereto agree for
themselves and for their successors and assigns, and their successors in
interest, no matter how such succession in interest is acquired, to execute any
instrument that may be necessary or proper to carry out all of the purposes and
intentions of this Agreement. The Membership Interest of any successor to any
party hereto that is not also a party hereto shall be treated hereunder as
though it has continued and is continuing to be held by such party hereto for
the purposes of determining the priorities of the rights of the parties hereto
to purchase such Membership Interest under the terms of this Agreement.
Section 19.5 Severability. If any sentence, paragraph, clause or
combination of the same in this Agreement is held by a court of competent
jurisdiction to be unenforceable in any jurisdiction, such sentence, paragraph,
clause or combination shall be unenforceable in the jurisdiction where it is so
held, and the remainder of this Agreement shall remain binding on the parties
hereto in such jurisdiction as if such unenforceable provision had not been
contained herein. The enforceability of such sentence, paragraph, clause or
combination of the same in this Agreement otherwise shall be unaffected and
shall remain enforceable in all other jurisdictions.
Section 19.6 Governing Law. The validity, construction, interpretation
and enforceability of this Agreement shall be determined and governed by the
laws of the State of Nevada. Notwithstanding the foregoing, if any law or set of
laws in the State of Nevada requires or otherwise dictates that the laws of
another state or jurisdiction must be applied in any proceeding involving this
Agreement, such Nevada law or set of laws shall be superseded by this
-31-
Exhibit 10.4
Section and the remaining laws of the State of Nevada nonetheless shall be
applied in such proceeding.
Section 19.7 Foreign Qualification. Before the Company qualifies to
conduct business in any jurisdiction other than Nevada, the Manager will cause
the Company to comply, to the extent procedures are available and those matters
are reasonably within the Manager' control, with all requirements necessary to
qualify the Company as a foreign limited liability company in that jurisdiction.
At the Manager' request, each Member will execute, acknowledge, swear to, and
deliver any and all certificates and other instruments conforming with this
Agreement's terms that are necessary or appropriate to qualify, continue, and
terminate the Company as a foreign limited liability company in all
jurisdictions in which the Company may conduct business..
Section 19.8 Federal Law Disclosure and Limitations. The Membership
Interests have not been registered under federal or state securities laws.
Membership Interests may not be offered for sale, sold, pledged, or otherwise
transferred unless so registered, or unless an exemption from registration
exists. The availability of any exemption from registration must be established
by an opinion of counsel, whose opinion must be satisfactory to the Manager.
Section 19.9 Tax Matters.
1. The Members acknowledge that the Company will be treated as
a "partnership" for federal income tax purposes, and will be governed by the
applicable provisions of Subchapter K, of Chapter 1 of the Code, as amended. All
provisions of this Agreement shall be construed so as to preserve that tax
status.
2. Within ninety (90) days after the end of each Fiscal Year,
the Manager will cause to be delivered to each person who was a Member at any
time during such Fiscal Year a Form K-1 and such other information, if any, with
respect to the Company as may be necessary for the preparation of each Member's
federal or state income tax (or information) returns, including a statement
showing each Member's share of income, gain or loss, and credits for the Fiscal
Year.
3. The Manager will designate a Member to act on behalf of the
Company as the "tax matters partner" within the meaning of Section 6231(a)(7) of
the Code. The Company shall indemnify and reimburse the Member designated as the
tax matters partner for all reasonable expenses, including legal and accounting
fees, claims, liabilities, losses and damages incurred in connection with any
administrative or judicial proceeding with respect to the tax liability of the
Members. The payment of all such expenses shall be made before any distributions
are made to the Members hereunder, and before any discretionary reserves are set
aside by the Manager. The taking of any action and the incurring of any expense
by the Member designated as the tax matters partner in connection with any such
proceeding, except to the extent required by law, is a matter in the sole
discretion of such Member, and the provisions hereof limiting the liability of
and providing indemnification for the Manager shall be fully applicable to the
Member designated as the tax matters partner in his capacity as such.
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Exhibit 10.4
Section 19.10 Counterparts. This Agreement may be executed in any
number of counterparts and each such counterpart shall for all purposes be
deemed an original, and all such counterparts shall together constitute but one
and the same instrument. Any signature page of this Agreement may be detached
from any counterpart without impairing the legal effect of any signatures, and
may be attached to another counterpart, identical in form, but having attached
to it one or more additional signature pages. This agreement may be executed by
signatures provided by electronic facsimile transmission (also known as "fax"
copies), which facsimile signatures shall be as binding and effective as
original signatures.
Section 19.11 Headings, Gender and Number. Headings in this Agreement
are included herein for the convenience of reference only and shall not define,
limit, or otherwise constitute a part of this Agreement for any other purpose.
Whenever required by the context of this Agreement, the singular shall include
the plural and the plural shall include the singular. The masculine feminine, or
neuter genders shall each include the others. All references to a period of
days, months or years herein shall refer to calendar days, months or years,
respectively, unless otherwise specifically stated.
Section 19.12 Construction. The terms and conditions of this Agreement
shall be construed as a whole according to their fair meaning and not strictly
for or against any party. The parties acknowledge that each of them has reviewed
this Agreement and has had the opportunity of having their attorneys review this
Agreement. The normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or of any of its exhibits or amendments.
Section 19.13 Waiver. No waiver of any breach of default of this
Agreement by any party hereto shall be considered to be a waiver of any other
breach or default of this Agreement.
Section 19.14 Attorney's Fees. If any party brings an action or
proceeding (including any cross-complaint, counterclaims, or third-party claim)
against any other party by reason of a default by the other party or otherwise
arising out of this Agreement, the non-prevailing party shall pay to the
prevailing party in such action or proceeding all of the prevailing party's
costs and expenses of suit (including the costs and expenses of enforcing any
judgment or settlement), including reasonable attorney's fees, which shall be
payable whether or not such action is prosecuted to judgment. "Prevailing party"
within the meaning of this Section 19.14 includes a party who dismisses an
action for recovery hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached, or consideration substantially
equal to the relief sought in the action.
Section 19.15 Creditors. No provision of this Agreement will be for the
benefit of or enforceable by any creditors of the Company or other third
parties.
Section 19.16 Offset. Whenever the Company is to pay any sum to any
Member, any amounts that Member owes the Company may be deducted from that sum
before payment.
Section 19.17 Disclosure. Each Member and Manager acknowledges that he,
she, or it:
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Exhibit 10.4
1. was urged in advance by the Attorney who prepared this
Agreement to secure separate independent legal counsel in connection with
signing and making this Agreement and its effect upon each of them and their
marital property;
2. has carefully read and understood this Agreement;
3. understands that his or her marital rights in real property
may be adversely affected by this Agreement;
4. is signing and making this Agreement voluntarily;
5. has been provided a fair and reasonable disclosure of the
property and financial obligations of the Company; and
6. voluntarily and expressly waives in this writing any right
to disclosure of the nature and extent of any Company property and financial
obligations, and the other Member's assets and financial obligations beyond the
disclosure provided.
Section 19.18 Complete Agreement. This Agreement and the Articles of
Organization constitute the complete and exclusive statement among the Members
and Manager with respect to the subject matter contained therein. This Agreement
and the Articles of Organization supersede all prior agreements by and among the
Members and Manager.
20. DEFINITIONS
-----------
Capitalized words and phrases used in this Agreement shall
have the following meanings:
Section 20.1 The Act: "The Act" shall mean Chapter 86 of Nevada Revised
Statutes, or any corresponding provisions of succeeding law.
Section 20.2 Additional Proceedings: "Additional Proceedings" shall
have the meaning set forth in Section 18.11.
Section 20.3 Agreement: "Agreement" means this Operating Agreement as
amended from time to time.
Section 20.4 Code: "The Code" shall mean the Internal Revenue Code of
1986, as amended from time to time, or any corresponding provisions of
succeeding law.
Section 20.5 Company: "Company" shall mean the limited liability
company governed under this Agreement, as constituted or amended.
Section 20.6 Default Interest Rate: "Default Interest Rate" means the
rate per annum equal to the Wall Street Journal prime rate as quoted in the Wall
Street Journal's money rates section, which is also the base rate on corporate
loans at large United States money center
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Exhibit 10.4
commercial banks, as its prime commercial or similar reference interest rate,
with adjustments to be made on the same date as any change in the rate.
Section 20.7 Delinquent Member: "Delinquent Member" means a Member who
fails to make a required capital contribution under Article 9.
Section 20.8 Determination Date: "Determination Date" means the date on
which notice is given to purchase an Interest under Section 14.2 or Section
14.5.
Section 20.9 Dispute: "Dispute" means a dispute among the Members or
Manager, or between one or more Members and one or more Manager, arising under
this Agreement.
Section 20.10 Distributable Cash: "Distributable Cash" means, at the
time of determination for any period (on the cash receipts and disbursements
method of accounting), all Company cash derived from the conduct of the
Company's business, including distributions from entities owned by the Company,
cash from operations or investments, and cash from the sale or other disposition
of Company property, other than:
1. capital contributions with interest earned pending its
utilization;
2. financing or other loan proceeds;
3. reserves for working capital; and
4. other amounts that the Manager reasonably determine needs
to be retained by the Company in accordance with the Manager' discretion.
Section 20.11 Effective Date: "Effective Date" means the effective date
of this Agreement as determined under Article 1.
Section 20.12 Initiating Party: "Initiating Party" means a Member or
Manager who initiates alternative dispute resolution procedures under Article
18.
Section 20.13 Interest: "Interest" means a Membership Interest or the
interest of an assignee upon the transfer of a Membership Interest without the
Transferee's being admitted to the Company as a Member. The owner of an Interest
shall have the right to an allocative share of the economic benefits of the
Company, including Net Profits, Net Losses, and distributions. With respect to
Members, an Interest shall also include the right to vote on matters as to which
the Agreement requires or permits Members to vote. A Transferee or assignee who
is not admitted as a substitute Member shall have no voting rights.
Section 20.14 Interest Holder: "Interest Holder" means the holder of
any Interest or Membership Interest in the Company.
Section 20.15 Lending Member: "Lending Member" means a Member who
advances all or any portion of a Delinquent Member's capital contribution that
is in default.
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Exhibit 10.4
Section 20.16 Manager: "Manager" means the Member, Members, or
Nonmember(s) who are referred to as the Manager(s) in Article 5 hereof, or any
successor or successors thereto.
Section 20.17 Member: "Member" means any holder of a Membership
Interest in the Company who has become a Member pursuant to the terms of this
Agreement, but does not include an Assignee who has not become a substitute
Member.
Section 20.18 Membership Interest: "Membership Interest" shall mean the
respective right of a Member to an allocative share of the economic benefits of
the Company, including Net Profits, Net Losses, and distributions, in accordance
with the percentage interests set forth at Section 9.2 and with respect to
Members, the right to vote on matters as to which the Agreement requires or
permits Members to vote.
Section 20.19 Net Losses: "Net Losses" means the net loss of the
Company, computed in accordance with Code Section 703, applied consistently with
prior periods.
Section 20.20 Net Profits: "Net Profits" means the net income of the
Company, computed in accordance with Code Section 703, applied consistently with
prior periods.
Section 20.21 Qualified Appraiser: "Qualified Appraiser" means an
appraiser who is qualified to perform business appraisals of limited liability
companies and ownership interests therein.
Section 20.22 Payment Terms: "Payment Terms" means the terms for
payment of an Interest acquired by the Company or one or more Members under
Article 14, as set forth in Section 14.7.
Section 20.23 Procedure: "Procedure" means alternative dispute
resolution procedures as set forth in Article 18.
Section 20.24 Purchase Price: "Purchase Price" means the price for the
acquisition of an Interest by the Company or one or more Members under Article
14, as set forth in Section 14.6.
Section 20.25 Regulations: "Regulations" shall mean the regulations
issued by the U.S. Treasury Department under the Code.
Section 20.26 Responding Party: "Responding Party" means a Member or
Manager responding to alternative dispute resolution procedures initiated by an
Initiating Party.
Section 20.27 Transferee: "Transferee" means a third person or entity
to whom a Transferring Member sells, transfers, encumbers, assigns, or otherwise
disposes of all or any part of the Member's Interest in the Company.
Section 20.28 Transferring Member: "Transferring Member" means a Member
who voluntarily sells, transfers, encumbers, assigns, or otherwise disposes of
all or any part of the Member's Interest in the Company to any third person or
entity.
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Exhibit 10.4
Section 20.29 Valuation Date: "Valuation Date" means the date for
determining the value of an Interest to be acquired by the Company or one or
more Members under Article 14.
[REMAINDER OF PAGE INTENTIALLY LEFT BLANK]
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Exhibit 10.4
IN WITNESS WHEREOF, the parties hereto have duly executed this
Operating Agreement as of the ninth day of February, 2006.
Acceptance and Approval By Members:
NEWGOLD, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Chief Financial Officer
ASDi LLC
By: /s/ A. ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
A. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Its: Manager
Acceptance and Approval By Manager:
NEWGOLD, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: Chief Financial Officer
-38-
Exhibit 10.4
Exhibit A to Operating Agreement of Crescent Red Caps, LLC
Mining Claims
-39-
Exhibit 10.4
Exhibit B to Operating Agreement of Crescent Red Caps, LLC
Red Caps Lease Agreement between ASDi LLC and ▇▇▇ ▇▇▇▇, the ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ Trust, et al dated May 16, 2003
-40-
Exhibit 10.4
Exhibit C to Operating Agreement of Crescent Red Caps, LLC
Crescent Valley Lease Agreement between ASDi LLC and ▇▇▇ ▇▇▇▇, the ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ Trust, et al dated September 3, 2003
-41-
Exhibit 10.4