Exhibit 10.19
ASPHALT RIDGE PROJECT
OPERATING AND MANAGEMENT AGREEMENT
Table of Contents
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Page
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RECITALS .............................................................................................. 1
AGREEMENT.............................................................................................. 1
1. Definitions.......................................................................... 1
2. Engagement of Crown Asphalt as the Operator; Representations and
Warranties........................................................................... 6
2.1 Engagement of the Operator.................................................. 6
2.2 Ownership and Custody of Company Assets..................................... 6
2.3 Representations and Warranties.............................................. 7
3. Responsibilities of the Company...................................................... 7
4. Authority of the Operator............................................................ 8
4.1 Operation of Project........................................................ 8
4.2 No Assumption of Obligations Outside Authority. ........................... 9
4.3 Other Authority. .......................................................... 9
5. Duties of the Operator............................................................... 9
5.1 Presentation of Annual Operating Plan....................................... 9
5.2 Conduct of Operations....................................................... 9
5.3 Other Mineral Properties.................................................... 9
5.4 Specific Powers and Duties of the Operator.................................. 10
5.5 Books and Records........................................................... 12
5.6 Audits...................................................................... 12
6. Reports.............................................................................. 13
6.1 Reports..................................................................... 13
6.2 Results of Operations....................................................... 13
6.3 Access to Records........................................................... 13
6.4 Inspection of Property...................................................... 14
7. Standard of Care..................................................................... 14
8. Company Liability for Costs; Indemnification of the Operator......................... 14
8.1 Reimbursement............................................................... 14
8.2 Indemnification............................................................. 14
9. Compensation of the Operator......................................................... 14
9.1 Reimbursement of Costs...................................................... 14
9.2 Management Fee.............................................................. 16
10. Presentation of Annual Operating Budget.............................................. 16
10.1 Scope of Annual Operating Budget............................................ 16
10.2 Content of Annual Operating Plan. .......................................... 16
10.3 Amendments and Supplements.................................................. 17
10.4 Approval by Management Committee............................................ 17
11. Performance of Approved Annual Operating Plan........................................ 17
11.1 Conformance with Annual Operating Plan...................................... 17
11.2 Overruns.................................................................... 17
11.3 Emergencies................................................................. 17
12. Activities During Deadlock........................................................... 18
13. Accounts and Settlements............................................................. 18
13.1 Monthly. ................................................................... 18
13.2 ▇▇▇▇▇▇▇▇ for Cash Requirements. ............................................ 18
14. Sale of Products..................................................................... 18
15. Term of Agreement.................................................................... 18
16. Force Majeure........................................................................ 19
17. Default.............................................................................. 19
17.1 Failure to Perform.......................................................... 19
17.2 Negotiation of Disputes..................................................... 19
17.3 Responsibility for Default.................................................. 19
17.4 Measure of Compensation..................................................... 19
18. Successors and Assigns............................................................... 20
19. Removal or Resignation of the Operator............................................... 20
19.1 Removal of the Operator..................................................... 20
19.2 Resignation; Deemed Offer to Resign......................................... 20
19.3 Continuity of Operations.................................................... 21
19.4 Replacement of Operator on Economic Grounds................................. 21
19.5 Sale of MCNIC's Interest; Reduced Crown Interest............................ 22
20. Arbitration.......................................................................... 22
20.1 Submission to Arbitration................................................... 22
20.2 Initiation of Arbitration and Selection of Arbitrators...................... 22
20.3 Arbitration Procedures...................................................... 23
20.4 Enforcement................................................................. 23
20.5 Fees and Costs.............................................................. 23
21. Notice; Representatives.............................................................. 23
21.1 Representatives............................................................. 23
21.2 Notices..................................................................... 23
22. Confidentiality...................................................................... 25
23. General Provisions................................................................... 25
23.1 Section Headings. .......................................................... 25
23.2 Severability................................................................ 25
23.3 Governing Law. ............................................................. 25
23.4 Entire Agreement; Amendments. .............................................. 25
23.5 No Partnership. ............................................................ 25
23.6 Waiver...................................................................... 26
List of Exhibits
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EXHIBIT A DESCRIPTION OF ASPHALT RIDGE PROPERTY
EXHIBIT B FIRST ANNUAL OPERATING PLAN
SCHEDULE I ACCOUNTING PROCEDURES
ASPHALT RIDGE
OPERATING AND MANAGEMENT AGREEMENT
THIS OPERATING AND MANAGEMENT AGREEMENT (this "Agreement"), dated as of
August 1, 1997, is between CROWN ASPHALT RIDGE L.L.C., a Utah limited liability
company (the "Company"), and CROWN ASPHALT CORPORATION, a Utah corporation
("Crown Asphalt" or, when acting as such, the "Operator").
RECITALS
A. The Company has been organized by its sole members, Crown Asphalt
and MCNIC Pipeline and Processing Company, a Michigan corporation ("MCNIC"), for
the purpose of developing, mining, processing, and marketing "Products" (as
defined in Section 1 of this Agreement) contained in designated tar sands
deposits located near Vernal, Utah within the Properties, (as defined in Section
1 of this Agreement).
B. Crown Asphalt has substantial experience and expertise in exploring
for, and equipping, mining, processing, and operating tar sands properties for
the purpose of recovering Products therefrom, and Crown Asphalt has access to
the information, knowledge, experience, and proven technical capability and
other resources to undertake the personal services required for the management
of the "Project," as defined in Section 1 of this Agreement.
C. The Company and Crown Asphalt desire to enter into this Agreement to
allow Crown Asphalt to act as the Operator of the Project in accordance with and
subject to the terms and provisions of this Agreement.
AGREEMENT
In consideration of the mutual benefits to be obtained hereby and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions. For purposes of this Agreement and all Exhibits
and Schedules attached to this Agreement, the following terms have the meanings
set forth below:
"AAA" means the American Arbitration Association.
"Accounting Procedures" means the Accounting Procedures attached as
Schedule I to this Agreement.
"Affiliate" of a party means (a) any Person or entity directly or
indirectly owning, controlling, or holding with power to vote 50% or more of the
outstanding voting securities, membership interests, or partnership interests of
the party; (b) any entity 50% or more of whose outstanding voting securities,
membership interests, or partnership interests are directly or indirectly owned,
controlled, or held with power to vote by the party or a Person or group
described in (a); and (c) any officer, director, member, manager, or partner of
the party or any Person described in subsections (a) or (b) of this paragraph.
For purposes of the preceding sentence, "control" means possession, directly or
indirectly, of the power to direct or cause direction of management and policies
through ownership of voting securities, contract, voting trust, or otherwise.
Affiliates of Crown Asphalt include Crown Parent, and Gavilan Petroleum, Inc., a
Utah corporation.
"Agreement" means this Asphalt Ridge Project Operating and Management
Agreement, including all amendments and modifications, and all Exhibits and
Schedules attached to the Agreement, which are incorporated into the Agreement
by this reference.
"Annual Operating Plan" has the meaning set forth in Section 5.3(a) of
the LLC Operating Agreement.
"Assets" means the Properties, Products, Licenses, contract rights, and
all other moveable and immoveable, corporeal and incorporeal property of the
Company, including property presently owned by the Company or hereafter acquired
by the Company, whether owned or leased by the Company.
"Chairman" means the individual selected as the Chairman of the Company
pursuant to the LLC Operating Agreement.
"Confidential Information" means information concerning the properties,
operations, business, trade secrets, technical know-how, and other non-public
information and data of the other party and any technical information with
respect to the Project.
"Continuing Obligations" means obligations or responsibilities that are
reasonably expected to continue or arise after Operations on a particular area
of the Properties or Operation of a Plant have ceased or are suspended, such as
future monitoring, stabilization, or Environmental Compliance.
"Crown Parent" means Crown Energy Corporation, a Utah corporation.
"Detailed Engineering" means the engineering study conducted by the
Company concerning the items set forth in Schedule 1(b) of the LLC Operating
Agreement.
"Development" means all preparation (other than Exploration) for the
removal and recovery of Products, including verification of existing ore
reserves at the Properties, activities aimed at expansion of production from
presently known deposits, construction and installation of the Initial Plant,
and all related Environmental Compliance.
"Employees" shall have the meaning set forth in Section 9.1.
"Encumbrances" means mortgages, deeds of trust, security interests,
pledges, liens, net profits interests, royalties or overriding royalty
interests, other payments out of production, or other burdens of any nature.
"Environmental Compliance" means actions performed during or after
Operations to comply with the requirements of all Environmental Laws, Licenses,
or other contractual commitments or obligations of the Company.
"Environmental Laws" means Laws aimed at Reclamation or restoration of
the Property; abatement of pollution; protection of the environment; protection
of flora, fauna, or wildlife, including endangered species; ensuring public
safety from environmental hazards; protection of cultural or historic resources;
management, storage, or control of hazardous materials or substances; releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances as wastes into the environment, including without
limitation, ambient air, surface water and groundwater, and all other Laws
relating to the manufacturing, processing, distribution, use, treatment,
storage, disposal, handling, or transport of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, including without
limitation CERCLA and RCRA.
"Environmental Liabilities" means any and all claims, actions, causes
of action, damages, losses, liabilities, obligations, penalties, judgments,
amounts paid in settlement, assessments, costs, disbursements, or expenses
(including without limitation attorneys' fees and costs, experts' fees and
costs, and consultants' fees and costs) of any kind or of any nature whatsoever
that are asserted against any Person, by any Person or entity alleging liability
(including without limitation liability for study, testing, or investigatory
costs, cleanup costs, response costs, removal costs, remediation costs, natural
resource damages, property damages, business losses, personal injuries,
penalties, or fines) arising out of, based on, or resulting from (i) the
presence, release, threatened release, discharge, or emission into the
environment of any hazardous materials or substances existing or arising on,
beneath, or above the Property or emanating or migrating or threatening to
emanate or migrate from the Property to off-site properties, (ii) physical
disturbance of the environment, or (iii) the violation or alleged violation of
any Environmental Laws.
"Expansion or Modification" means, with respect to the Initial Plant
only, (i) a material increase in mining or production capacity; (ii) a material
change in the process used to produce Products; (iii) a material change in waste
or tailings disposal methods; or (iv) a material change in Environmental
Compliance. An increase or change is "material" if it is anticipated to cost
more than 10% of the original capital costs attributable to the Development of
the mining or production capacity, recovery process, or waste or tailings
disposal methods relating to the Initial Plant.
"Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality, or commercial value of new deposits of
Products, including airborne surveys, sampling, geologic surveys, geophysical
surveys, geochemical testing, surface and underground drilling and workings, and
other methods, and all related Environmental Compliance.
"Governmental Fees" means all location fees, mining claim rental fees,
mining claim maintenance payments, and similar payments required by Law to
locate or hold unpatented mining claims.
"Initial Development Schedule" means a detailed schedule for the
Project including a schedule and budget for technical visits and reviews,
Exploration, Feasibility Studies, testing necessary to support environmental
impact analyses, environmental baseline studies, and arranging for timely
accounting, communications, computer, and other systems necessary to support the
Development scheduling for the Project.
"Initial Plant" means the Plant to be constructed by the Company in
accordance with the LLC Operating Agreement.
"Law" or "Laws" means all applicable federal, state, and local Laws
(statutory or common), rules, ordinances, regulations, grants, concessions,
franchises, licenses, orders, directives, judgments, decrees, and other
governmental restrictions, including permits and other similar requirements,
whether legislative, municipal, administrative, or judicial in nature.
"Leased Equipment" shall mean the mining equipment identified on
Schedule 3.3(a)(i) to the LLC Operating Agreement.
"Licenses" means all licenses, leases, permits, certificates,
agreements, and other documents or contracts necessary for the Company to carry
out the full scope of its business activity with respect to the Properties,
including all licenses, leases, and permits from competent governmental or
regulatory authorities and third parties granting the Company the right to
prospect for, appraise discovered deposits of, and mine ores containing
Products, and to produce Products therefrom. As the context requires, "Licenses"
shall mean all such licenses, leases, permits, agreements, and other documents
necessary to enable the Company to carry out all Exploration, Development, and
Mining contemplated in the first Annual Operating Plan, or for any subsequent
Exploration, Development, and Mining Program approved by the Management
Committee for other portions of the Properties or other properties that are
acquired by the Company.
"LLC Operating Agreement" means the Operating Agreement for Crown
Asphalt Ridge L.L.C. of even date with this Agreement.
"Management Committee" means the Management Committee of the Company
established pursuant to the LLC Operating Agreement.
"Marketing Plan" means a plan approved by the Management Committee for
the marketing of Products and shall address, among other things, the projected
market and prices for each Product, potential purchasers and terms of
anticipated contracts for the sale of Products, and potential new markets.
"Mining" means the mining, extracting, producing, beneficiating,
handling, refining, or other processing of Products, as well as the removal of
overburden from and the reclamation of the Properties.
"Operations" means the activities and operations carried out by or on
behalf of the Company pursuant to the terms of this Agreement.
"Operations Account" means the account maintained in accordance with
this Agreement showing the charges and credits incurred or obtained by the
Operator that are chargeable or credited to the Company.
"Operator" means Crown Asphalt and any successor to Crown Asphalt
authorized by the Management Committee having the responsibilities of the
Operator pursuant to this Agreement.
"Person" means a natural person, corporation, joint venture,
partnership, limited partnership, limited liability company, trust, estate,
business trust, association, governmental authority, or any other entity.
"Permitted Investments" has the meaning set forth in Section 5.4(d).
"Plant" means a facility or facilities for the handling, processing,
separation, flotation, refining, or other beneficiation of Products.
"Prime Rate" means the annual rate of interest that equals the floating
commercial rate as published in the "Money Rates" section of the Wall Street
Journal from time to time, adjusted in each case as of the banking day in which
a change in the Prime Rate occurs; provided, however, that if such rate is no
longer published in the Wall Street Journal, then "Prime Rate" shall mean an
annual rate of interest that equals the floating commercial loan rate of
Citibank, N.A., or its successor, announced from time to time as its "base
rate," adjusted in each case as of the banking day in which a change in the base
rate occurs.
"Products" means all tar sands, hydrocarbons, bitumen, asphaltum and
minerals and mineral resources produced from the Properties, and all products
produced therefrom by or at the Initial Plant, including without limitation
asphalt, performance grade asphalt, synthetic crude oil, and diesel fuel.
"Project" means Operations associated with and directed toward
operating and improving existing facilities, constructing and operating the
Initial Plant, and exploring for, developing, and marketing commercially
marketable Products from mines on the Properties, under a License and other
rights granted by appropriate governmental agencies or third parties covering
the Properties and the existing workings and all developed and undeveloped
Products within the Properties and other properties that may be acquired by the
Company and made subject to this Agreement.
"Properties" means those interests in real property and Water Rights
described in Exhibit A.
"Reclamation" means actions performed during or after Operations to
shape, stabilize, revegetate, or otherwise treat the land disturbed by
Operations in order to return it to a safe, stable condition consistent with the
establishment of a productive post-mining use of the land and the abandonment of
facilities in a manner which protects the public's safety, and is in accordance
with Laws. Reclamation shall be conducted using sound, economically, and
technically practical environmental practices that are appropriate for the
existing and anticipated Programs pursuant to which Operations are conducted,
and that are consistent with the applicable reclamation Laws of Utah or the
United States of America, whichever may be applicable.
"Reclamation and Mine Closing Reserve" is defined in Section 10.2(d) of
this Agreement.
"Subsequent Plants" means two Plants that may be constructed by the
Members after completion of the Initial Plant. The Subsequent Plants shall not
be owned or held by the Company but shall be held in separate limited liability
companies owned by the parties as described in Article VII of the LLC Operating
Agreement.
"Water Rights" means water and water rights and water permits, together
with all applications for water rights or applications or permits for the use,
transfer, or change of water rights, ditch and ditch rights, well and well
rights, reservoir and reservoir rights, and stock or interests in irrigation or
ditch companies appurtenant to the Properties, and all other rights to water for
use at or in connection with the Properties or the improvements thereon, or the
Mining of Products on or in the Properties that are now owned or hereafter
acquired by the Company and made subject to this Agreement.
All capitalized terms not defined herein have the meanings ascribed to
them in the LLC Operating Agreement.
2. Engagement of Crown Asphalt as the Operator; Representations
and Warranties.
2.1 Engagement of the Operator. The Company hereby engages
Crown Asphalt to act as an independent contractor to (i) manage, supervise, and
conduct the Operations of the Company on behalf of the Company in accordance
with the terms of this Agreement, (ii) carry out the Annual Operating Plan
adopted and approved by the Management Committee, and (iii) implement the
decisions made and instructions given from time to time by the Management
Committee, all as provided and subject to the restrictions and limitations set
forth herein. Crown Asphalt hereby accepts such engagement and responsibilities
and agrees that it shall perform the obligations and duties described herein as
an independent contractor in accordance with the authority granted to the
Operator herein and the terms and conditions of this Agreement. Crown Asphalt
may perform its duties as the Operator directly or through Crown Parent, the
parent company of Crown Asphalt, or other Affiliates of Crown Asphalt, but Crown
Asphalt shall remain responsible for performing its obligations hereunder.
2.2 Ownership and Custody of Company Assets.
(a) All property, real and personal (excluding
the Crown Intellectual Property), held, developed, constructed, or acquired by
or on behalf of the Company pursuant to this Agreement or the LLC Operating
Agreement shall be owned by the Company, and the Operator shall not have any
ownership, title, or interest therein except to the extent that the Operator has
an interest as a Member under the LLC Operating Agreement. All equipment,
(including the Company's interest as lessee under equipment leases) buildings,
improvements, Products, properties, contract rights, Licenses, and other things
acquired by the Operator for the Company shall be Assets of the Company
irrespective of whether the Operator or the Company actually holds title.
(b) The Operator shall have possession, custody,
and control of the Assets for the use and benefit of the Company in accordance
with the terms of this Agreement.
(c) Except as permitted by this Agreement or
unless authorized by the Management Committee or by an approved Annual Operating
Plan, the Operator shall not mortgage, pledge, charge, encumber, create any lien
upon or trust in, lease, sublease, or otherwise dispose of any Assets, the
Project or any other real or personal property whatsoever or any contractual or
other rights in which any Member or the Company has an interest, or acquire or
contract to acquire any property for any Member or the Company under any
conditional sales agreement or other title retention agreement or any property
which is subject to any Encumbrance (other than any charge permitted by the LLC
Operating Agreement) at the time of acquisition thereof; and the Operator shall
take prompt action within the limits of available funds in the Operations
Account to remove any Encumbrance arising or existing by operation of Law on or
over any such right or property of any Member or the Company.
2.3 Representations and Warranties. Each of the parties hereby
represents and warrants to the other that: (a) in the case of Crown Asphalt, it
is a corporation validly existing under the Laws of Utah and is authorized to
transact business in Utah, and, in the case of the Company, it is a limited
liability company formed under the Laws of Utah and is authorized to transact
business in Utah; (b) it is duly authorized to execute this Agreement and to
carry out all its duties and obligations hereunder; (c) the execution and
delivery of this Agreement will not violate or conflict with any provision of
the Laws of Utah or of any organizational instrument governing or relating to
the party; and (d) assuming due execution of this Agreement by all parties, this
Agreement constitutes the legal, valid, and binding obligations of each party,
enforceable against that party in accordance with its terms.
3. Responsibilities of the Company. The Company shall:
(a) Obtain and maintain all Licenses from competent
governmental authorities or third parties necessary for the Operator to carry
out its duties and responsibilities to plan, construct, and operate the Project;
(b) Obtain and maintain Licenses to explore,
appraise, develop, and mine additional properties, if any, within the Properties
for the Company that are to be operated by the Operator;
(c) Acquire surface use and other rights that will
allow the Operator to use surrounding lands to conduct prospecting, appraisals,
exploration, and extraction of deposits of Products and transportation
operations in connection with Licenses obtained by the Company, including
Licenses related to the Properties and other prospect areas; and
(d) Timely review proposed Annual Operating Plans
and, in the Company's discretion, approve and adopt Annual Operating Plans to
allow the Operator to perform its obligations and duties under this Agreement.
The obligations of the Operator shall be excused to the extent that its ability
to perform its obligations are impaired by the Company's failure to perform the
above described actions; provided that the Company shall have no liability for
failure to perform such actions.
4. Authority of the Operator.
4.1 Operation of Project. The Project will consist of the
operation of the Initial Plant designed to recover Products from the Properties.
The Initial Plant will be designed and constructed pursuant to arrangements to
be provided for in other agreements with third parties. To the extent requested
by the Company, the Operator shall cooperate with such activities to facilitate
the Operator's timely and efficient assumption of the operation of the Project
following the completion of the Initial Plant. In the operation of the Project
and the performance of its duties and obligations hereunder, the Operator shall
act as an independent contractor in accordance with its best judgment. The
Operator shall obtain the approval of the Company prior to undertaking any of
the following:
(a) any Expansion or Modification that increases the
capacity of the Project by more than 500 barrels of Product per year;
(b) any Expansion or Modification to the Project or
any group of related capital additions or improvements to the Project estimated
to cost more than $10,000, including without limitation the acquisition of
transportation facilities of a capital nature;
(c) the surrender or abandonment of any mineral or
surface License, Water Right or other interest in land constituting a part of
the Assets held in the name of the Operator;
(d) the sale, assignment, or transfer of all or part
of the Assets, provided that the Operator may dispose of any item or group of
related items of tangible personal property included in the Assets for the
account of the Company at fair market value if in the opinion of the Operator
the property is no longer useful in the operation of the Project and its
original acquisition cost did not exceed $10,000; and upon such disposition,
such personal property shall be deemed excluded from the Assets;
(e) engaging in hedging transactions or investment
in other than Permitted Investments; or
(f) retaining or entering into contracts with, or
engaging as an agent or independent contractor under this Agreement, any
Affiliate of the Operator or Person affiliated with any Member; provided
further, that if the Operator engages any of its Affiliates to provide services
hereunder as provided above, it shall do so on terms comparable to and
competitive with those available to the Operator from others dealing at
arm's-length or terms that are approved unanimously by the Management Committee;
(g) retaining any consulting firms, engineering
firms, accounting firms, and law firms to assist it in carrying out its
obligations hereunder; or
(h) subcontracting for any labor or operational
services if the aggregate amount payable, or reasonably estimated to be payable,
under all such subcontracts is greater than $10,000 for any 12-month period.
4.2 No Assumption of Obligations Outside Authority. The
Operator has no authority to act for or to assume any obligation or liability on
behalf of the Company except for such authority as is expressly conferred on the
Operator by this Agreement or by the Company pursuant to this Agreement or the
Annual Operating Plan; and the Operator shall indemnify and hold the Company,
the Members, their respective successors and assigns, and their respective
directors, officers, employees, and agents harmless from and against any and all
losses, claims, damages, and liabilities arising out of any unauthorized act or
assumption of any obligation or liability by the Operator on behalf of the
Company in bad faith or in circumstances constituting willful misconduct by the
Operator.
4.3 Other Authority. The Operator shall have authority to
undertake all other activities reasonably necessary to fulfill its duties
pursuant to Section 5.
5. Duties of the Operator. The Operator shall perform all actions
reasonably necessary or advisable for the operation and maintenance of the
Project and the Assets including without limitation the following:
5.1 Presentation of Annual Operating Plan. In accordance with
Section 10 and this Section 5.1, the Operator will each year develop and present
to the Management Committee for approval a proposed Annual Operating Plan in
accordance with Section 5.3 of the LLC Operating Agreement for the Project
during the next succeeding calendar year. After approval by the Company of an
Annual Operating Plan in accordance with the LLC Operating Agreement, the
Operator will carry out the approved Annual Operating Plan, in cooperation with
the Management Committee and in accordance with the terms of this Agreement.
5.2 Conduct of Operations. Consistent with the Annual
Operating Plan approved by the Management Committee, the Operator shall:
(a) after completion of construction of the Project,
manage the operation of the Project for the production of Products; and
(b) market Products on behalf of the Company
pursuant to annual Marketing Plans approved by the Management Committee.
5.3 Other Mineral Properties. Consistent with an approved
Annual Operating Plan the Operator shall:
(a) evaluate other properties included in the Area
of Mutual Interest for possible acquisition by the Company and make
recommendations to the Management Committee for acquisition of properties that
the Operator believes have commercial mineral potential for Products or are
necessary or convenient for Mining Products within the Properties; and
(b) if requested by the Company, manage Exploration
in the area of the Properties or of other properties acquired by the Company
within the Area of Mutual Interest or the Project Area, using personnel,
equipment, and subcontractors assembled by the Operator.
5.4 Specific Powers and Duties of the Operator. The Operator
will have the following specific powers, obligations, and duties, which it will
perform as would a prudent operator in accordance with good mining and
processing industry practices and in accordance with the approved Annual
Operating Plan:
(a) The Operator shall implement the decisions of
the Management Committee, and shall make all expenditures necessary to carry out
approved Annual Operating Plans within the limits set forth therein. The
Operator shall promptly advise the Management Committee if it lacks sufficient
funds, or anticipates that it will lack sufficient funds, to carry out its
responsibilities under this Agreement.
(b) In consultation with the Chairman, the Operator
shall develop an annual Marketing Plan for the marketing and sales of Products
to enable the Chairman to submit the Marketing Plan to the Management Committee
for approval at least 90 days before the beginning of the year to which the plan
relates.
(c) The Operator shall assure the custody,
maintenance, operation, and protection of the Assets and any other property of
any Member in the Operator's possession.
(d) The Operator shall deposit and prudently invest
in Investments pre-approved by the Management Committee ("Permitted
Investments") all funds it receives from or on behalf of the Company in excess
of funds maintained in the Operations Account for current operations; and
disburse such funds as are necessary to carry out Operations, including payment
of all sums payable by the Operator for: its employment of employees, agents,
representatives, engineers, advisers, independent contractors, and other
personnel; its acquisition of services, supplies, utilities, materials,
equipment, and other property necessary or appropriate in connection therewith
as provided for in the Annual Operating Plan; all fees payable to the Operator
under this Agreement; and remittance to the Company of the proceeds from the
sale of Products as provided in this Agreement.
(e) The Operator shall maintain full and accurate
accounts of all business transactions entered into pursuant to this Agreement.
(f) The Operator may sell or dispose of any tools,
equipment, supplies, or facilities included in the Project that wear out or are
no longer useful; provided, however, that in any year the Operator may not sell
or dispose of such tools, equipment, supplies, and facilities whose original
acquisition costs exceed $10,000 in the aggregate, without the prior approval of
the Management Committee.
(g) The Operator shall oversee the preparation and
evaluation of proposals for the further Development of the Project to increase
the efficiency or capacity of the Project by providing facilities for the
production of additional Products and for the conduct of such geological,
geophysical and engineering as the Management Committee may deem necessary or
desirable in connection therewith.
(h) The Operator shall explore for Products on the
Properties, with a view to maintaining adequate proven reserves of Products to
meet anticipated requirements for the Mining and processing of Products within
the Properties.
(i) Except to the extent limited by this Agreement,
the Operator shall (i) purchase or otherwise acquire all material, supplies,
equipment, vehicles, fuel, tools, supplies, power, water, utility, and
transportation services required for Operations, and such purchases or
acquisitions shall be made on the best terms reasonably available to the
Operator, taking into account all the circumstances; (ii) procure all solvents
required for solvent extraction Operations on the Project within the Properties;
and (iii) use its reasonable best efforts to obtain such customary warranties
and guarantees as are available in connection with such purchases and
acquisitions.
(j) Except to the extent limited by this Agreement,
the Operator shall (i) make or arrange for all payments required by Licenses,
Encumbrances, contracts, and other agreements relating to the Company and its
Operations; (ii) pay all Governmental Fees required as the result of the
inclusion of unpatented mining claims as part of the Assets; and (iii) do all
other acts reasonably necessary to maintain the Licenses and other Assets and
carry out the obligations of the Company. If authorized by the Management
Committee, the Operator shall have the right to contest in the courts, by
arbitration, or otherwise, the validity or amount of any taxes or assessments if
the Operator deems them to be unlawful, unjust, unequal, or excessive, or to
undertake such other steps or proceedings as the Operator may deem reasonably
necessary to secure a cancellation, reduction, readjustment, or equalization
thereof before the Operator shall be required to pay them, and the Operator
shall use reasonable efforts to prevent any Assets from being lost as a result
of the nonpayment of any taxes, assessments, or similar charges.
(k) The Operator shall prepare and file reports or
returns (except returns with respect to taxes based upon or measured by income)
required by Law, by the LLC Operating Agreement, or by the Licenses, or any
other agreements to be filed in connection with the Operations or the Assets.
(l) The Operator shall: (i) apply for and obtain all
necessary Licenses in the name of the Company; (ii) maintain all necessary
Licenses in accordance with their terms and all applicable Laws; (iii) conduct
all Operations in compliance with applicable Laws; (iv) promptly notify the
Chairman and the Management Committee of any allegations of substantial
violation of Laws; and (v) prepare and file all reports or notices required for
Operations of the Company. All reasonable costs incurred by the Operator in
contesting and complying with any asserted violations of applicable Laws,
including without limitation any fines or penalties, shall be charged to the
Operations Account, except to the extent that any such costs result from the
gross negligence or willful misconduct of the Operator, its Affiliates or
subcontractors, or any of their employees or agents.
(m) The Operator shall prosecute and defend, but
shall not initiate without consent of the Management Committee, all litigation
or administrative proceedings arising out of Operations and shall keep the
Company advised regarding the status thereof; provided that the Company may
elect to participate in or assume control of any such proceeding. Prior
Management Committee approval shall be required for any settlement involving
payments, commitments, or obligations in excess of $10,000 in cash or value.
(n) The Operator shall secure and maintain, for the
benefit of the Company and the Operator in connection with the Operations and
the Assets, adequate and reasonable insurance with coverage, limits, and
deductible amounts as approved by the Management Committee if available at
reasonable cost, including the covering of risks of personal injury to or death
of employees or others and risk of fire. The Operator shall obtain and furnish
to the Company certificates of insurance obligating the insurers to notify the
Operator and the Company in writing 30 days prior to any cancellation or
modification thereof, and shall, with the approval of the Management Committee,
adjust losses and claims pertaining to or arising out of such insurance.
(o) The Operator shall dispose of Assets, whether by
sale, abandonment, surrender, or transfer in the ordinary course of business;
provided, however, that without prior authorization from the Management
Committee or the Chairman, the Operator shall not dispose of assets in any one
transaction having a value in excess of $10,000.
(p) The Operator will furnish, or, subject to the
approval of the Company pursuant to Section 4.1, subcontract for, sufficient
labor forces to assure the performance of its obligations hereunder. The
Operator shall obtain such management and technical personnel, including without
limitation engineers, financial planning, accounting and marketing personnel,
superintendents, advisers, experts and employees of the Operator, as it
reasonably deems necessary or advisable.
(q) The Operator shall procure from outside experts
and consultants special engineering, design, legal, accounting, advertising,
public relations, and other professional and advisory services and shall
supervise such independent contractors as the Operator may retain.
(r) The Operator shall review all invoices for
approval, pay all approved invoices, and keep and maintain all required
accounting and financial records pursuant to the Accounting Procedures and in
accordance with customary accounting practices in the U.S. mining and mineral
processing industry. In addition, the Operator shall provide assistance to the
Chairman in the preparation and maintenance of financial and tax accounts of the
Company.
(s) The Operator shall take such actions in an
emergency affecting safety or life or the conduct of Operations or the
preservation of Assets and any other property and assets of the Members in the
Operator's possession without special instructions or authorizations as the
Operator may deem necessary or advisable to prevent loss, injury, or damage or
to maintain or restore Operations or the Assets.
(t) The Operator shall undertake all other
activities reasonably necessary to fulfill the foregoing.
5.5 Books and Records. The Operator shall properly maintain
adequate books and records relating to its activities hereunder in accordance
with generally accepted accounting principles consistently applied and the
Accounting Procedures attached as Schedule I. All statements of transactions and
accounts rendered by the Operator to the Company under this Agreement shall be
rendered in United States Dollars.
5.6 Audits. The books and records maintained pursuant to
Section 5.5 shall be open to the inspection by the Company and the Members at
all reasonable times and shall be audited as of the end of each calendar year
within 60 days after the end of the calendar year by a "Big Six" firm of public
accountants selected by Operator as may be selected by the Management Committee;
provided, however, that if the Management Committee adopts an accounting period
other than the calendar year, audits shall be performed after the end of each
such period, rather than at the end of the calendar year. All written exceptions
to and claims against the Operator for discrepancies disclosed by any such audit
shall be made not more than three months after receipt of the audit report by
the Members. Failure to make any exception or claim within the three-month
period shall mean the audit is correct and binding upon the Company and the
Operator.
6. Reports.
6.1 Reports. The Operator shall use reasonable efforts to keep
the Management Committee advised of all material aspects of the Operations by
submitting in writing to the Management Committee:
(a) Monthly progress reports that include statements
of expenditures and comparisons of expenditures to the adopted Annual Operating
Plan;
(b) Periodic summaries of data acquired;
(c) Copies of reports concerning Operations;
(d) A detailed report within 90 days after
completion of each Annual Operating Plan, which shall include comparisons
between actual and Budgeted expenditures and comparisons between the objectives
and results of Programs;
(e) As soon as practicable (and not later than 90
days after the close of each calendar year), such additional information or data
concerning any Member that it requires in order to prepare its tax returns; and
(f) Such other reports as the Management Committee
may reasonably request.
6.2 Results of Operations. Within two days after the end of
each calendar month, the Operator shall furnish to each Member a progress report
summarizing the results of Operations of the Project during the preceding month
as compared with the results of Operations of the Project for the month as
forecast in the Annual Operating Plan approved and adopted by the Management
Committee for that month.
6.3 Access to Records. The Operator shall permit each Member
through its duly authorized representatives at all reasonable times to examine
and make copies of all records, reports, accounts, plans, maps, logs, surveys,
assays, analyses, production reports, correspondence, other documents, and all
interpretations thereof under the control of the Operator relating to any of the
Assets or the Operations. Each Member shall have the right to authorize, and the
Operator shall permit, any lending institution to which the Member is or expects
to become indebted (either by employees of the lending institution or
independent accountants employed by it), at all reasonable times, to examine all
such information, as well as the books and records maintained by the Operator
pursuant to Section 5.5 and to discuss the finances and accounts of the Operator
relating to Operations with officers and representatives of the Operator or with
its public accountants.
6.4 Inspection of Property. The Operator shall permit each
Member through its duly authorized representatives, and any lending institution
(including any employees or accountants designated by it) authorized by a Member
that is or expects to become indebted to the lending institution, at all
reasonable times, to have access to the Properties, the facilities located
thereon, and any other Project facility and to consult with employees of the
Operator or any independent contractor and its employees that have been engaged
by the Operator concerning the Operations and the performance of its services by
the Operator under this Agreement.
7. Standard of Care. The Operator shall conduct all Operations in a
good, workmanlike, and commercially reasonable manner, in accordance with sound
mining, processing, and other applicable industry standards and practices
applicable in the area where the Operations are conducted, and in accordance
with the provisions of the Licenses. Notwithstanding the foregoing sentence, the
Operator shall not be liable to the Company for any act or omission resulting in
damage or loss except to the extent caused by or attributable to the Operator's
gross negligence or willful misconduct.
8. Company Liability for Costs; Indemnification of the Operator.
8.1 Reimbursement. The Company shall provide the Operator with
funds in advance or shall reimburse the Operator for any costs or liabilities
incurred by the Operator in carrying out its responsibilities under this
Agreement, including without limitation expenditures made in accordance with an
approved Annual Operating Plan, expenditures otherwise authorized or permitted
under this Agreement, and other expenditures authorized by the Company.
8.2 Indemnification. The Company agrees to indemnify and to
hold harmless the Operator and its Affiliates against any claim of or liability
to any third Person resulting from any act or omission of the Operator, its
agents or employees, in conducting Operations pursuant to this Agreement in good
faith to the extent that the claim or liability is not covered by insurance, and
except to the extent that the claim or liability results from the gross
negligence or willful misconduct of the Operator, its Affiliates, its agents, or
its employees, unless the act or omission of the Operator, its Affiliates,
agents, or employees, is done or omitted at the express instruction, or with the
express concurrence of, the Company.
9. Compensation of the Operator.
9.1 Reimbursement of Costs. Subject to Section 11.1, the
Company shall reimburse the Operator for all reasonable direct costs actually
paid in the performance of this Agreement by the Operator, including without
limitation the costs described in the Accounting Procedures, and the following:
(a) compensation, including all remuneration in
whatever form, for personal services rendered by employees of the Operator or of
any Person that is an Affiliate of the Operator who are employed full time in
connection with and dedicated to the performance of this Agreement
("Employees"), including but not limited to reasonable salaries, wages, premiums
for overtime and extra pay shifts, bonuses, incentives, suggestion and safety
awards, social security, old age benefit taxes, employee insurance,
contributions to pension and annuity plans and to employment and trade union
plans or funds, superannuation funds, sick leave, long service leave, holiday
pay, severance pay, and other fringe benefits;
(b) travel, lodging, subsistence, and incidental
expenses of Employees incurred in the discharge of duties connected with the
performance of this Agreement;
(c) costs of materials, supplies, and services
required for the performance of this Agreement, including the costs of
inspections, storage, salvage, and other usual expenses incident to the
procurement and use thereof and costs of procurement of or arranging for
shipment of Products and preparation of shipping documents;
(d) rents, royalties, renewal fees, or payments on
or in lieu of production of Products when such payments are made by the Operator
for the account of the Company;
(e) Governmental Fees and taxes of every kind
(except taxes based upon or measured by the income of the Operator) levied,
assessed, or imposed upon or in connection with the Assets or the production of
Products or other operations of the Project, together with any interest or
penalties reasonably incurred in connection with contested payments thereof that
are paid by the Operator for the benefit of the Company;
(f) charges for utility services such as power, gas,
water, and communications, including telephone, facsimile, and radio, and the
cost and expense of installing or rendering any such services;
(g) costs incurred to replace or repair damage or
loss or to satisfy liabilities arising from acts of Employees not compensated
for by insurance or otherwise, unless due to the bad faith, gross negligence, or
willful misconduct of the Operator;
(h) costs of transportation of Employees, materials,
equipment and supplies necessary for the operation of the Project;
(i) charges for legal, accounting, engineering, and
consulting services rendered by professionals who are not Employees reasonably
incurred in connection with the performance of this Agreement.
(j) premiums on insurance that the Operator is
required or permitted to carry under the terms of this Agreement;
(k) office expenses, including supplies, equipment,
or other expenses incident to office maintenance and operation;
(l) maintenance and repair expenses necessary or
appropriate to keep the Project in good condition and repair and in efficient
operating condition;
(m) costs and expenses incurred in connection with
the sale of Products, including without limitation promotional, advertising, and
other selling activity, pursuant to approved Marketing Plans;
(n) costs and expenses incurred in connection with
geological, geophysical, geochemical, airborne, Environmental Compliance, any
required environmental baseline studies, and engineering, undertaken by the
Operator relating to the Exploration, Development, and Mining of the Project,
including without limitation costs and expenses incurred in the Exploration and
proving of reserves in the Properties;
(o) except for actions brought against the Operator
by the Company in which the Operator is held liable by reason of its bad faith,
willful misconduct or gross negligence, litigation costs and expenses, including
attorneys' fees and expenses, and the amount of any judgments obtained against
the Operator or the Company (and any agreed settlement) insofar as they relate
to the Assets or the operation of the Project; and
(p) amounts payable to independent contractors or
subcontractors, consultants, consulting firms, engineering firms, contractors,
accounting firms, and law firms, retained by the Operator (subject to any prior
approvals of the Company required under this Agreement) to assist the Operator
in carrying out its obligations hereunder.
9.2 Management Fee. The Company will pay the Operator a
monthly fee of $3,000 for managing the Operations in addition to such other
costs as provided for elsewhere in this Agreement.
10. Presentation of Annual Operating Budget.
10.1 Scope of Annual Operating Budget. An Annual Operating
Plan shall be for a period of one calendar year; however, upon approval by the
Management Committee, an Annual Operating Plan may be for a period longer than
one calendar year. The parties shall develop the first Annual Operating Plan
within a reasonable time period after the execution hereof. During the period
covered by an Annual Operating Plan, and at least 90 days prior to its
expiration, the Operator will submit to the Management Committee a proposed
Annual Operating Plan for the next succeeding period.
10.2 Content of Annual Operating Plan. Each Annual Operating
Plan proposed by the Operator will contain the following information:
(a) A narrative description of the Operations
proposed for the period covered by the proposed Annual Operating Plan.
(b) A separate breakdown of costs for the Project
and for activities pertaining to other areas within the Properties, if any.
(c) A detailed breakdown of costs by category for
each phase of Operations, in accordance with the Accounting Procedures. Proposed
expenditures will be shown on a monthly basis.
(d) Provision for payment into an interest-bearing
reserve account established by the Company (the "Reclamation and Mine Closure
Reserve") of a uniform charge per unit of production sufficient over the life of
the mine to pay the estimated total cost for Reclamation, abandonment, closure,
and long-term care and monitoring of the Project or any other mine developed
within the Properties by the Company, or if such fund is inadequate, payment of
such additional amounts as are required to perform Reclamation or to establish a
reserve fund sufficient to pay estimated Reclamation costs.
(e) A sum equaling 10% of all other expenditures in
the Annual Operating Plan (excluding the Reclamation and Mine Closure Reserve
and the Operator's management fee) as a reserve for contingencies.
(f) Provision for the Operator's fees pursuant to
Section 9.2.
(g) Other information required by Section 5.3(a) of
the LLC Operating Agreement.
10.3 Amendments and Supplements. During the period covered by
an Annual Operating Plan, the Operator may propose amendments to the Annual
Operating Plan or a supplemental Annual Operating Plan.
10.4 Approval by Management Committee. Action on a proposed
Annual Operating Plan will be taken by the Management Committee as provided in
the LLC Operating Agreement. If the Management Committee does not approve a
proposed Annual Operating Plan, the Operator will, if feasible, in cooperation
with the Management Committee attempt to make changes that will enable the
Annual Operating Plan to be approved and adopted.
11. Performance of Approved Annual Operating Plan.
11.1 Conformance with Annual Operating Plan. Except as
otherwise provided herein or as otherwise authorized by the Company, the
Operator will conduct Operations, incur expenses, and purchase assets for the
Company only in accordance with Annual Operating Plans approved by the
Management Committee.
11.2 Overruns. Budget overruns of 10% or less may be made
without amendment to the existing Annual Operating Plan or prior approval of the
Company. If the Operator anticipates that an Annual Operating Plan overrun of
greater than 10% will occur and believes that additional expenditures are
warranted prior to the end of the approved Annual Operating Plan, the Operator
shall propose one or more amendments or supplements to the current Annual
Operating Plan for approval by the Management Committee. In calculating
expenditures in excess of an approved Annual Operating Plan, all expenditures
for the entire program covered by the Annual Operating Plan shall be considered
as a whole and compared to the whole of the expenditure reflected in the Annual
Operating Plan.
11.3 Emergencies. In case of emergency, the Operator may take
any reasonable action it deems necessary to protect life, health, safety, or
property, to protect the Assets, to comply with Laws, or to comply with Licenses
governing operation of the Properties. The Operator may make reasonable
expenditures for such emergencies. The Operator shall promptly notify the
Management Committee of the emergency, and the Company shall reimburse the
Operator for all reasonable resulting costs.
12. Activities During Deadlock. If the Management Committee for any
reason fails timely to adopt any Annual Operating Plan after the First Annual
Operating Plan or a Minimum Budget, the Operator shall have authority to
continue Operations sufficient to maintain the Assets, to comply with and
fulfill all the requirements of all Licenses, to fulfill existing contracts, to
comply with Laws, and, if production has commenced or Development of a mine has
proceeded to near completion when the deadlock occurs, to maintain or initiate
production levels consistent with the Annual Operating Plan that has previously
been approved by the Management Committee. The Company shall provide funding for
such Operations during deadlock and reimburse the Operator as provided in this
Agreement.
13. Accounts and Settlements.
13.1 Monthly. Within two business days after the end of each
month, the Operator shall submit to the Management Committee a report of
estimated production of Products and estimated net income from the sale of
Products for that month. Within 30 days after the end of each month, the
Operator shall submit to the Management Committee a balance sheet as of the end
of that month and a statement of income and expenses for that month, a report of
production of Products for that month, and such additional information with
respect to the Operations for that month as the Company may request.
13.2 ▇▇▇▇▇▇▇▇ for Cash Requirements. On the basis of the
approved Annual Operating Plan, the Operator shall submit to the Management
Committee prior to the last day of each month a billing for estimated cash
requirements for the next month to the extent that they are in excess of cash
remaining available from prior advances of cash made by the Company and from
sales of Products. Within 30 days after receipt of each billing, the Company
shall advance to the Operator the amount set forth in the billing. The Operator
shall maintain a cash balance approximately equal to anticipated disbursements
for the next 30 days, and the Operator shall promptly remit to the Company all
funds in excess of that amount. The Operator shall prudently invest all funds in
excess of immediate cash requirements for the benefit of the Project in
Permitted Investments.
14. Sale of Products. The Operator shall cause Products to be sold in
accordance with the terms and provisions of a Marketing Plan approved by the
Company or pursuant to such other direction of the Company to the Operator if no
such plan is in effect.
15. Term of Agreement. Unless sooner terminated as provided herein, the
term of this Agreement shall commence on the effective date of this Agreement
and shall expire two years after that date (the "Initial Term"), which term
shall be automatically extended for unlimited successive one year periods unless
it is terminated during the pendency of any such subsequent period by one party
furnishing the other with written notice, at least 90 days prior to the
expiration of the period, of an intent to terminate this agreement upon the
expiration of the period. It is expressly the intent of the parties hereto that
unless previously removed as the Operator pursuant to the terms of this
Agreement, the Operator shall act in a similar capacity and on similar terms as
are provided for herein with regard to each Subsequent Plant, Additional
Opportunity or AMI Opportunity described within the LLC Operating Agreement.
16. Force Majeure. Except for the obligation to make payments when due
hereunder, the obligations of the Company or the Operator shall be suspended to
the extent and for the period that performance is prevented by any cause,
whether foreseeable or unforeseeable, beyond its reasonable control ("Force
Majeure"), including without limitation labor disputes (however arising and
whether or not employee demands are reasonable or within the power of the party
to grant); acts of God; Laws, proclamations, instructions, or requests of any
government or governmental entity; judgments or orders of any court; inability
to obtain on reasonably acceptable terms, or unreasonable delays in obtaining,
any License or other authorization, including governmental approvals;
curtailment or suspension of activities to remedy or avoid an actual or alleged,
present or prospective violation of federal, state, or local environmental
standards; acts of war or conditions arising out of or attributable to war,
whether declared or undeclared; riot, civil strife, insurrection, or rebellion;
fire, explosion, earthquake, storm, flood, sink holes, drought, or other adverse
weather condition; delay or failure by suppliers or transporters of materials,
parts, supplies, services, or equipment or by contractors' or subcontractors'
shortage of, or inability to obtain, labor, transportation, materials,
machinery, equipment, supplies, utilities, or services; accidents; breakdown of
equipment, machinery, or facilities; or any other cause, whether similar or
dissimilar to the foregoing. The performance of the party affected by Force
Majeure shall be suspended only for as long as the event of Force Majeure
continues, and the parties shall consult with each other and use their best
efforts to find alternative means of accomplishing such performance as satisfies
the requirements of this Agreement. Immediately upon cessation of the event of
Force Majeure, the party affected by Force Majeure shall notify the other party
in writing and shall take steps to recommence or continue the performance that
was suspended.
17. Default.
17.1 Failure to Perform. The failure of any party to perform
any of its obligations in this Agreement and the failure of that party to cure
the default within 14 days after the issuance of written notice thereof (or
initiate efforts to cure if the cure would extend beyond the foregoing period)
shall constitute a default by that party.
17.2 Negotiation of Disputes. The parties shall negotiate in
good faith to resolve amicably any disputed matters relating to alleged
defaults. In addition, the parties shall negotiate in good faith procedures to
be adopted to avoid ongoing defaults by any party.
17.3 Responsibility for Default. A defaulting party shall be
responsible to the non-defaulting party for all direct damages caused by its
default.
17.4 Measure of Compensation. The measure of compensation in
the event of a default by either party shall be limited to compensation for
actual losses incurred by the non-defaulting party, including without limitation
costs of obtaining alternate contractors to perform services, production
expenses, or property losses resulting directly from the failure or
non-performance of the defaulting party, but not lost profits.
18. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns;
provided, however, that neither party shall transfer its rights or obligations
hereunder without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, either party
may assign its rights and delegate its duties hereunder to one of its Affiliates
without the prior consent of the other party. It shall not be unreasonable for
the Company to withhold its consent to an assignment by the Operator to its
non-Affiliated successor as a Member of the Company and, in such event, the
remaining Member in the Company in accordance with the LLC Operating Agreement
shall have the sole right to designate the successor to the Operator.
19. Removal or Resignation of the Operator.
19.1 Removal of the Operator. During the Initial Term of this
Agreement, the Operator may be removed only for "good cause" by the affirmative
vote of the Management Committee (after excluding the voting interest of the
Operator). For purposes hereof, "good cause" shall mean any of the following (a)
repeated negligence; (b) unremedied negligence; (c) willful misconduct; (d)
material breach of the standards of operation contained in Section 5; or (e)
material failure to perform its obligations under this Agreement. For purposes
hereof, "repeated negligence" shall occur if (i) the Operator is negligent in
performing its obligations under this Agreement; (ii) the Operator receives a
notice in writing from the Management Committee specifying that the Management
Committee has reasonably determined that the Operator has been negligent in the
performance of its duties as the Operator and the basis for such determination
by the Management Committee; and (iii) the Operator receives such written
notices more than three times in any six month period. For purposes hereof,
"unremedied negligence" shall occur if (i) the Operator is negligent in
performing its obligations under this Agreement; (ii) the Operator receives a
notice in writing from the Management Committee specifying that the Management
Committee has reasonably determined that the Operator has been negligent in the
performance of its duties as the Operator and the basis for such determination
by the Management Committee; and (iii) the Operator has not remedied, or
commenced diligent efforts to cure within such period, its negligence within
seven calendar days and continues to pursue such diligent efforts until such
matters are cured after its receipt of the Management Committee's notice.
19.2 Resignation; Deemed Offer to Resign. The Operator may
resign upon not less than 120 days' prior notice to the Company, in which case
the other Member in the Company may elect to become the new Operator by notice
to the resigning Operator within 30 days after receipt of the notice of
resignation. If any of the following shall occur, the Operator shall be deemed
to have resigned upon the occurrence of the event described in each of the
following subsections, with the successor Operator to be appointed by the other
Member at a subsequently called meeting of the Management Committee, at which
the Operator shall not be entitled to vote. The other Member of the Company may
appoint itself or a third party as the Operator. If a third party is appointed
as the Operator, the third party must execute an Operating and Management
Agreement containing terms and conditions substantially similar to the terms set
forth herein, except that the third party operator may be removed at anytime,
with or without cause, by the Management Committee.
(a) The removal of the Operator for "good cause" as
defined within Section 19.1;
(b) A receiver, liquidator, assignee, custodian,
trustee, sequestrator, or similar official for a substantial part of the
Operator's assets is appointed and the appointment is neither made ineffective
nor discharged within 60 days after the making thereof.
(c) The Operator fails to pay or contest in good
faith its bills and business debts as they become due and such failure would
reasonably be expected to have a material adverse effect on (i) the condition
(financial or otherwise), business, assets or results of operations of the
Operator, or (ii) the ability of the Operator to perform its obligations under
this Agreement;
(d) The Operator commences a voluntary case under
any applicable bankruptcy, insolvency, or similar Law now or hereafter in
effect; or consents to, requests, or acquiesces in the entry of an order for
relief in an involuntary case under any such Law or to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or other similar official of any substantial part of its assets;
or makes a general assignment for the benefit of creditors; or takes corporate
or other action in furtherance of any of the foregoing;
(e) A judgment, decree, or order for relief is
entered against the Operator that materially affects its ability to serve as the
Operator, or materially affects a substantial part of its interest in the
Company or its other assets by a court of competent jurisdiction in an
involuntary case commenced under any applicable bankruptcy, insolvency, or other
similar Law of any jurisdiction now or hereafter in effect; or
(f) A successful challenge of the Operator, as
provided for in Section 19.4.
Under Subsections (b), (c), or (d) above, the appointment of a successor
Operator shall be deemed to pre-date the event causing the deemed resignation.
19.3 Continuity of Operations. In the event of its removal,
resignation, or deemed resignation, the Operator will cooperate in transferring
files, accounts, data, contract rights, and all other things necessary or
convenient for the conduct of Operations by the new Operator. The Operator will
use its best efforts to provide for continuity of Operations notwithstanding the
transfer of operational responsibility to its successor.
19.4 Replacement of Operator on Economic Grounds. At any time
following the Initial Term the Company may give written notice to the Operator
proposing terms and conditions under which the Company (a) believes that
Operations can be conducted more efficiently and (b) is willing to become the
Operator under this Section or has a bona fide commitment from a third party
(including any Member of the Company) to do so. The notice shall set forth
specific changes in operating practices or procedures, specific reductions in
charges or other costs of operation under this Agreement (including overhead),
or both. Within 30 days after receipt of the Company's notice, the Operator will
notify the Company that it elects (x) to allow the Company, or the Company's
designee, to become the Operator under the terms and conditions contained in the
Company's proposal or (y) to continue as the Operator under the terms and
conditions of the Company's proposal. If the Operator elects to proceed under
"(x)," the change of Operator shall occur effective 7:00 a.m. on the 30th day
after receipt by the Company of the Operator's notice of election. The removed
Operator cannot seek to remove and replace the replacement Operator under this
Section 19.4 within six (6) months after the date of removal of the removed
Operator.
19.5 Sale of MCNIC's Interest; Reduced Crown Interest.
(a) Notwithstanding anything to the contrary in this
Agreement or the LLC Operating Agreement, if at any time after the Initial Term
MCNIC transfers its entire membership interest in the Company to a Person that
is not an Affiliate of MCNIC or the Company sells the Plant to a Person that is
not an Affiliate of the Company or any member of the Company (the "Transferee"),
the Transferee shall have the right, exercisable by written notice to the
Operator within 30 days after transfer of MCNIC's membership interest or
purchase of the Plant, as the case may be, to replace Crown Asphalt as the
Operator with the Transferee's designee, effective upon the date and time
specified in the notice, and any binding agreement of MCNIC or the Company to
sell its membership interest in the Company or the Plant, respectively, to a
party other than one of the aforementioned parties shall indicate whether the
purchaser intends to remove Crown Asphalt as the Operator.
(b) If at any time either (i) Crown Parent ceases to
own at least 50% of the voting stock of Crown Asphalt or to control Crown
Asphalt, or (ii) Crown Asphalt fails to maintain at least a 5% membership
interest in the Company, or (iii) Crown Asphalt is entitled to receive less than
a 5% share of any distributions made by the Company, then MCNIC shall be
entitled to remove Crown Asphalt as the Operator and to replace Crown Asphalt as
the Operator with MCNIC's designee, effective upon the date and time specified
in the notice.
20. Arbitration.
20.1 Submission to Arbitration. The parties hereby submit all
controversies, claims, and matters of difference arising under this Agreement to
arbitration. Without limiting the generality of the foregoing, the following
shall be considered controversies for this purpose: (a) all questions relating
to the interpretation or breach of this Agreement, (b) all questions relating to
any representations, negotiations, and other proceedings leading to the
execution hereof, and (c) all questions as to whether the right to arbitrate any
such question exists.
20.2 Initiation of Arbitration and Selection of Arbitrators.
The party desiring arbitration shall so notify the other party, identifying in
reasonable detail the matters to be arbitrated and the relief sought.
Arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the following categories: (1)
an attorney with at least ten years' experience in mining law; (2) an attorney
with at least ten years' experience in general commercial law, including mining
matters; and (3) a person with at least ten years' experience in the oil and gas
or mining industry and at least 10 years experience in tar sands or crude oil
processing. The AAA shall submit a list of persons meeting the criteria outlined
above for each category of arbitrator, and the parties shall select one person
from each category in the manner established by the AAA. If any party or the
arbitrators fail to select arbitrators as required above, the AAA shall select
such arbitrators. The arbitrators shall be entitled to a fee commensurate with
their fees for professional services requiring similar time and effort. If the
arbitrators so desire, they shall have the authority to retain the services of a
neutral judge or attorney (whose fees shall be treated as an arbitrator's fees)
to assist them in administering the arbitration and conducting any hearings and
taking evidence at such hearings or otherwise.
20.3 Arbitration Procedures. All matters arbitrated hereunder
shall be arbitrated in Denver, Colorado pursuant to Utah Law, and shall be
conducted in accordance with the Commercial Arbitration Rules of the AAA, except
to the extent such rules conflict with the express provisions of this Section 20
(which shall prevail in the event of such conflict); provided, however, that all
substantive law issues relating to the rights and obligations of the parties
under this Agreement shall be governed by Section 23.3 below. The arbitrators
shall conduct a hearing no later than 45 days after submission of the matter to
arbitration, and a decision shall be rendered by the arbitrators within 10 days
of the hearing. At the hearing, the parties shall present such evidence and
witnesses as they may choose, with or without counsel. Adherence to formal rules
of evidence shall not be required, but the arbitration panel shall consider any
evidence and testimony that it determines to be relevant, in accordance with
procedures that it determines to be appropriate. Any award entered in an
arbitration shall be made by a written opinion stating the reasons for the award
made.
20.4 Enforcement. This submission and agreement to arbitrate
shall be specifically enforceable. Arbitration may proceed in the absence of any
party if notice of the proceedings has been given to such party. The parties
agree to abide by all awards rendered in such proceedings. Such awards shall be
final and binding on all parties to the extent and in the manner provided by
Utah Law. All awards may be filed with the clerk of one or more courts, state,
federal, or foreign, having jurisdiction over the party against which the award
is rendered or its property, as a basis of judgment and of the issuance of
execution for its collection. No party shall be considered in default hereunder
during the pendency of arbitration proceedings specifically relating to such
default.
20.5 Fees and Costs. The arbitrators' fees and other costs of
the arbitration and the reasonable attorney fees, expert witness fees and costs
of the prevailing party shall be borne by the non-prevailing party. In its
written opinion, the arbitration panel shall, after comparing the respective
positions asserted in the arbitration claim and answer thereto, declare as the
prevailing party that party whose position was closest to the arbitration award
(not necessarily the party in favor of which the award on the arbitration claim
is rendered) and declare the other party to be the non-prevailing party. The
arbitration award shall include an award of the fees and costs provided by this
Section 20.5 against the non-prevailing party.
21. Notice; Representatives.
21.1 Representatives. The Operator and the Company shall each
designate an individual, and one or more alternates, who shall be its
representative for purposes of receiving and giving communications with the
other in regard to the performance of this Agreement.
21.2 Notices. All notices, requests, or other communications
("Notices") required to be given or made hereunder shall be in writing and
addressed as follows:
If to the Company:
Crown Asphalt Ridge L.L.C.
c/o MCNIC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
MCNIC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and
MCN Energy Group
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
Crown Energy Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Operator, to:
Crown Asphalt Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇
Facsimile: ▇▇▇ ▇▇▇-▇▇▇▇
or to such address as either party may notify the other party in writing.
Notices shall be given (a) by personal delivery to the other party, or (b) by
electronic communication, with answer- back confirmation. All Notices shall be
effective and shall be deemed delivered (a) if by personal delivery on the date
of delivery if delivered during normal business hours, and, if not delivered
during normal business hours, on the next business day following delivery, or
(b) if by electronic communication on the date the electronic communication is
received if received during normal business hours, otherwise on the next
business day following receipt of the electronic communication.
22. Confidentiality. Each party agrees to keep confidential and not
use, reveal, provide or transfer to any third party other than a Member, or an
Affiliate of a Member, any Confidential Information it obtains or has obtained
concerning the other party, except: (a) to the extent that disclosure to a third
party is required by applicable Law; (b) information that, at the time of
disclosure, is generally available to the public (other than as a result of a
breach of this Agreement or any other confidentiality agreement to which the
party is subject or of which it has knowledge), as evidenced by generally
available documents or publications; (c) information that was in its possession
prior to disclosure (as evidenced by appropriate written materials) and was not
acquired directly or indirectly from the other party; (d) to its employees,
consultants or advisors for the purpose of carrying out their duties hereunder,
to the extent disclosure is necessary or advisable; (e) to banks or other
financial institutions, to the extent disclosure is necessary or advisable to
obtain financing; (f) to third parties to the extent necessary to enforce this
Agreement; provided, however, that in each case of disclosure pursuant to (a),
(d) or (e), the party or parties to whom disclosure is made agree to be bound by
this confidentiality provision. The obligation of each party not to disclose
Confidential Information except as provided herein shall not be affected by the
termination of this Agreement or the replacement of either or both of the
parties.
23. General Provisions.
23.1 Section Headings. The section headings in this Agreement
are for reference purposes only and shall not be used to construe or interpret
or affect in any way the substantive meaning, intent, or interpretation of this
Agreement.
23.2 Severability. If any provision of this Agreement shall be
determined by any relevant legal authority to be unlawful, unenforceable,
invalid, void or voidable, the legality, validity, or enforceability of the
remainder of this Agreement shall not be affected or impaired thereby and the
unlawful, unenforceable, invalid, void, or voidable provision shall be deemed
deleted from this Agreement to the same extent as if never incorporated.
23.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of Utah, without regard to its conflict of
law rules.
23.4 Entire Agreement; Amendments. This Agreement sets forth
the entire agreement between the parties relating to the subject matter
contained herein and supersedes all prior discussions and understandings among
them. This Agreement may not be amended except by written agreement executed by
both parties.
23.5 No Partnership. It is not the purpose or intent of this
Agreement to create, and it shall never be construed as creating, a joint
venture, partnership, mining partnership, or agency relationship between the
Company and the Operator.
23.6 Waiver. A waiver by either party of a default hereunder
shall not be deemed to be a waiver of any subsequent default, nor shall any
delay in asserting a right hereunder be deemed a waiver of such right. The
preceding sentence shall not be construed as a waiver of any applicable statute
of limitations. The failure of either party to insist in any one or more
instances upon strict performance of any of the provisions of this Agreement or
to take advantage of any of its rights hereunder, shall not be construed as a
waiver of any such provisions or relinquishment of any such rights, but the same
shall continue and remain in full force and effect. All remedies afforded under
this Agreement shall be cumulative and in addition to every other remedy
provided for herein or by Law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in two original counterparts, effective for all purposes as of the date
set forth above.
CROWN ASPHALT CORPORATION, a Utah
corporation
By:
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President
CROWN ASPHALT RIDGE, L.L.C., a Utah limited
liability company
By: CROWN ASPHALT CORPORATION, a
Member
By:
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President
and
By: MCNIC PIPELINE & PROCESSING
COMPANY, a Michigan corporation, a
Member
By:
Name:
Title: