EXPLORATION, DEVELOPMENT AND
MINE OPERATING AGREEMENT FOR THE
BLACK MAMMOTH PROJECT
(▇▇▇ COUNTY, NEVADA)
BATTLE MOUNTAIN EXPLORATION COMPANY
AND
ROYAL GOLD, INC.
JUNE 30, 1998
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND CROSS-REFERENCES. . 1
1.1 Definitions. . . . . . . . . . 1
1.2 Cross-References . . . . . . . 1
ARTICLE II NAME, PURPOSES AND TERM . . . . . . 1
2.1 General. . . . . . . . . . . . 1
2.2 Name . . . . . . . . . . . . . 2
2.3 Purposes . . . . . . . . . . . 2
2.4 Limitation. . . . . . . . . . 2
2.5 Term . . . . . . . . . . . . . 2
ARTICLE III REPRESENTATIONS AND WARRANTIES;
TITLE TO ASSETS; INDEMNITIES . . . 3
3.1 Representations and Warranties
of Both Participants. . . . . 3
3.2 Representations and Warranties
of BATTLE MOUNTAIN. . . . . . 3
3.3 Disclosures. . . . . . . . . . 5
3.4 Record Title . . . . . . . . . 5
3.5 Loss of Title. . . . . . . . . 5
3.6 Royalties, Production Taxes
and Other Payments Based on
Production. . . . . . . . . . 6
3.7 Indemnities/Limitation of
Liability . . . . . . . . . . 6
ARTICLE IV RELATIONSHIP OF THE PARTICIPANTS. . 7
4.1 No Partnership. . . . . . . . 7
4.2 Federal Tax Elections and
Allocations . . . . . . . . . 8
4.3 State Income Tax . . . . . . . 8
4.4 Tax Returns. . . . . . . . . . 8
4.5 Other Business Opportunities . 8
4.6 Waiver of Rights to Partition
or Other Division of Assets . 8
4.7 Transfer or Termination of
Rights to Properties. . . . . 8
4.8 Implied Covenants. . . . . . . 8
4.9 No Third Party Beneficiary
Rights. . . . . . . . . . . . 8
ARTICLE V CONTRIBUTIONS BY PARTICIPANTS . . . 9
5.1 Participants' Initial
Contributions . . . . . . . . 9
5.2 Failure to Make Initial
Contribution . . . . . . . . . 10
5.3 Additional Contributions . . . 11
ARTICLE VI INTERESTS OF PARTICIPANTS . . . . . 11
6.1 Initial Participating
Interests . . . . . . . . . . . 11
6.2 Changes in Participating
Interests. . . . . . . . . . . 11
6.3 Elimination of Minority
Interest . . . . . . . . . . . 12
6.4 Continuing Liabilities Upon
Adjustments of Participating
Interests . . . . . . . . . . . 13
6.5 Documentation of Adjustments
to Participating Interests . . 13
6.6 Grant of Lien and Security
Interest . . . . . . . . . . . 13
6.7 Subordination of Interests . . 14
ARTICLE VII MANAGEMENT COMMITTEE . . . . . . . . 14
7.1 Organization and Composition. . 14
7.2 Decisions . . . . . . . . . . . 14
7.3 Meetings . . . . . . . . . . . 14
7.4 Action Without Meeting in
Person . . . . . . . . . . . . 15
7.5 Matters Requiring Approval. . . 15
ARTICLE VIII MANAGER . . . . . . . . . . . . . . 16
8.1 Designation . . . . . . . . . . 16
8.2 Powers and Duties of Manager. . 17
8.3 Standard of Care . . . . . . . 21
8.4 Resignation; Deemed Offer to
Resign . . . . . . . . . . . . 21
8.5 Payments To Manager . . . . . . 23
8.6 Transactions With Affiliates. . 23
8.7 Activities During Deadlock . . 23
ARTICLE IX PROGRAMS AND BUDGETS . . . . . . . . 22
9.1 Initial Program and Budget. . . 22
9.2 Operations Pursuant to Programs
and Budgets . . . . . . . . . . 22
9.3 Presentation of Programs and
Budgets . .. . . . . . . . . . 22
9.4 Review and Adoption of Proposed
Programs and Budgets . . . . . 23
9.5 Election to Participate . . . . 23
9.6 Recalculation or Restoration of
Reduced Interest Based on
Actual Expenditures . . . . . . 24
9.7 Pre-Feasibility Study Programs
and Budgets . . . . . . . . . . 25
9.8 Completion of Pre-Feasibility
Studies and Selection of
Approved Alternatives . . . . 27
9.9 Programs and Budgets for
Feasibility Study . . . . . . . 28
9.10 Development Programs and
Budgets; Project Financing . . 28
9.11 Expansion or Modification
Programs and Budgets . . . . . 29
9.12 Budget Overruns; Program
Changes . . . . . . . .. . . . 29
9.13 Emergency or Unexpected
Expenditures . . . . . . . . . 29
ARTICLE X ACCOUNTS AND SETTLEMENTS . . . . . 30
10.1 Monthly Statements . . . . . . 30
10.2 Cash Calls . . . . . . . . . . 30
10.3 Failure to Meet Cash Calls . . 30
10.4 Cover Payment . . . . . . . . 30
10.5 Remedies . . . . . . . . . . 30
10.6 Audits . . . . . . . . . . . . 33
ARTICLE XI DISPOSITION OF PRODUCTION . . . . . 34
11.1 Taking In Kind . . . . . . . . 34
11.2 Failure of Participant to
Take In Kind . . . . . . . . . 34
11.3 Hedging . . . . . . . . . . . . 34
ARTICLE XII WITHDRAWAL AND TERMINATION . . . . . 34
12.1 Termination by Expiration or
Agreement . . . . . . . . . . 34
12.2 Termination by Deadlock . . . 34
12.3 Withdrawal . . . . . . . . . . 35
12.4 Continuing Obligations and
Environmental Liabilities . . . 35
12.5 Disposition of Assets on
Termination . . . . . . . . . 35
12.6 Non-Compete Covenants . . . . . 35
12.7 Right to Data After
Termination . . . . . . . . . . 36
12.8 Continuing Authority . . . . . 36
ARTICLE XIII ACQUISITIONS WITHIN AREA OF
INTEREST . . . . . . . . . . . . . 36
13.1 General . . . . . . . . . . . 36
13.2 Notice to Non-Acquiring
Participant . . . . . . . . . . 36
13.3 Option Exercised . . . . . . . 37
13.4 Option Not Exercised . . . . . 37
ARTICLE XIV ABANDONMENT AND SURRENDER OF
PROPERTIES . . . . . . . . . . . . 37
ARTICLE XV SUPPLEMENTAL BUSINESS AGREEMENT . . 38
ARTICLE XVI TRANSFER OF INTEREST; PREEMPTIVE
RIGHT . . . . . . . . . . . . . . . 38
16.1 General . . . . . . . . . . . . 38
16.2 Limitations on Free
Transferability . . . . . . . . 38
16.3 Preemptive Right . . . . . . . 41
ARTICLE XVII DISPUTES . . . . . . . . . . . . . 41
17.1 Governing Law . . . . . . . . 41
17.2 Forum Selection . . . . . . . . 41
17.3 Dispute Resolution . . . . . . 41
ARTICLE XVIII CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION. . . . 41
18.1 Business Information . . . . . 41
18.2 Participant Information . . . . 41
18.3 Permitted Disclosure of
Confidential Business
Information . . . . . . . . . . 42
18.4 Disclosure Required By Law . . 42
18.5 Public Announcements . . . . . 43
ARTICLE XIX GENERAL PROVISIONS . . . . . . . . 43
19.1 Notices . . . . . . . . . . . 43
19.2 Gender . . . . . . . . . . . . 44
19.3 Currency . . . . . . . . . . . 44
19.4 Headings . . . . . . . . . . . 44
19.5 Waiver . . . . . . . . . . . . 44
19.6 Modification . . . . . . . . . 44
19.7 Force Majeure . . . . . . . . . 44
19.8 Rule Against Perpetuities . . . 45
19.9 Further Assurances . . . . . . 45
19.10 Entire Agreement; Successors
and Assigns . . . . . . . . . 45
19.11 Memorandum . . . . . . . . . . 45
19.12 Counterparts . . . . . . . . . 46
EXHIBIT A ASSETS AND AREA OF INTEREST
EXHIBIT B ACCOUNTING PROCEDURES
EXHIBIT C TAX MATTERS
EXHIBIT D DEFINITIONS
EXHIBIT E NET RETURNS CALCULATION
EXHIBIT F INSURANCE
EXHIBIT G INITIAL PROGRAM AND BUDGET
EXHIBIT H PREEMPTIVE RIGHTS
EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT
This Agreement is made as of June 30, 1998 ("Effective Date")
between BATTLE MOUNTAINEXPLORATION COMPANY, a Texas corporation ("BATTLE
MOUNTAIN"), the address of which is ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ and ROYAL GOLD, INC., a
Delaware corporation ("ROYAL"), the address of which is Suite
1000, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
A. BATTLE MOUNTAIN owns or controls
certain properties in ▇▇▇ County, State of Nevada, which
properties are described in Exhibit A and defined in Exhibit D (the
"Properties").
B. ROYAL wishes to participate with
BATTLE MOUNTAIN in the exploration, evaluation and if
justified the development and mining of mineral resources within
the Properties, and BATTLE MOUNTAIN is willing to grant
such rights to ROYAL.
NOW THEREFORE, in consideration of the
covenants and conditions contained herein, BATTLE
MOUNTAIN and ROYAL agree as follows:
ARTICLE I
DEFINITIONS AND CROSS-REFERENCES
1.1 Definitions. The terms defined in
Exhibit D and elsewhere shall have the defined meaning wherever
used in this Agreement, including in Exhibits.
1.2 Cross-References. References to
"Exhibits," "Articles," "Sections" and "Subsections" refer to
Exhibits, Articles, Sections and Subsections of this Agreement.
References to "Paragraphs" and "Subparagraphs" refer to
paragraphs and subparagraphs of the referenced Exhibits.
ARTICLE II
NAME, PURPOSES AND TERM
2.1 General. BATTLE MOUNTAIN and
ROYAL hereby enter into this Agreement for the purposes
hereinafter stated. All of the rights and obligations of the
Participants in connection with the Assets or the Area of Interest
and all Operations shall be subject to and governed by this
Agreement.
2.2 Name. The Assets shall be managed and
operated by the Participants under the name of "BLACK
MAMMOTH PROJECT (the "Project")." The Manager shall
accomplish any registration required by applicable assumed or
fictitious name statutes and similar statutes.
2.3 Purposes. This Agreement is entered into
for the following purposes and for no others, and shall serve as
the exclusive means by which each of the Participants
accomplishes such purposes:
(a) to conduct Exploration within the
Properties,
(b) to acquire additional property and
other interests within the Area of
Interest,
(c) to evaluate the possible
Development and Mining of the
Properties, and, if justified, to
engage in Development and
Mining,
(d) to engage in Operations on the
Properties,
(e) to engage in marketing Products, to
the extent provided by Article XI,
(f) to complete and satisfy all
Environmental Compliance
obligations and Continuing
Obligations affecting the Properties,
and
(g) to perform any other activity
necessary, appropriate, or
incidental to any of the foregoing.
2.4 Limitation. Unless the Participants
otherwise agree in writing, the Operations shall be limited to the
purposes described in Section 2.3, and nothing in this Agreement
shall be construed to enlarge such purposes or to change the
relationships of the Participants as set forth in Article IV.
2.5 Term. The term of this Agreement shall be
for twenty (20) years from the Effective Date and for so long
thereafter as Products are produced from the Properties on a
continuous basis, and thereafter until all materials, supplies,
equipment and infrastructure have been salvaged and disposed of,
any required Environmental Compliance is completed and
accepted and the Participants have agreed to a final accounting,
unless the Business is earlier terminated as herein provided. For
purposes hereof, Products shall be deemed to be produced from
the Properties on a "continuous basis" so long as production in
commercial quantities is not halted for more than one hundred
eighty (180) consecutive days.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; TITLE TO
ASSETS; INDEMNITIES
3.1 Representations and Warranties of Both
Participants. As of the Effective Date, each Participant warrants
and represents to the other that:
(a) it is a corporation duly organized
and in good standing in its state of incorporation and is qualified
to do business and is in good standing in those states where
necessary in order to carry out the purposes of this Agreement;
(b) it has the capacity to enter into and
perform this Agreement and all transactions contemplated herein
and that all corporate, board of directors, shareholder, surface and
mineral rights owner, lessor, lessee and other actions required to
authorize it to enter into and perform this Agreement have been
properly taken;
(c) it will not breach any other
agreement or arrangement by entering into or performing this
Agreement;
(d) it is not subject to any governmental
order, judgment, decree, debarment, sanction or Laws that would
preclude the permitting or implementation of Operations under
this Agreement; and
(e) this Agreement has been duly
executed and delivered by it and is valid and binding upon it in
accordance with its terms.
3.2 Representations and Warranties of
BATTLE MOUNTAIN. As of the Effective Date, BATTLE
MOUNTAIN makes the following representations and warranties
to ROYAL:
(a) With respect to those Properties
BATTLE MOUNTAIN owns in fee simple, if any, BATTLE
MOUNTAIN is in exclusive possession of and owns such
Properties free and clear of all Encumbrances or defects in title
except those specifically identified in Paragraph 1.1 of
Exhibit A.
(b) With respect to those Properties in
which BATTLE MOUNTAIN holds an interest under leases or
other contracts: (i) BATTLE MOUNTAIN is in exclusive
possession of such Properties; (ii) BATTLE MOUNTAIN has not
received any notice of default of any of the terms or provisions of
such leases or other contracts; (iii) BATTLE MOUNTAIN has
the authority under such leases or other contracts to perform fully
its obligations under this Agreement; (iv) to BATTLE
MOUNTAIN's knowledge, such leases and other contracts are
valid and are in good standing; (v) BATTLE MOUNTAIN has no
knowledge of any act or omission or any condition on the
Properties which could be considered or construed as a default
under any such lease or other contract; and (vi) to BATTLE
MOUNTAIN's knowledge, such Properties are free and clear of
all Encumbrances or defects in title except for those specifically
identified in Paragraph 1.1 of Exhibit A.
(c) BATTLE MOUNTAIN has
delivered to or made available for inspection by ROYAL all
Existing Data in its possession or control, and true and correct
copies of all leases or other contracts relating to the Properties.
(d) With respect to unpatented mining
claims and millsites located by BATTLE MOUNTAIN that are
included within the Properties, except as provided in Paragraph
1.1 of Exhibit A and subject to the paramount title of the United
States: (i) to the best of its knowledge, the unpatented mining
claims were properly laid out and monumented; (ii) all required
location and validation work was properly performed; (iii) to the
best of its knowledge, location notices and certificates were
properly recorded and filed with appropriate governmental
agencies; (iv) all assessment work required to hold the unpatented
mining claims has been performed and all Governmental Fees
have been paid in a manner consistent with that required of the
Manager pursuant to Subsection 8.2(k) through the assessment
year ending September 1, 1998; (v) all affidavits of assessment
work, evidence of payment of Governmental Fees, and other
filings required to maintain the claims in good standing have been
properly and timely recorded or filed with appropriate
governmental agencies; (vi) to the best of its knowledge, the
claims are free and clear of Encumbrances or defects in title; and
(vii) BATTLE MOUNTAIN has no knowledge of conflicting
mining claims. Nothing in this Subsection, however, shall be
deemed to be a representation or a warranty that any of the
unpatented mining claims contains a valuable mineral deposit.
(e) With respect to unpatented mining
claims and millsites not located by BATTLE MOUNTAIN but
which are included within the Properties, except as provided in
Paragraph 1.1 of Exhibit A and subject to the paramount title of
the United States: (i) all assessment work required to hold the
unpatented mining claims has been performed and all
Governmental Fees have been paid in a manner consistent with
that required of the Manager pursuant to Subsection 8.2(k)through the
assessment year ending September 1, 1998; (ii) all
affidavits of assessment work, evidence of payment of
Governmental Fees, and other filings required to maintain the
claims in good standing have been properly and timely recorded
or filed with appropriate governmental agencies; (iii) to the best
of its knowledge, the claims are free and clear of Encumbrances
or defects in title; and (iv) BATTLE MOUNTAIN has no
knowledge of conflicting mining claims, except for those
specifically identified in Paragraph 1.1 of Exhibit A. Nothing in
this Subsection, however, shall be deemed to be a representation
or a warranty that any of the unpatented mining claims contains a
valuable discovery of minerals.
(f) With respect to the Properties, to
BATTLE MOUNTAIN's knowledge, there are no pending or
threatened actions, suits, claims or proceedings, and there have
been no previous transactions affecting its interests in the
Properties which have not been for fair consideration.
(g) Except as to matters otherwise
disclosed in writing to ROYAL prior to the Effective Date:
(i) to BATTLE MOUNTAIN's
knowledge, the conditions existing on or with respect to the
Properties and its ownership and operation of the Properties are
not in violation of any Laws (including without limitation any
Environmental Laws), nor causing or permitting any damage
(including Environmental Damage, as defined below) or
impairment to the health, safety, or enjoyment of any person at or
on the Properties or in the general vicinity of the Properties;
(ii) to BATTLE MOUNTAIN's
knowledge, there have been no past violations by it or by any of
its predecessors in title of any Environmental Laws or other Laws
affecting or pertaining to the Properties, nor any past creation of
damage or threatened damage to the air, soil, surface waters,
groundwater, flora, fauna, or other natural resources on, about or
in the general vicinity of the Properties ("Environmental
Damage"); and
(iii) BATTLE MOUNTAIN has
not received inquiry from or notice of a pending investigation
from any governmental agency or of any administrative or judicial
proceeding concerning the violation of any Laws.
The representations and warranties set forth
above shall survive the execution and delivery of any documents
of Transfer provided under this Agreement. For a representation
or warranty made to a Participant's "knowledge," the term
"knowledge" shall mean actual knowledge on the part of the
officers, employees, and agents of the representing Participant, or
knowledge of facts that would reasonably lead to the indicated
conclusions.
3.3 Disclosures. Each of the Participants
represents and warrants that it is unaware of any material facts or
circumstances that have not been disclosed in this Agreement,
which should be disclosed to the other Participant in order to
prevent the representations and warranties in this Article from
being materially misleading. BATTLE MOUNTAIN has
disclosed to ROYAL all information it believes to be relevant
concerning the Assets and has provided to or made available for
inspection by ROYAL all such information, but does not make
any representation or warranty, express or implied, as to the
accuracy or completeness of the information (except as provided
in Section 3.2) or as to the boundaries or value of the Assets.
Each Participant represents to the other that in negotiating and
entering into this Agreement it has relied solely on its own
appraisals and estimates as to the value of the Assets and upon its
own geologic and engineering interpretations related thereto.
3.4 Record Title. Title to the Assets shall be
held by BATTLE MOUNTAIN for BATTLE MOUNTAIN and
ROYAL, as their Participating Interests are determined pursuant
to this Agreement.
3.5 Loss of Title. Any failure or loss of title to
the Assets, and all costs of defending title, shall be charged to the
Business Account, except that all costs and losses arising out of or
resulting from breach of the representations and warranties of
BATTLE MOUNTAIN as to title shall be charged to BATTLE
MOUNTAIN.
3.6 Royalties, Production Taxes and Other
Payments Based on Production. All required payments of
production royalties, taxes based on production of Products, and
other payments out of production to private parties and
governmental entities shall be determined and made by the
Manager and charged to the Equity Account of each Participant in
proportion to its Participating Interest at the time of such payment.
If separate payment is required, each Participant shall determine
and pay its proportionate share of any such payment, and, in such
event, each Participant shall furnish to the other Participant
evidence of timely payment for all such required payments. In the
event that either Participant fails to make any such required
payment, the other Participant shall have the right to make such
payment and shall thereby become subrogated to the rights of such
third party; provided, however, that the making of any such
payment on behalf of the other Participant shall not constitute
acceptance by the paying Participant of any liability to such third
party for the underlying obligation.
3.7 Indemnities/Limitation of Liability.
(a) Each Participant shall indemnify the
other Participant, its directors, officers, employees, agents and
attorneys, or Affiliates (collectively "Indemnified Participant")
from and against the entire amount of any Material Loss. A
"Material Loss" shall mean all costs, expenses, damages or
liabilities, including attorneys' fees and other costs of litigation
(either threatened or pending) arising out of or based on a breach
by a Participant ("Indemnifying Participant") of any
representation, warranty or covenant contained in this Agreement,
including without limitation:
(i) any failure by a Participant
to determine accurately and make timely payment of its
proportionate share of required royalties, production taxes and
other payments out of production to third parties as required by
Section 3.6;
(ii) any action taken for or
obligation or responsibility assumed on behalf of the other
Participant, its directors, officers, employees, agents and
attorneys, or Affiliates by a Participant, any of its directors,
officers, employees, agents and attorneys, or Affiliates, in
violation of Section 4.1;
(iii) failure of a Participant or its
Affiliates to comply with the non-compete or Area of Interest
provisions of Section 12.6 or Article XIII;
(iv) any Transfer that causes
termination of the tax partnership established by Section 4.2,
against which the transferring Participant shall indemnify the
non-transferring Participant as provided in Article V of
Exhibit C; and
(v) failure of a Participant or its
Affiliates to comply with the preemptive right under Section 16.3 and
Exhibit H.
A Material Loss shall not be deemed to have
occurred until, in the aggregate, an Indemnified Participant incurs
losses, costs, damages or liabilities in excess of One Hundred
Thousand Dollars ($100,000) relating to breaches of warranties,
representations and covenants contained in this Agreement.
(b) If any claim or demand is asserted
by a third party against an Indemnified Participant in respect of
which such Indemnified Participant may be entitled to
indemnification under this Agreement, written notice of such
claim or demand shall promptly be given to the Indemnifying
Participant. The Indemnifying Participant shall have the right, but
not the obligation, by notifying the Indemnified Participant within
thirty (30) days after its receipt of the notice of the claim or
demand, to assume the entire control of (subject to the right of the
Indemnified Participant to participate, at the Indemnified
Participant's expense and with counsel of the Indemnified
Participant's choice), the defense, compromise, or settlement of
the matter, including, at the Indemnifying Participant's expense,
employment of counsel of the Indemnifying Participant's choice.
Any damages to the assets or business of the Indemnified
Participant caused by a failure by the Indemnifying Participant to
defend, compromise, or settle a claim or demand in a reasonable
and expeditious manner requested by the Indemnified Participant,
after the Indemnifying Participant has given notice that it will
assume control of the defense, compromise, or settlement of the
matter, shall be included in the damages for which the
Indemnifying Participant shall be obligated to indemnify the
Indemnified Participant. Any settlement or compromise of a
matter by the Indemnifying Participant shall include a full release
of claims against the Indemnified Participant which has arisen out
of the indemnified claim or demand.
ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS
4.1 No Partnership. Nothing contained in this
Agreement shall be deemed to constitute either Participant the
partner or the venturer of the other, or, except as otherwise herein
expressly provided, to constitute either Participant the agent or
legal representative of the other, or to create any fiduciary
relationship between them. The Participants do not intend to
create, and this Agreement shall not be construed to create, any
mining, commercial or other partnership or joint venture. Neither
Participant, nor any of its directors, officers, employees, agents
and attorneys, or Affiliates, shall act for or assume any obligation
or responsibility on behalf of the other Participant, except as
otherwise expressly provided herein, and any such action or
assumption by a Participant's directors, officers, employees,
agents and attorneys, or Affiliates shall be a breach by such
Participant of this Agreement. The rights, duties, obligations and
liabilities of the Participants shall be several and not joint or
collective. Each Participant shall be responsible only for its
obligations as herein set out and shall be liable only for its share
of the costs and expenses as provided herein, and it is the express
purpose and intention of the Participants that their ownership of
Assets and the rights acquired hereunder shall be as tenants in
common.
4.2 Federal Tax Elections and Allocations.
Without changing the effect of Section 4.1, the relationship of the
Participants shall constitute a tax partnership within the meaning
of Section 761(a) of the United States Internal Revenue Code of
1986, as amended. Tax elections and allocations shall be made as
set forth in Exhibit C.
4.3 State Income Tax. To the extent
permissible under applicable law, the relationship of the
Participants shall be treated for state income tax purposes in the
same manner as it is for federal income tax purposes.
4.4 Tax Returns. After approval of the
Management Committee, any tax returns or other required tax
forms shall be filed in accordance with Exhibit C.
4.5 Other Business Opportunities. Except as
expressly provided in this Agreement, each Participant shall have
the right to engage in and receive full benefits from any
independent business activities or operations, whether or not
competitive with this Business, without consulting with, or
obligation to, the other Participant. The doctrines of "corporate
opportunity" or "business opportunity" shall not be applied to
this Business nor to any other activity or operation of either
Participant. Neither Participant shall have any obligation to the
other with respect to any opportunity to acquire any property
outside the Area of Interest at any time, or, except as otherwise
provided in Section 12.6, within the Area of Interest after the
termination of the Business. Unless otherwise agreed in writing,
neither Participant shall have any obligation to mill, beneficiate or
otherwise treat any Products in any facility owned or controlled
by such Participant.
4.6 Waiver of Rights to Partition or Other
Division of Assets. The Participants hereby waive and release all
rights of partition, or of sale in lieu thereof, or other division of
Assets, including any such rights provided by Law.
4.7 Transfer or Termination of Rights to
Properties. Except as otherwise provided in this Agreement,
neither Participant shall Transfer all or any part of its interest in
the Assets or this Agreement or otherwise permit or cause such
interests to terminate.
4.8 Implied Covenants. There are no implied
covenants contained in this Agreement other than those of good
faith and fair dealing.
4.9 No Third Party Beneficiary Rights. This
Agreement shall be construed to benefit the Participants and their
respective successors and assigns only, and shall not be construed
to create third party beneficiary rights in any other party or in any
governmental organization or agency, except to the extent
required by Project Financing and as provided in Subsection
3.7(a).
4.9 Layback Agreements. In the event the
Participants are asked to consider a layback or similar agreement
with respect to lands that are adjacent to but not part of the
Properties (regardless of whether such lands are controlled by a
Participant), such agreements shall be negotiated in good faith and
at arms-length; provided, further, the terms and conditions of such
agreements must not diminish the purpose of this Agreement.
ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS
5.1 Participants' Initial Contributions.
(a) BATTLE MOUNTAIN, as its
Initial Contribution, hereby contributes the Assets described in
Exhibit A to the purposes of this Agreement. The amount of Six
Hundred Fifty Thousand Dollars ($650,000) shall be credited to
BATTLE MOUNTAIN's Equity Account, on the Effective Date,
with respect to BATTLE MOUNTAIN's Initial Contribution.
(b) Subject to ROYAL's right of
withdrawal as set forth in Section 5.2, ROYAL, as its Initial
Contribution, shall fund Operations under Subsection 5.1(c) totaling
Six Hundred Fifty Thousand Dollars ($650,000) on or
before the fourth anniversary of the Effective Date. In
determining whether such funding obligation has been met, only
costs that are properly chargeable to the Business Account under
Exhibit B shall be included ("Qualifying Expenses"); provided,
however, ROYAL shall not be entitled to an Administrative
Charge during the time it is making Qualifying Expenses.
Notwithstanding the total Initial Contribution funding by ROYAL of
$650,000.00, Operations shall be funded at a minimal level of
not less than $150,000 per year, and any expenditures in excess
of such minimum level shall be credited against the next
succeeding year's obligation. Upon completion of the funding of
ROYAL's Initial Contribution, this amount shall be credited to
ROYAL's Equity Account.
(c) Subject only to the provisions of
Section 9.1, until ROYAL has completed its Initial Contribution,
ROYAL shall have the sole right to determine the nature, timing,
scope, extent and method of all Operations, without any obligation
to hold meetings of the Management Committee, to prepare
Programs and Budgets for review, comment or approval by
BATTLE MOUNTAIN, or to obtain the approval or consent of
BATTLE MOUNTAIN or the Management Committee. In
conducting such Operations, ROYAL shall be entitled, but shall
not be obligated, to exercise any of the applicable powers of the
Manager in Section 8.2, except that until ROYAL has completed
its Initial Contribution it shall not be entitled or required to
perform the activities described in Subsections 8.2(g), (i), (l) and
(s) that would otherwise require consent of the Management
Committee or of BATTLE MOUNTAIN. For all such
Operations, ROYAL shall provide for accrual of reasonably
anticipated Environmental Compliance expenses, which shall
constitute Qualifying Expenses, and upon completion of its Initial
Contribution, ROYAL shall transfer any accrued but unexpended
amounts to the Environmental Compliance Fund established under
Paragraph 2.14 of Exhibit B. Prior to completion of its Initial
Contribution, ROYAL, in lieu of any reporting requirements
under this Agreement, shall:
(i) keep BATTLE MOUNTAIN
generally informed concerning all material Operations and other
material activities affecting the Properties;
(ii) within thirty (30) days after
the end of each calendar quarter, including the calendar quarter
that ends on the Effective Date, furnish to BATTLE
MOUNTAIN a reasonably detailed written report of all
Operations conducted on or for the benefit of the Properties and
an interim statement of Qualifying Expenses incurred during the
preceding quarter;
(iii) make available for inspection
and copying by BATTLE MOUNTAIN all factual and
interpretive reports, studies and analyses concerning the
Properties, and make all core and other drilling samples available
for inspection by BATTLE MOUNTAIN; and
(iv) on or before a date three (3)
months after each anniversary of the Effective Date, submit to
BATTLE MOUNTAIN a final statement of Qualifying Expenses
incurred during the preceding year.
ROYAL makes no representation or
warranty, express or implied, as to the accuracy or completeness
of the data and information that shall be provided to BATTLE
MOUNTAIN in accordance with (i) through (iv) above.
(d) BATTLE MOUNTAIN shall
provide ROYAL with written notice of any exceptions it may
have to any statement of Qualifying Expenses submitted to it as
provided above within three (3) months after receipt of any
statement. Failure to provide such notice within the three (3)
month period shall constitute acceptance by BATTLE
MOUNTAIN of the stated Qualifying Expenses.
(e) Upon execution of the Agreement,
ROYAL shall pay BATTLE MOUNTAIN Nineteen Thousand
Three Hundred Dollars ($19,300) in consideration of BATTLE
MOUNTAIN's payment of the May 6, 1998 option payment in
accordance with the provisions of the ▇▇▇▇▇▇ Option Agreement
and BATTLE MOUNTAIN's obligation to: (i) make the $12,000
payment on or before July 5, 1998 in accordance with the
provisions of the ▇▇▇▇▇▇ Option Agreement; and (ii) file mining
claim maintenance fees, for the year ending August 31, 1999, on
the thirty-three (33) unpatented claims that comprise part of the
Properties. The $19,300 payment described in this Subsection
shall be a Qualifying Expense.
5.2 Failure to Make Initial Contribution.
(a) ROYAL's failure to make its Initial
Contribution in accordance with the provisions of this Article, if
not cured within thirty (30) days after notice by BATTLE
MOUNTAIN of such default, shall be deemed to be a withdrawal
of ROYAL from the Business, the termination of its Participating
Interest hereunder and a transfer of its Participating Interest and
Capital Account to BATTLE MOUNTAIN. Upon such event,
ROYAL shall have no further right, title or interest in the Assets
and it shall take such actions as are necessary to ensure that all
Assets are free and clear of any Encumbrances arising by, through
or under it, except for such Encumbrances to which the
Participants may have agreed. Subject to Subsection 5.2(b)below, ROYAL's
withdrawal shall be effective upon such failure,
but such withdrawal shall not relieve ROYAL of its obligation to
BATTLE MOUNTAIN to fund Operations up to the amount of
ROYAL's contractual obligations to third parties including
payments or other obligations with respect to the Properties in
which BATTLE MOUNTAIN holds an interest under leases or
contracts, nor shall such withdrawal relieve ROYAL of its
responsibility to fund and satisfy ROYAL's share of liabilities to
third persons (regardless of whether such liabilities accrue before
or after such withdrawal), including Environmental Liabilities,
Continuing Obligations and Environmental Compliance, arising
prior to ROYAL's withdrawal, which responsibility shall be
based on ROYAL's initial Participating Interest.
(b) Notwithstanding Subsection 5.2(a)above, in the event
ROYAL, within sixty (60) days after the
Effective Date, determines that conditions may exist on the
Properties which may, in ROYAL's judgment, result in violation
of Environmental Laws, ROYAL shall have the right to withdraw
from the Business by giving written notice to BATTLE
MOUNTAIN of such withdrawal. ROYAL's withdrawal shall be
effective upon receipt by BATTLE MOUNTAIN of such notice.
Except as provided in this Subsection and except as may be
otherwise expressly provided herein, ROYAL's withdrawal shall
relieve ROYAL from any other obligation to make contributions
hereunder.
5.3 Additional Contributions. At such time as
ROYAL has contributed the full amount of its Initial
Contribution, the Participants, subject to any election permitted by
Subsection 9.5(a), shall be obligated to contribute funds to
adopted Programs and Budgets in proportion to their respective
Participating Interests.
ARTICLE VI
INTERESTS OF PARTICIPANTS
6.1 Initial Participating Interests. The
Participants shall have the following initial Participating Interests:
BATTLE MOUNTAIN - 50%
ROYAL - 50%
6.2 Changes in Participating Interests. The
Participating Interests shall be eliminated or changed as follows:
(a) Upon withdrawal or deemed
withdrawal as provided in Sections 5.2, 6.3, and Article XII;
(b) Upon an election by either
Participant pursuant to Section 9.5 to contribute less to an adopted
Program and Budget than the percentage equal to its Participating
Interest, or to contribute nothing to an adopted Program and
Budget;
(c) In the event of default by either
Participant in making its agreed-upon contribution to an adopted
Program and Budget, followed by an election by the other
Participant to invoke any of the remedies in Section 10.5;
(d) Upon Transfer by either Participant
of part or all of its Participating Interest in accordance with
Article XVI; or
(e) Upon acquisition by either
Participant of part or all of the Participating Interest of the other
Participant, however arising.
6.3 Elimination of Minority Interest.
(a) A Reduced Participant whose
Recalculated Participating Interest becomes less than ten percent
(10%) shall be deemed to have withdrawn from the Business and
shall relinquish its entire Participating Interest free and clear of
any Encumbrances arising by, through or under the Reduced
Participant, except any such Encumbrances listed in Paragraph
1.1 of Exhibit A or to which the Participants have agreed. Such
relinquished Participating Interest shall be deemed to have accrued
automatically to the other Participant. The Reduced Participant's
Capital Account shall be transferred to the remaining Participant.
The Reduced Participant shall thereafter have the right to receive
two percent (2%) of Net Returns, if any, to a maximum amount
of one hundred percent (100%) of the Reduced Participant's
Equity Account balance as of the effective date of the withdrawal;
provided, further, in the event Products become subject to a
government royalty that is equal to or greater than four percent
(4%) of Net Returns; then, the Net Returns payable under this
Subsection 6.3(a) shall be reduced from two percent (2%) to one
percent (1%). Upon receipt of such amount, and subject to
Section 6.4, the Reduced Participant shall thereafter have no
further right, title, or interest in the Assets or under this
Agreement, and the tax partnership established by Exhibit C shall
dissolve pursuant to Paragraph 4.2 of Exhibit C. In such event,
the Reduced Participant shall execute and deliver an appropriate
conveyance of all of its right, title and interest in the Assets to the
remaining Participant.
(b) The relinquishment, withdrawal and
entitlements for which this Section provides shall be effective as
of the effective date of the recalculation under Sections 9.5 or
10.5. However, if the final adjustment provided under Section
9.6 for any recalculation under Section 9.5 results in a
Recalculated Participating Interest of ten percent (10%) or more:
(i) the Recalculated Participating Interest shall be deemed,
effective retroactively as of the first day of the Program Period,
to have automatically revested; (ii) the Reduced Participant shall
be reinstated as a Participant, with all of the rights and obligations
pertaining thereto; (iii) the right to Net Returns under Subsection
6.3(a) shall terminate; and (iv) the Manager, on behalf of the
Participants, shall make any necessary reimbursements,
reallocations of Products, contributions and other adjustments as
provided in Subsection 9.6(d). Similarly, if such final adjustment
under Section 9.6 results in a Recalculated Participating Interest
for either Participant of less than ten percent (10%) for a Program
Period as to which the provisional calculation under Section 9.5 had not
resulted in a Participating Interest of less than ten percent
(10%), then such Participant, at its election within thirty (30) days
after notice of the final adjustment, may contribute an amount
resulting in a revised final adjustment and resultant Recalculated
Participating Interest of ten percent (10%). If no such election is
made, such Participant shall be deemed to have withdrawn under
the terms of Subsection 6.3(a) as of the beginning of such
Program Period, and the Manager, on behalf of the Participants,
shall make any necessary reimbursements, reallocations of
Products, contributions and other adjustments as provided in
Subsection 9.6(d), including of any Net Returns to which such
Participant may be entitled for such Program Period.
6.4 Continuing Liabilities Upon Adjustments
of Participating Interests. Any reduction or elimination of either
Participant's Participating Interest under Section 6.2 shall not
relieve such Participant of its share of any liability, including,
without limitation, Continuing Obligations, Environmental
Liabilities and Environmental Compliance, whether arising before
or after such reduction or elimination, or out of acts or omissions
occurring or conditions existing prior to the Effective Date or out
of Operations conducted during the term of this Agreement but
prior to such reduction or elimination, regardless of when any
funds may be expended to satisfy such liability. For purposes of
this Section, such Participant's share of such liability shall be
equal to its Participating Interest at the time the act or omission
giving rise to the liability occurred, after first taking into account
any reduction, readjustment and restoration of Participating
Interests under Sections 6.3, 9.5, 9.6 and 10.5 (or, as to such
liability arising out of acts or omissions occurring or conditions
existing prior to the Effective Date, equal to such Participant's
initial Participating Interest). Should the cumulative cost of
satisfying Continuing Obligations be in excess of cumulative
amounts accrued or otherwise charged to the Environmental
Compliance Fund as described in Exhibit B, each of the
Participants shall be liable for its proportionate share (i.e.,
Participating Interest at the time of the act or omission giving rise
to such liability occurred), after first taking into account any
reduction, readjustment and restoration of Participating Interests
under Sections 6.3, 9.5, 9.6 and 10.5, of the cost of satisfying
such Continuing Obligations, notwithstanding that either
Participant has previously withdrawn from the Business or that its
Participating Interest has been reduced or converted to an interest
in Net Returns pursuant to Subsection 6.3(a).
6.5 Documentation of Adjustments to Participating Interests.
Adjustments to the Participating Interests need
not be evidenced during the term of this Agreement by the
execution and recording of appropriate instruments, but each
Participant's Participating Interest and related Equity Account
balance shall be shown in the accounting records of the Manager,
and any adjustments thereto, including any reduction,
readjustment, and restoration of Participating Interests under
Sections 6.3, 9.5, 9.6 and 10.5, shall be made monthly.
However, either Participant, at any time upon the request of the
other Participant, shall execute and acknowledge instruments
necessary to evidence such adjustments in form sufficient for
filing and recording in the jurisdiction where the Properties are
located.
6.6 Grant of Lien and Security Interest.
(a) Subject to Section 6.7, each
Participant grants to the other Participant a lien upon and a
security interest in its Participating Interest, including all of its
right, title and interest in the Assets, whenever acquired or
arising, and the proceeds from and accessions to the foregoing.
(b) The liens and security interests
granted by Subsection 6.6(a) shall secure every obligation or
liability of the Participant granting such lien or security interest
created under this Agreement, including the obligation to repay a
Cover Payment in accordance with Section 10.4. Each
Participant hereby agrees to take all action necessary to perfect
such lien and security interest and hereby appoints the other
Participant its attorney-in-fact to execute, file and record all
financing statements and other documents necessary to perfect or
maintain such lien and security interest.
6.7 Subordination of Interests. Each
Participant shall, from time to time, take all necessary actions,
including execution of appropriate agreements, to pledge and
subordinate its Participating Interest, any liens it may hold which
are created under this Agreement other than those created
pursuant to Section 6.6 hereof, and any other right or interest it
holds with respect to the Assets (other than any statutory lien of
the Manager), to any secured borrowings for Operations approved
by the Management Committee, including any secured borrowings
relating to Project Financing, and any modifications or renewals
thereof.
ARTICLE VII
MANAGEMENT COMMITTEE
7.1 Organization and Composition. The
Participants hereby establish a Management Committee to
determine overall policies, objectives, procedures, methods and
actions under this Agreement. The Management Committee shall
consist of two (2) member(s) appointed by BATTLE
MOUNTAIN and two (2) member(s) appointed by ROYAL.
Each Participant may appoint one or more alternates to act in the
absence of a regular member. Any alternate so acting shall be
deemed a member. Appointments by a Participant shall be made
or changed by notice to the other members. From time to time,
the Manager shall designate one of its representative members on
the Management Committee to serve as the chair of the
Management Committee.
7.2 Decisions. After ROYAL has completed
its Initial Contribution, each Participant, acting through its
appointed member(s) in attendance at the meeting, shall have a
number of votes on the Management Committee in proportion to
its Participating Interest. Unless otherwise provided in this
Agreement, the vote of the Participant with a Participating Interest
over fifty percent (50%) shall determine the decisions of the
Management Committee. In the event of a deadlock, the chairman
of the Management Committee shall cast the deciding vote.
7.3 Meetings.
(a) After ROYAL has completed its
Initial Contribution, the Management Committee shall hold
regular meetings at least semi-annually in Reno, or at other agreed
places. The Manager shall give at least thirty (30) days notice to
the Participants of such meetings. Additionally, either Participant
may call a special meeting upon seven (7) days notice to the other
Participant. In case of an emergency, reasonable notice of a
special meeting shall suffice. There shall be a quorum if at least
one member representing each Participant is present; provided,
however, that if a Participant fails to attend two consecutive
properly called meetings, then a quorum shall exist at the second
meeting if the other Participant is represented by at least one
appointed member, and a vote of such Participant shall be
considered the vote required for the purposes of the conduct of all
business properly noticed even if such vote would otherwise
require unanimity.
(b) If business cannot be conducted at a
regular or special meeting due to the lack of a quorum, either
Participant may call the next meeting upon seven (7) days notice
to the other Participant.
(c) Each notice of a meeting shall
include an itemized agenda prepared by the Manager in the case
of a regular meeting or by the Participant calling the meeting in
the case of a special meeting, but any matters may be considered
if either Participant adds the matter to the agenda at least three (3)
days before the meeting or with the consent of the other
Participant. The Manager shall prepare minutes of all meetings
and shall distribute copies of such minutes to the other Participant
within thirty (30) days after the meeting. Either Participant may
electronically record the proceedings of a meeting with the
consent of the other Participant. The other Participant shall sign
and return or object to the minutes prepared by the Manager
within thirty (30) days after receipt, and failure to do either shall
be deemed acceptance of the minutes as prepared by the Manager.
The minutes, when signed or deemed accepted by both
Participants, shall be the official record of the decisions made by
the Management Committee. Decisions made at a Management
Committee meeting shall be implemented in accordance with
adopted Programs and Budgets. If a Participant timely objects to
minutes proposed by the Manager, the members of the
Management Committee shall seek, for a period not to exceed
thirty (30) days from receipt by the Manager of notice of the
objections, to agree upon minutes acceptable to both Participants.
If the Management Committee does not reach agreement on the
minutes of the meeting within such thirty (30) day period, the
minutes of the meeting as prepared by the Manager together with
the other Participant's proposed changes shall collectively
constitute the record of the meeting. If personnel employed in
Operations are required to attend a Management Committee
meeting, reasonable costs incurred in connection with such
attendance shall be charged to the Business Account. All other
costs shall be paid by the Participants individually.
7.4 Action Without Meeting in Person. In
lieu of meetings in person, the Management Committee may
conduct meetings by telephone or video conference, so long as
minutes of such meetings are prepared in accordance with
Subsection 7.3(c). The Management Committee may also take
decisions memorialized by a writing that is executed by all
Participants.
7.5 Matters Requiring Approval. Except as
provided in Subsection 5.1(c) and as otherwise delegated to the
Manager in Section 8.2, the Management Committee shall have
exclusive authority to determine all matters related to overall
policies, objectives, procedures, methods and actions under this
Agreement.
ARTICLE VIII
MANAGER
8.1 Designation.
(a) Upon ROYAL's completion of its
Initial Contribution as provided for in Section 5.1, ROYAL shall,
within sixty (60) days thereafter, provide BATTLE MOUNTAIN a comprehensive
report detailing exploration, engineering,
economic, environmental, regulatory and all other relevant
information that ROYAL has generated or otherwise acquired
with respect to the Properties. Upon receipt of such report by
BATTLE MOUNTAIN, BATTLE MOUNTAIN shall have the
following sixty (60) day period within which to notify ROYAL in
writing of its election to either: (a) become and serve as Manager
until it resigns as provided in Section 8.4; or (b) decline to
become Manager, in which case ROYAL shall remain Manager
and serve as such until it resigns as provided in Section 8.4.
(b) In the event that BATTLE MOUNTAINelects to become and serve
as Manager under Section 8.1(a), then, notwithstanding any other provision of
this Agreement, if at any time thereafter BATTLE MOUNTAIN submits a Program
and Budget that ROYAL, in good faith, believes to be inadequate
to achieve the objectives of the Business in timely fashion, and if
ROYAL is unable to achieve satisfactory modification of such
proposed Program and Budget (the "objectionable Program and
Budget") pursuant to the procedures outlined in Section 9.4hereof, then,
ROYAL may, upon its submission of a Program and
Budget (the "more aggressive Program and Budget") calling for
expenditures at a level of not less than 300% of the level of
expenditures called for in the objectionable Program and Budget
and upon ten (10) days' consideration thereof by BATTLE
MOUNTAIN, require that BATTLE MOUNTAIN elect either (i)
to adopt the more aggressive Program and Budget, submit same
to the Management Committee, and execute such Program and
Budget, as Manager; or (ii) resign as Manager, in favor of
ROYAL, provided that ROYAL must then adopt the more
aggressive Program and Budget, submit same to the Management
Committee, and execute such Program and Budget, as Manager.
(c) The mechanism set forth in Section 8.1(b),
by which ROYAL, as non-managing Participant, may resume
control of the Business, as Manager, under defined circumstances,
is intended to be a bi-lateral right. That is, if the mechanism of
Section 8.1(b) is employed by ROYAL in such fashion that
ROYAL resumes as Manager, and BATTLE MOUNTAIN thereafter, as the non-managing
Participant, in good faith, believes
that a substantially more aggressive Program and Budget than that
proposed by ROYAL is appropriate, then BATTLE
MOUNTAIN may likewise implement the mechanism set forth in
Section 8.1(b) (after first adhering to the procedure set forth in
Section 9.4), and so on, with the Participants alternating as to the
ability to exercise such right of forcing development.
8.2 Powers and Duties of Manager. Subject
to the terms and provisions of this Agreement, the Manager shall
have the following powers and duties, which shall be discharged
in accordance with adopted Programs and Budgets.
(a) The Manager shall manage, direct
and control Operations, and shall prepare and present to the
Management Committee proposed Programs and Budgets as
provided in Article IX.
(b) The Manager shall implement the
decisions of the Management Committee, shall make all
expenditures necessary to carry out adopted Programs, and shall
promptly advise the Management Committee if it lacks sufficient
funds to carry out its responsibilities under this Agreement.
(c) The Manager shall use reasonable
efforts to: (i) purchase or otherwise acquire all material, supplies,
equipment, water, utility and transportation services required for
Operations, such purchases and acquisitions to be made to the
extent reasonably possible on the best terms available, taking into
account all of the circumstances; (ii) obtain such customary
warranties and guarantees as are available in connection with such
purchases and acquisitions; and (iii) keep the Assets free and clear
of all Encumbrances, except any such Encumbrances listed in
Paragraph 1.1 of Exhibit A and those existing at the time of, or
created concurrent with, the acquisition of such Assets, or
mechanic's or materialmen's liens (which shall be contested,
released or discharged in a diligent matter) or Encumbrances
specifically approved by the Management Committee.
(d) The Manager shall conduct such title
examinations of the Properties and cure such title defects
pertaining to the Properties as may be advisable in its reasonable
judgment.
(e) The Manager shall: (i) make or
arrange for all payments required by leases, licenses, permits,
contracts and other agreements related to the Assets; (ii) pay all
taxes, assessments and like charges on Operations and Assets
except taxes determined or measured by a Participant's sales
revenue or net income and taxes, including production taxes,
attributable to a Participant's share of Products, and shall
otherwise promptly pay and discharge expenses incurred in
Operations; provided, however, that if authorized by the
Management Committee, the Manager shall have the right to
contest (in the courts or otherwise) the validity or amount of any
taxes, assessments or charges if the Manager deems them to be
unlawful, unjust, unequal or excessive, or to undertake such other
steps or proceedings as the Manager may deem reasonably
necessary to secure a cancellation, reduction, readjustment or
equalization thereof before the Manager shall be required to pay
them, but in no event shall the Manager permit or allow title to
the Assets to be lost as the result of the nonpayment of any taxes,
assessments or like charges; and (iii) do all other acts reasonably
necessary to maintain the Assets.
(f) The Manager shall: (i) apply for all
necessary permits, licenses and approvals; (ii) comply with all
Laws; (iii) notify promptly the Management Committee of any
allegations of substantial violation thereof; and (iv) prepare and
file all reports or notices required for or as a result of Operations.
The Manager shall not be in breach of this provision if a violation
has occurred in spite of the Manager's good faith efforts to
comply consistent with its standard of care under Section 8.3. In
the event of any such violation, the Manager shall timely cure or
dispose of such violation on behalf of both Participants through
performance, payment of fines and penalties, or both, and the cost
thereof shall be charged to the Business Account.
(g) The Manager shall prosecute and
defend, but shall not initiate without consent of the Management
Committee, all litigation or administrative proceedings arising out
of Operations. The non-managing Participant shall have the right
to participate, at its own expense, in such litigation or
administrative proceedings. The non-managing Participant shall
approve in advance any settlement involving payments,
commitments or obligations in excess of Fifty Thousand Dollars
($50,000) in cash or value.
(h) The Manager shall provide insurance
for the benefit of the Participants as provided in Exhibit F or as
may otherwise be determined from time to time by the
Management Committee.
(i) The Manager may dispose of Assets,
whether by abandonment, surrender, or Transfer in the ordinary
course of business, except that Properties may be abandoned or
surrendered only as provided in Article XIV. Without prior
authorization from the Management Committee, however, the
Manager shall not: (i) dispose of Assets in any one transaction (or
in any series of related transactions) having a value in excess of
Fifty Thousand Dollars ($50,000); (ii) enter into any sales
contracts or commitments for Product, except as permitted in
Section 11.2; (iii) begin a liquidation of the Business; or
(iv) dispose of all or a substantial part of the Assets necessary to
achieve the purposes of the Business.
(j) The Manager shall have the right to
carry out its responsibilities hereunder through agents, Affiliates
or independent contractors.
(k) The Manager shall perform or cause
to be performed all assessment and other work, and shall pay all
Governmental Fees required by Law in order to maintain the
unpatented mining claims, mill sites and tunnel sites included
within the Properties. The Manager shall have the right to
perform the assessment work required hereunder pursuant to a
common plan of exploration, and continued actual occupancy of
such claims and sites shall not be required. The Manager shall
not be liable on account of any determination by any court or
governmental agency that the work performed by the Manager
does not constitute the required annual assessment work or
occupancy for the purposes of preserving or maintaining
ownership of the claims, provided that the work done is pursuant
to an adopted Program and Budget and is performed in accordance
with the Manager's standard of care under Section 8.3. The
Manager shall timely record with the appropriate county and file
with the appropriate United States agency any required affidavits,
notices of intent to hold and other documents in proper form
attesting to the payment of Governmental Fees, the performance
of assessment work or intent to hold the claims and sites, in each
case in sufficient detail to reflect compliance with the
requirements applicable to each claim and site. The Manager
shall not be liable on account of any determination by any court
or governmental agency that any such document submitted by the
Manager does not comply with applicable requirements, provided
that such document is prepared and recorded or filed in
accordance with the Manager's standard of care under Section
8.3.
(l) If authorized by the Management
Committee, the Manager may: (i) locate, amend or relocate any
unpatented mining claim or mill site or tunnel site, (ii) locate any
fractions resulting from such amendment or relocation, (iii) apply
for patents or mining leases or other forms of mineral tenure for
any such unpatented claims or sites, (iv) abandon any unpatented
mining claims for the purpose of locating mill sites or otherwise
acquiring from the United States rights to the ground covered
thereby, (v) abandon any unpatented mill sites for the purpose of
locating mining claims or otherwise acquiring from the United
States rights to the ground covered thereby, (vi) exchange with or
convey to the United States any of the Properties for the purpose
of acquiring rights to the ground covered thereby or other adjacent
ground, and (vii) convert any unpatented claims or mill sites into
one or more leases or other forms of mineral tenure pursuant to
any Law hereafter enacted.
(m) The Manager shall keep and
maintain all required accounting and financial records pursuant to
the procedures described in Exhibit B and in accordance with
customary cost accounting practices in the mining industry, and
shall ensure appropriate separation of accounts unless otherwise
agreed by the Participants.
(n) The Manager shall maintain Equity
Accounts for each Participant. Each Participant's Equity Account
shall be credited with the value of such Participant's contributions
under Subsections 5.1(a) and 5.1(b) and shall be credited with
amounts contributed by such Participant under Section 5.3. Each
Participant's Equity Account shall be charged with the cash and
the fair market value of property distributed to such Participant
(net of liabilities assumed by such Participant and liabilities to
which such distributed property is subject). Contributions and
distributions shall include all cash contributions or distributions
plus the agreed value (expressed in dollars) of all in-kind
contributions or distributions. Solely for purposes of determining
the Equity Account balances of the Participants, the Manager shall
reasonably estimate the fair market value of all Products
distributed to the Participants, and such estimated value shall be
used regardless of the actual amount received by each Participant
upon disposition of such Products.
(o) Subject to Subsection 5.1(c), the
Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the members of the
Management Committee: (i) monthly progress reports that
include statements of expenditures and comparisons of such
expenditures to the adopted Budget; (ii) periodic summaries of
data acquired; (iii) copies of reports concerning Operations; (iv) a
detailed final report within ninety (90) days after completion of
each Program and Budget, which shall include comparisons
between actual and budgeted expenditures and comparisons
between the intended objectives and actual results of Programs;
and (v) such other reports as any member of the Management
Committee may reasonably request. Subject to Article XVIII, at
all reasonable times the Manager shall provide the Management
Committee, or other representative of a Participant upon the
request of such Participant's representative member of the
Management Committee, access to, and the right to inspect and,
at such Participant's cost and expense, copies of the Existing Data
and all maps, drill logs and other drilling data, core, pulps,
reports, surveys, assays, analyses, production reports, operations,
technical, accounting and financial records, and other Business
Information, to the extent preserved or kept by the Manager,
subject to Article XVIII. In addition, the Manager shall allow the
non-managing Participant, at the latter's sole risk, cost and
expense, and subject to reasonable safety regulations, to inspect
the Assets and Operations at all reasonable times, so long as the
non-managing Participant does not unreasonably interfere with
Operations.
(p) The Manager shall prepare an
Environmental Compliance plan for all Operations consistent with
the requirements of any applicable Laws or contractual obligations
and shall include in each Program and Budget sufficient funding
to implement the Environmental Compliance plan and to satisfy
the financial assurance requirements of any applicable Law or
contractual obligation pertaining to Environmental Compliance.
To the extent practical, the Environmental Compliance plan shall
incorporate concurrent reclamation of Properties disturbed by
Operations.
(q) The Manager shall undertake to
perform Continuing Obligations when and as economic and
appropriate, whether before or after termination of the Business.
The Manager shall have the right to delegate performance of
Continuing Obligations to persons having demonstrated skill and
experience in relevant disciplines. As part of each Program and
Budget submittal, the Manager shall specify in such Program and
Budget the measures to be taken for performance of Continuing
Obligations and the cost of such measures. The Manager shall
keep the other Participant reasonably informed about the
Manager's efforts to discharge Continuing Obligations.
Authorized representatives of each Participant shall have the right
from time to time to enter the Properties to inspect work directed
toward satisfaction of Continuing Obligations and audit books,
records, and accounts related thereto.
(r) The funds that are to be deposited
into the Environmental Compliance Fund shall be maintained by
the Manager in a separate, interest bearing cash management
account, which may include, but is not limited to, money market
investments and money market funds, and/or in longer term
investments if approved by the Management Committee. Such
funds shall be used solely for Environmental Compliance and
Continuing Obligations, including the committing of such funds,
interests in property, insurance or bond policies, or other security
to satisfy Laws regarding financial assurance for the reclamation
or restoration of the Properties, and for other Environmental
Compliance requirements.
(s) If Participating Interests are adjusted
in accordance with this Agreement the Manager shall propose
from time to time one or more methods for fairly allocating costs
for Continuing Obligations.
(t) The Manager shall undertake all
other activities reasonably necessary to fulfill the foregoing, and
to implement the policies, objectives, procedures, methods and
actions determined by the Management Committee pursuant to
Section 7.1.
8.3 Standard of Care. The Manager shall
discharge its duties under Section 8.2 and conduct all Operations
in a good, workmanlike and efficient manner, in accordance with
sound mining and other applicable industry standards and
practices, and in accordance with Laws and with the terms and
provisions of leases, licenses, permits, contracts and other
agreements pertaining to the Assets. The Manager shall not be
liable to the other Participant for any act or omission resulting in
damage or loss except to the extent caused by or attributable to the
Manager's willful misconduct or gross negligence. The Manager
shall not be in default of any of its duties under Section 8.2 if its
inability or failure to perform results from the failure of the other
Participant to perform acts or to contribute amounts required of it
by this Agreement.
8.4 Resignation; Deemed Offer to Resign.
The Manager may resign upon not less than six (6) months' prior
notice to the other Participant, in which case the other Participant
may elect to become the new Manager by notice to the resigning
Participant within thirty (30) days after the notice of resignation.
If any of the following shall occur, the Manager shall be deemed
to have resigned upon the occurrence of the event described in
each of the following Subsections, with the successor Manager to
be appointed by the other Participant at a subsequently called
meeting of the Management Committee, at which meeting the
incumbent Manager shall not be entitled to vote. The other
Participant may appoint itself or a third party as the Manager.
(a) The aggregate Participating Interest
of the Manager and its Affiliates becomes less than the
Participating Interest of any other Participant;
(b) The Manager fails to perform a
material obligation imposed upon it under this Agreement and
such failure continues for a period of sixty (60) days after notice
from the other Participant demanding performance;
(c) The Manager fails to pay or contest
in good faith its bills and Business debts as such obligations
become due;
(d) A receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for a substantial
part of its assets is appointed and such appointment is neither
made ineffective nor discharged within sixty (60) days after the
making thereof, or such appointment is consented to, requested
by, or acquiesced in by the Manager;
(e) The Manager commences a
voluntary case under any applicable bankruptcy, insolvency or
similar law now or hereafter in effect; or consents to the entry of
an order for relief in an involuntary case under any such law or to
the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official
of any substantial part of its assets; or makes a general assignment
for the benefit of creditors; or takes corporate or other action in
furtherance of any of the foregoing; or
(f) Entry is made against the Manager
of a judgment, decree or order for relief affecting its ability to
serve as Manager, or a substantial part of its Participating Interest
or its other assets by a court of competent jurisdiction in an
involuntary case commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or
hereafter in effect.
Under Subsections (d), (e) or (f) above, the appointment of a
successor Manager shall be deemed to pre-date the event causing
a deemed resignation.
8.5 Payments To Manager. The Manager
shall be compensated for its services and reimbursed for its costs
hereunder in accordance with Exhibit B.
8.6 Transactions With Affiliates. If the
Manager engages Affiliates to provide services hereunder, it shall
do so on terms no less favorable than would be the case in
arm's-length transactions with unrelated persons.
8.7 Activities During Deadlock. If the
Management Committee for any reason fails to adopt an
Exploration, Pre-Feasibility Study, Feasibility Study or
Development Program and Budget, the Manager shall continue
Operations at levels sufficient to maintain the Properties. If the
Management Committee for any reason fails to adopt an initial
Mining Program and Budget or any Expansion or Modification
Programs and Budgets, the Manager shall continue Operations at
levels sufficient to maintain the then current Operations and
Properties. If the Management Committee for any reason fails to
adopt Mining Programs and Budgets subsequent to the initial
Mining Program and Budget, subject to the contrary direction of
the Management Committee and receipt of necessary funds, the
Manager shall continue Operations at levels comparable with the
last adopted Mining Program and Budget. All of the foregoing
shall be subject to the contrary direction of the Management
Committee and the receipt of necessary funds.
ARTICLE IX
PROGRAMS AND BUDGETS
9.1 Initial Program and Budget. The Initial
Program and Budget to which both Participants have agreed is
hereby adopted and is attached as Exhibit G.
9.2 Operations Pursuant to Programs and
Budgets. Except as otherwise provided in Subsection 5.1(c),
Section 9.13, and Article XIII, Operations shall be conducted,
expenses shall be incurred, and Assets shall be acquired only
pursuant to adopted Programs and Budgets. Every Program and
Budget adopted pursuant to this Agreement shall provide for
accrual of reasonably anticipated Environmental Compliance
expenses for all Operations contemplated under the Program and
Budget.
9.3 Presentation of Programs and Budgets.
Proposed Programs and Budgets shall be prepared by the Manager
for a period of one (1) year or any other period as approved by the
Management Committee, and shall be submitted to the
Management Committee for review and consideration. All
proposed Programs and Budgets may include Exploration,
Pre-Feasibility Studies, Feasibility Study, Development, Mining
and Expansion or Modification Operations components, or any
combination thereof, and shall be reviewed and adopted upon a
vote of the Management Committee in accordance with Sections
7.2 and 9.4. Each Program and Budget adopted by the
Management Committee, regardless of length, shall be reviewed
at least once a year at a meeting of the Management Committee.
During the period encompassed by any Program and Budget, and
at least three (3) months prior to its expiration, a proposed
Program and Budget for the succeeding period shall be prepared
by the Manager and submitted to the Management Committee for
review and consideration.
9.4 Review and Adoption of Proposed
Programs and Budgets. Within thirty (30) days after submission
of a proposed Program and Budget, each Participant shall submit
in writing to the Management Committee:
(a) Notice that the Participant approves
any or all of the components of the proposed Program and Budget;
(b) Modifications proposed by the
Participant to the components of the proposed Program and
Budget; or
(c) Notice that the Participant rejects
any or all of the components of the proposed Program and Budget.
If a Participant fails to give any of the foregoing responses within
the allotted time, the failure shall be deemed to be a vote by the
Participant for adoption of the Manager's proposed Program and
Budget. If a Participant makes a timely submission to the
Management Committee pursuant to Subsections 9.4(a), (b) or
(c), then the Manager, working with the other Participant, shall
seek for a period of time not to exceed twenty (20) days to
develop a complete Program and Budget acceptable to both
Participants. The Manager shall then call a Management
Committee meeting in accordance with Section 7.3 for purposes
of reviewing and voting upon the proposed Program and Budget.
9.5 Election to Participate.
(a) By notice to the Management
Committee within twenty (20) days after the final vote adopting a
Program and Budget, and notwithstanding its vote concerning
adoption of a Program and Budget, a Participant may elect to
participate in the approved Program and Budget: (i) in proportion
to its respective Participating Interest, (ii) in some lesser amount
than its respective Participating Interest, or (iii) not at all. In case
of an election under Subsection 9.5(a)(ii) or (iii), the Participating
Interest of such electing Participant shall be recalculated as
provided in Subsection 9.5(b) below, with dilution effective as of
the first day of the Program Period for the adopted Program and
Budget. If a Participant fails to so notify the Management
Committee of the extent to which it elects to participate, the
Participant shall be deemed to have elected to contribute to such
Program and Budget in proportion to its respective Participating
Interest as of the beginning of the Program Period.
(b) If a Participant elects to contribute
to an adopted Program and Budget some lesser amount than in
proportion to its respective Participating Interest, or not at all, and
the other Participant elects to fund all or any portion of the
deficiency, the Participating Interest of the Reduced Participant
shall be provisionally recalculated as follows:
(i) for an election made before
Payout, by dividing: (A) the sum of (1) the amount credited to the
Reduced Participant's Equity Account with respect to its Initial
Contribution under Section 5.1, (2) the total of all of the Reduced
Participant's contributions under Section 5.3, and (3) the amount,
if any, the Reduced Participant elects to contribute to the adopted
Program and Budget; by (B) the sum of (1), (2) and (3) above for
both Participants; and then multiplying the result by one hundred;
or
(ii) for an election made after
Payout, by reducing its Participating Interest in an amount equal
to two times the amount by which it would have been reduced
under Subsection 9.5(b)(i) if such election were made before
Payout.
The Participating Interest of the other Participant shall be
increased by the amount of the reduction in the Participating
Interest of the Reduced Participant, and if the other Participant
elects not to fund the entire deficiency, the Manager shall adjust
the Program and Budget to reflect the funds available.
(c) Whenever the Participating Interests
are recalculated pursuant to this Subsection 9.5, (i) the Equity
Accounts of both Participants shall be revised to bear the same
ratio to each other as their recalculated Participating Interests; and
(ii) the portion of Capital Account attributable to the reduced
Participating Interest of the Reduced Participant shall be
transferred to the other Participant.
9.6 Recalculation or Restoration of Reduced
Interest Based on Actual Expenditures.
(a) If a Participant makes an election
under Subsection 9.5(a)(ii) or (iii), then within sixty (60) days
after the conclusion of such Program and Budget, the Manager
shall report the total amount of money expended plus the total
obligations incurred by the Manager for such Budget.
(b) If the Manager expended or incurred
obligations that were more or less than the adopted Budget, the
Participating Interests shall be recalculated pursuant to
Subsection 9.5(b) by substituting each Participant's actual
contribution to the adopted Budget for that Participant's estimated
contribution at the time of the Reduced Participant's election
under Subsection 9.5(a).
(c) If the Manager expended or incurred
obligations of less than ninety percent (90%) of the adopted
Budget, within thirty (30) days of receiving the Manager's report
on expenditures, the Reduced Participant may notify the other
Participant of its election to reimburse the other Participant for the
difference between any amount contributed by the Reduced
Participant to such adopted Program and Budget and the Reduced
Participant's proportionate share (at the Reduced Participant's
former Participating Interest) of the actual amount expended or
incurred for the Program, plus interest on the difference accruing
at the rate described in Section 10.3 plus two (2) percentage
points. The Reduced Participant shall deliver the appropriate
amount (including interest) to the other Participant with such
notice. Failure of the Reduced Participant to so notify and tender
such amount shall result in dilution occurring in accordance with
this Article IX and shall bar the Reduced Participant from its
rights under this Subsection 9.6(c) concerning the relevant
adopted Program and Budget.
(d) All recalculations under this Section
IX shall be effective as of the first day of the Program Period for
the Program and Budget. The Manager, on behalf of both
Participants, shall make such reimbursements, reallocations of
Products, contributions and other adjustments as are necessary so
that, to the extent possible, each Participant will be placed in the
position it would have been in had its Participating Interests as
recalculated under this Section been in effect throughout the
Program Period for such Program and Budget. If the Participants
are required to make contributions, reimbursements or other
adjustments pursuant to this Section, the Manager shall have the
right to purchase or sell a Participant's share of Products in the
same manner as under Section 11.2 and to apply the proceeds of
such sale to satisfy that Participant's obligation to make such
contributions, reimbursements or adjustments.
(e) Whenever the Participating Interests
are recalculated pursuant to this Section, (i) the Participants'
Equity Accounts shall be revised to bear the same ratio to each
other as their Recalculated Participating Interests; and (ii) the
portion of Capital Account attributable to the reduced
Participating Interest of the Reduced Participant shall be
transferred to the other Participant.
9.7 Pre-Feasibility Study Program and
Budgets.
(a) At such time as either Participant is
of the good faith and reasonable opinion that economically viable
Mining Operations may be possible on the Properties, the
Participant may propose to the Management Committee that a Pre-
Feasibility Study Program and Budget, or a Program and Budget
that includes Pre-Feasibility Studies, be prepared. Such proposal
shall be made in writing to the other Participant, shall reference
the data upon which the proposing Participant bases its opinion,
and shall call a meeting of the Management Committee pursuant
to Section 7.3. If such proposal is adopted by the Management
Committee, the Manager shall prepare or have prepared a Pre-
Feasibility Study Program and Budget as approved by the
Management Committee and shall submit the same to the
Management Committee within One hundred twenty (120) days
following adoption of the proposal.
(b) Pre-Feasibility Studies may be
conducted by the Manager, Feasibility Contractors, or both, or
may be conducted by the Manager and audited by Feasibility
Contractors, as the Management Committee determines. A Pre-
Feasibility Study Program shall include the work necessary to
prepare and complete the Pre-Feasibility Study approved in the
proposal adopted by the Management Committee, which may
include some or all of the following:
(i) analyses of various
alternatives for mining, processing and beneficiation of Products;
(ii) analyses of alternative
mining, milling, and production rates;
(iii) analyses of alternative sites
for placement of facilities (i.e., water supply facilities, transport
facilities, reagent storage, offices, shops, warehouses, stock
yards, explosives storage, handling facilities, housing, public
facilities);
(iv) analyses of alternatives for
waste treatment and handling (including a description of each
alternative of the method of tailings disposal and the location of
the proposed disposal site);
(v) estimates of recoverable
proven and probable reserves of Products and of related
substances, in terms of technical and economic constraints
(extraction and treatment of Products), including the effect of
grade, losses, and impurities, and the estimated mineral
composition and content thereof, and review of mining rates
commensurate with such reserves;
(vi) analyses of environmental
impacts of the various alternatives, including an analysis of the
permitting, environmental liability and other Environmental Law
implications of each alternative, and costs of Environmental
Compliance for each alternative;
(vii) conduct of appropriate
metallurgical tests to determine the efficiency of alternative
extraction, recovery and processing techniques, including an
estimate of water, power, and reagent consumption requirements;
(viii) conduct of hydrology and
other studies related to any required dewatering; and
(ix) conduct of other studies and
analyses approved by the Management Committee.
(c) The Manager shall have the
discretion to base its and any Feasibility Contractors' Pre-
Feasibility Study on the cumulative results of each discipline
studied, so that if a particular portion of the work would result in
the conclusion that further work based on these results would be
unwarranted for a particular alternative, the Manager shall have
no obligation to continue expenditures on other Pre-Feasibility
Studies related solely to such alternative.
9.8 Completion of Pre-Feasibility Studies and
Selection of Approved Alternatives. As soon as reasonably
practical following completion of all Pre-Feasibility Studies
required to evaluate fully the alternatives studied pursuant to Pre-
Feasibility Programs, the Manager shall prepare a report
summarizing all Pre-Feasibility Studies and shall submit the same
to the Management Committee. Such report shall incorporate the
following:
(a) the results of the analyses of the
alternatives and other matters evaluated in the conduct of the Pre-
Feasibility Programs;
(b) reasonable estimates of capital costs
for the Development and start-up of the mine, mill and other
processing and ancillary facilities required by the Development
and Mining alternatives evaluated (based on flowsheets, piping
and instrumentation diagrams, and other major engineering
diagrams), which cost estimates shall include reasonable estimates
of:
(i) capitalized pre-stripping
expenditures, if an open pit or surface mine is proposed;
(ii) expenditures required to
purchase, construct and install all machinery, equipment and other
facilities and infrastructure (including contingencies) required to
bring a mine into commercial production, including an analysis of
costs of equipment or supply contracts in lieu of Development
costs for each Development and Mining alternative evaluated;
(iii) expenditures required to
perform all other related work required to commence commercial
production of Products and, if applicable, process Products
(including reasonable estimates of working capital requirements);
and
(iv) all other direct and indirect
costs and general and administrative expenses that may be
required for a proper evaluation of the Development and Mining
alternatives and annual production levels evaluated. The capital
cost estimates shall include a schedule of the timing of the
estimated capital requirements for each alternative;
(c) a reasonable estimate of the annual
expenditures required for the first year of Operations after
completion of the capital program described in Subsection 9.8(b) for each
Development alternative evaluated, and for subsequent
years of Operations, including estimates of annual production,
processing, administrative, operating and maintenance
expenditures, taxes (other than income taxes), working capital
requirements, royalty and purchase obligations, equipment leasing
or supply contract expenditures, work commitments,
Environmental Compliance costs, post-Operations Environmental
Compliance and Continuing Obligations funding requirements and
all other anticipated costs of such Operations. This analysis shall
also include an estimate of the number of employees required to
conduct such Operations for each alternative;
(d) a review of the nature, extent and
rated capacity of the mine, machinery, equipment and other
facilities preliminarily estimated to be required for the purpose of
producing and marketing Products under each Development and
Mining alternative analyzed;
(e) an analysis (and sensitivity analyses
reasonably requested by either Participant), based on various
target rates of return and price assumptions requested by either
Participant, of whether it is technically, environmentally, and
economically feasible to place a prospective ore body or deposit
within the Properties into commercial production for each of the
Development and Mining alternatives analyzed (including a
discounted cash flow rate of return investment analysis for each
alternative and net present value estimate using various discount
rates requested by either Participant); and
(f) such other information as the
Management Committee deems appropriate.
Within ninety (90) days after delivery of the Pre-Feasibility Study
summary to the Participants, a Management Committee meeting
shall be convened for the purposes of reviewing the Pre-
Feasibility Study summary and selecting one or more Approved
Alternatives, if any.
9.9 Programs and Budgets for Feasibility
Study. Within thirty (30) days following the selection of an
Approved Alternative, the Manager shall submit to the
Management Committee a Program and a Budget, which shall
include necessary Operations, for the preparation of a Feasibility
Study. A Feasibility Study may be prepared by the Manager,
Feasibility Contractors, or both, or may be prepared by the
Manager and audited by Feasibility Contractors, as the
Management Committee determines.
9.10 Development Programs and Budgets;
Project Financing.
(a) Unless otherwise determined by the
Management Committee, the Manager shall not submit to the
Management Committee a Program and Budget including
Development of the mine described in a completed Feasibility
Study until ninety (90) days following the receipt by Manager of
the Feasibility Study. The Program and Budget, which includes
Development of the mine described in the completed Feasibility
Study, shall be based on the estimated cost of Development
described in the Feasibility Study for the Approved Alternative,
unless otherwise directed by the Management Committee.
(b) Promptly following adoption of the
Program and Budget, which includes Development as described
in a completed Feasibility Study, but in no event more than ninety
(90) days thereafter, the Manager shall submit to the Management
Committee a report on material bids received for Development
work ("Bid Report"). If bids described in the Bid Report result
in the aggregate cost of Development work exceeding one hundred
ten percent (110%) of the Development cost estimates that formed
the basis of the Development component of the adopted Program
and Budget, the Program and Budget, which includes relevant
Development, shall be deemed to have been resubmitted to the
Management Committee based on the aggregate costs as described
in the Bid Report on the date of receipt of the Bid Report and shall
be reviewed and adopted in accordance with Sections 7.2 and 9.4.
(c) If the Management Committee
approves the Development of the mine described in a Feasibility
Study and also decides to seek Project Financing for such mine,
each Participant shall, at its own cost, cooperate in seeking to
obtain Project Financing for such mine; provided, however, that
all fees, charges and costs (including attorneys and technical
consultants fees) paid to the Project Financing lenders shall be
borne by the Participants in proportion to their Participating
Interests, unless such fees are capitalized as a part of the Project
Financing.
9.11 Expansion or Modification Programs and
Budgets. Any Program and Budget proposed by the Manager
involving Expansion or Modification shall be based on a
Feasibility Study prepared by the Manager, Feasibility
Contractors, or both, or prepared by the Manager and audited by
Feasibility Contractors, as the Management Committee
determines. The Program and Budget, which include Expansion
or Modification, shall be submitted for review and approval by the
Management Committee within sixty (60) days following receipt
by the Manager of such Feasibility Study.
9.12 Budget Overruns; Program Changes. For
Programs and Budgets adopted after completion of ROYAL's
Initial Contribution, the Manager shall immediately notify the
Management Committee of any material departure from an
adopted Program and Budget. If the Manager exceeds an adopted
Budget by more than ten percent (10%) in the aggregate, then the
excess over ten percent (10%), unless directly caused by an
emergency or unexpected expenditure made pursuant to Section
9.13 or unless otherwise authorized or ratified by the Management
Committee, shall be for the sole account of the Manager and such
excess shall not be included in the calculations of the Participating
Interests nor deemed a contribution under this Agreement. Budget
overruns of ten percent (10%) or less in the aggregate shall be
borne by the Participants in proportion to their respective
Participating Interests.
9.13 Emergency or Unexpected Expenditures.
In case of emergency, the Manager may take any reasonable
action it deems necessary to protect life or property, to protect the
Assets or to comply with Laws. The Manager may make
reasonable expenditures on behalf of the Participants for
unexpected events that are beyond its reasonable control and that
do not result from a breach by it of its standard of care. The
Manager shall promptly notify the Participants of the emergency
or unexpected expenditure, and the Manager shall be reimbursed
for all resulting costs by the Participants in proportion to their
respective Participating Interests.
ARTICLE X
ACCOUNTS AND SETTLEMENTS
10.1 Monthly Statements. After completion of
ROYAL's Initial Contribution, the Manager shall promptly
submit to the Management Committee monthly statements of
account reflecting in reasonable detail the charges and credits to
the Business Account during the preceding month.
10.2 Cash Calls. On the basis of each adopted
Program and Budget, the Manager shall submit prior to the last
day of each month a billing for estimated cash requirements for
the next month. Within ten (10) days after receipt of each billing,
or a billing made pursuant to Section 9.13 or 12.4, each
Participant shall advance its proportionate share of such cash
requirements. The Manager shall record all funds received in the
Business Account. The Manager shall at all times maintain a cash
balance approximately equal to the rate of disbursement for up to
sixty (60) days. All funds in excess of immediate cash
requirements shall be invested by the Manager for the benefit of
the Business in cash management accounts and investments
selected at the discretion of the Manager, which accounts may
include, but are not limited to, money market investments and
money market funds.
10.3 Failure to Meet Cash Calls. A Participant
that fails to meet cash calls in the amount and at the times
specified in Section 10.2 shall be in default, and the amounts of
the defaulted cash call shall bear interest from the date due at an
annual rate equal to two (2) percentage points over the Prime
Rate, but in no event shall the rate of interest exceed the
maximum permitted by Law. Such interest shall accrue to the
benefit of and be payable to the non-defaulting Participant, but
shall not be deemed as amounts contributed by the non-defaulting
Participant in the event dilution occurs in accordance with Article
VI. In addition to any other rights and remedies available to it by
Law, the non-defaulting Participant shall have those other rights,
remedies, and elections specified in Sections 10.4 and 10.5.
10.4 Cover Payment. If a Participant defaults
in making a contribution or cash call required by an adopted
Program and Budget, the non-defaulting Participant may, but shall
not be obligated to, advance some portion or all of the amount in
default on behalf of the defaulting Participant (a "Cover
Payment"). Each and every Cover Payment shall constitute a
demand loan bearing interest from the date of the advance at the
rate provided in Section 10.3. If more than one Cover Payment
is made, the Cover Payments shall be aggregated and the rights
and remedies described herein pertaining to an individual Cover
Payment shall apply to the aggregated Cover Payments. The
failure to repay such loan upon demand shall be a default.
10.5 Remedies. The Participants acknowledge
that if either Participant defaults in making a contribution required
by Article V or a cash call, or in repaying a loan, as required
under Sections 10.2, 10.3 or 10.4, whether or not a Cover
Payment is made, it will be difficult to measure the damages
resulting from such default (it being hereby understood and agreed
that the Participants have attempted to determine such damages in
advance and determined that the calculation of such damages
cannot be ascertained with reasonable certainty). Both
Participants acknowledge and recognize that the damage to the
non-defaulting Participant could be significant. In the event of
such default, as reasonable liquidated damages, the non-defaulting
Participant may, with respect to any such default not cured within
thirty (30) days after notice to the defaulting Participant of such
default, elect any of the following remedies by giving notice to the
defaulting Participant. Such election may be made with respect to
each failure to meet a cash call relating to a Program and Budget,
regardless of the frequency of such cash calls, provided such cash
calls are made in accordance with Section 10.2.
(a) The defaulting Participant grants to
the non-defaulting Participant a power of sale as to all or any
portion of its interest in any Assets or in its Participating Interest
that is subject to the lien and security interest granted in Section
6.6 (whether or not such lien and security interest has been
perfected), upon a default under Sections 10.3 or 10.4. Such
power shall be exercised in the manner provided by applicable
Law or otherwise in a commercially reasonable manner and upon
reasonable notice. If the non-defaulting Participant elects to
enforce the lien or security interest pursuant to the terms of this
Subsection, the defaulting Participant shall be deemed to have
waived any available right of redemption, any required valuation
or appraisal of the secured property prior to sale, any available
right to stay execution or to require a marshaling of assets, and
any required bond in the event a receiver is appointed, and the
defaulting Participant shall be liable for any deficiency.
(b) The non-defaulting Participant may
elect to have the defaulting Participant's Participating Interest
diluted or eliminated as follows:
(i) For a default occurring
before Payout relating to a Program and Budget covering in whole
or in part Exploration, Pre-Feasibility Study or Feasibility Study
Operations, the Reduced Participant's Participating Interest shall
be recalculated by dividing: (X) the sum of (1) the value of the
Reduced Participant's Initial Contribution under Section 5.1,
(2) the total of all of the Reduced Participant's contributions under
Section 5.3, and (3) the amount, if any, the Reduced Participant
contributed to the adopted Program and Budget with respect to
which the default occurred; by (Y) the sum of (1), (2) and (3)
above for both Participants; and then multiplying the result by one
hundred. For such a default occurring after Payout, the Reduced
Participant's Participating Interest shall be reduced in an amount
equal to three (3) times the amount by which it would have been
reduced if such default had occurred before Payout. For such a
default, whether occurring before or after Payout, the
Recalculated Participating Interest shall then be further reduced:
(A) for a default relating
exclusively to an Exploration Program and Budget, by multiplying
the Recalculated Participating Interest by the following
percentage: 95%; or
(B) for a default relating
to a Program and Budget covering in whole or in part Pre-
Feasibility Study and/or Feasibility Study Operations, by
multiplying the Recalculated Participating Interest by the
following percentage: 90%.
The Participating Interest of the other Participant shall be
increased by the amount of the reduction in the Participating
Interest of the Reduced Participant, including the further reduction
under Subsections 10.5(b)(i)(A) or (B).
(ii) For a default relating to a
Program and Budget covering in whole or in part Development or
Mining, at the non-defaulting Participant's election, the defaulting
Participant shall be deemed to have withdrawn and to have
automatically relinquished its interest in the Assets to the
non-defaulting Participant; provided, however, the defaulting
Participant shall have the right to receive only from two percent
(2%) of Net Returns, if any, and not from any other source, an
amount equal to one hundred percent (100%) of the defaulting
Participant's Equity Account balance at the time of such default;
provided, further, in the event Products become subject to a
government royalty that is equal to or greater than four percent
(4%) of Net Returns; then, the Net Returns payable under this
Subsection 10.5(b)(ii) shall be reduced from two percent (2%) to
one percent (1%). Upon receipt of such amount the defaulting
Participant shall thereafter have no further right, title or interest
in the Assets, but shall remain liable to the extent provided in
Section 6.4.
(iii) Dilution under this
Subsection 10.5(b) shall be effective as of the date of the original
default, and Section 9.6 shall not apply. The amount of any
Cover Payment under Section 10.4 and interest thereon, or any
interest accrued in accordance with Section 10.3, shall be deemed
to be amounts contributed by the non-defaulting Participant, and
not as amounts contributed by the defaulting Participant.
(iv) Whenever the Participating
Interests are recalculated pursuant to this Subsection 10.5(b),
(A) the Equity Accounts of both Participants shall be adjusted to
bear the same ratio to each other as their recalculated Participating
Interests; and (B) the portion of Capital Account attributable to the
reduced Participating Interest of the Reduced Participant shall be
transferred to the other Participant.
(c) If a Participant has defaulted in
meeting a cash call or repaying a loan, and if the non-defaulting
Participant has made a Cover Payment, then, in addition to a
reduction in the defaulting Participant's Participating Interest
effected pursuant to Subsection 10.5(b), the non-defaulting
Participant shall have the right, if the indebtedness arising from a
default or Cover Payment is not discharged within forty-five (45)
days of the default and upon not less than thirty (30) days advance
notice to the defaulting Participant, to elect to purchase all the
right, title, and interest, whenever acquired or arising, of the
defaulting Participant in the Assets, including but not limited to its
Participating Interest or interest in Net Proceeds, together with all
proceeds from and accessions of the foregoing (collectively the
"Defaulting Participant's Entire Interest") at a purchase price
equal to thirty percent (30%) of the fair market value thereof as
determined by a qualified independent appraiser appointed by the
non-defaulting Participant. If the defaulting Participant conveys
notice of objection to the person so appointed within ten (10) days
after receiving notice thereof, then an independent and qualified
appraiser shall be appointed by the joint action of the appraiser
appointed by the non-defaulting Participant and a qualified
independent appraiser appointed by the defaulting Participant;
provided, however, that if the defaulting Participant fails to
designate a qualified independent appraiser for such purpose
within ten (10) days after giving notice of such objection, then the
person originally designated by the non-defaulting Participant
shall serve as the appraiser; provided further, that if the appraisers
appointed by each of the Participants fail to appoint a third
qualified independent appraiser within five (5) days after the
appointment of the last of them, then an appraiser shall be
appointed by a judge of a court of competent jurisdiction in the
state in which the Assets are situated upon the application of either
Participant. There shall be withheld from the purchase price
payable, upon transfer of the Defaulting Participant's Entire
Interest, the amount of any Cover Payment under Section 10.4 and unpaid
interest thereon to the date of such transfer, or any
unpaid interest accrued in accordance with Section 10.3 to the
date of such transfer. Upon payment of such purchase price, the
defaulting Participant shall be deemed to have relinquished all of
the Defaulting Participant's Entire Interest to the non-defaulting
Participant, but shall remain liable to the extent provided in
Section 6.4.
10.6 Audits.
(a) After completion of ROYAL's
Initial Contribution, within one hundred twenty (120) days after
the end of each calendar year, at the request of a Participant, an
audit shall be completed by certified public accountants selected
by, and independent of, the Manager. The audit shall be
conducted in accordance with generally accepted auditing
standards and shall cover all books and records maintained by the
Manager pursuant to this Agreement, all Assets and
Encumbrances, and all transactions and Operations conducted
during such calendar year, including production and inventory
records and all costs for which the Manager sought reimbursement
under this Agreement, together with all other matters customarily
included in such audits. All written exceptions to and claims upon
the Manager for discrepancies disclosed by such audit shall be
made not more than three (3) months after receipt of the audit
report, unless either Participant elects to conduct an independent
audit pursuant to Subsection 10.6(b) which is ongoing at the end
of such three (3) month period, in which case such exceptions and
claims may be made within the period provided in Subsection
10.6(b). Failure to make any such exception or claim within such
period shall mean the audit is deemed to be correct and binding
upon the Participants. The cost of all audits under this Subsection
shall be charged to the Business Account.
(b) Notwithstanding the annual audit
conducted by certified public accountants selected by the
Manager, each Participant shall have the right to have an
independent audit of all Business books, records and accounts,
including all charges to the Business Account. This audit shall
review all issues raised by the requesting Participant, with all
costs borne by the requesting Participant. The requesting
Participant shall give the other Participant thirty (30) days prior
notice of such audit. Any audit conducted on behalf of either
Participant shall be made during the Manager's normal business
hours and shall not interfere with Operations. Neither Participant
shall have the right to audit records and accounts of the Business
relating to transactions or Operations more than twenty-four (24)
months after the calendar year during which such transactions, or
transactions related to such Operations, were charged to the
Business Account. All written exceptions to and claims upon the
Manager for discrepancies disclosed by such audit shall be made
not more than three (3) months after completion and delivery of
such audit, or they shall be deemed waived.
ARTICLE XI
DISPOSITION OF PRODUCTION
11.1 Taking In Kind. Each Participant shall
take in kind or separately dispose of its share of all Products in
proportion to its Participating Interest. Any extra expenditure
incurred in the taking in kind or separate disposition by either
Participant of its proportionate share of Products shall be borne by
such Participant. Nothing in this Agreement shall be construed as
providing, directly or indirectly, for any joint or cooperative
marketing or selling of Products or permitting the processing of
Products owned by any third party at any processing facilities
constructed by the Participants pursuant to this Agreement. The
Manager shall give notice in advance of the anticipated delivery
date upon which Products will be available.
11.2 Failure of Participant to Take In Kind.
If a Participant fails to take its proportionate share of Products in
kind, the Manager shall have the right, but not the obligation, for
a period of time consistent with the minimum needs of the
industry, but not to exceed one (1) year from the notice date
described in Section 11.1, to purchase the Participant's share for
its own account or to sell such share as agent for the Participant
at not less than the prevailing market price in the area. Subject to
the terms of any such contracts of sale then outstanding, during
any period that the Manager is purchasing or selling a
Participant's share of production, the Participant may elect by
notice to the Manager to take in kind. The Manager shall be
entitled to deduct from proceeds of any sale by it for the account
of a Participant reasonable expenses incurred in such a sale.
11.3 Hedging. Neither Participant shall have
any obligation to account to the other Participant for, nor have any
interest or right of participation in any profits or proceeds nor
have any obligation to share in any losses from, futures contracts,
forward sales, trading in puts, calls, options or any similar
hedging, price protection or marketing mechanism employed by
a Participant with respect to its proportionate share of any
Products produced or to be produced from the Properties.
ARTICLE XII
WITHDRAWAL AND TERMINATION
12.1 Termination by Expiration or Agreement.
This Agreement shall terminate as expressly provided herein,
unless earlier terminated by written agreement.
12.2 Termination by Deadlock. If the
Management Committee fails to adopt a Program and Budget for
six (6) months after the expiration of the latest adopted Program
and Budget, either Participant may elect to terminate the Business
by giving thirty (30) days notice of termination to the other
Participant.
12.3 Withdrawal. A Participant may elect to
withdraw from the Business by (i) in the case of ROYAL, failing
to complete its Initial Contributions as required by
Subsection 5.1(b), or (ii) giving notice to the other Participant of
the effective date of withdrawal, which shall be the later of the
end of the then current Program Period or thirty (30) days after
the date of the notice. Upon such withdrawal, the Business shall
terminate, and the withdrawing Participant shall be deemed to
have transferred to the remaining Participant all of its
Participating Interest, including all of its interest in the Assets,
without cost and free and clear of all Encumbrances arising by,
through or under such withdrawing Participant, except those
described in Paragraph 1.1 of Exhibit A and those to which both
Participants have agreed. The withdrawing Participant shall
execute and deliver all instruments as may be necessary in the
reasonable judgment of the other Participant to effect the transfer
of its interests in the Assets to the other Participant. If within a
sixty (60) day period both Participants elect to withdraw, then the
Business shall instead be deemed to have been terminated by the
consent of the Participants pursuant to Section 12.1.
12.4 Continuing Obligations and
Environmental Liabilities. On termination of the Business under
Sections 12.1, 12.2 or 12.3, each Participant shall remain liable
for its respective share of liabilities to third persons (including
payments or other obligations with respect to the Properties in
which BATTLE MOUNTAIN holds an interest under leases or
contracts) (whether such arises before or after such withdrawal),
including Environmental Liabilities and Continuing Obligations.
The withdrawing Participant's share of such liabilities shall be
equal to its Participating Interest at the time such liability was
incurred, after first taking into account any reduction,
readjustment, and restoration of Participating Interests under
Sections 6.3, 9.5, 9.6 and 10.5 (or, as to liabilities arising prior
to the Effective Date, its initial Participating Interest).
12.5 Disposition of Assets on Termination.
Promptly after termination under Sections 12.1 or 12.2, the
Manager shall take all action necessary to wind up the activities
of the Business, in accordance with Exhibit C. All costs and
expenses incurred in connection with the termination of the
Business shall be expenses chargeable to the Business Account.
12.6 Non-Compete Covenants. Neither a
Participant that withdraws pursuant to Section 12.3, or is deemed
to have withdrawn pursuant to Sections 5.2, 6.3 or 10.5, nor any
Affiliate of such a Participant, shall directly or indirectly acquire
any interest or right to explore or mine, or both, on any property
any part of which is within the Area of Interest for twelve (12)
months after the effective date of withdrawal. If a withdrawing
Participant, or the Affiliate of a withdrawing Participant, breaches
this Section 12.6, such Participant shall be obligated to offer to
convey to the non-withdrawing Participant, without cost, any such
property or interest so acquired (or ensure its Affiliate offers to
convey the property or interest to the non-withdrawing
Participant, if the acquiring party is the withdrawing Participant's
Affiliate). Such offer shall be made in writing and can be
accepted by the non-withdrawing Participant at any time within
ten (10) days after the offer is received by such non-withdrawing
Participant. Failure of a Participant's Affiliate to comply with this
Section 12.6 shall be a breach by such Participant of this
Agreement.
12.7 Right to Data After Termination. After
termination of the Business pursuant to Sections 12.1 or 12.2,
each Participant shall be entitled to make copies of all applicable
information acquired hereunder before the effective date of
termination not previously furnished to it, but a terminating or
withdrawing Participant shall not be entitled to any such copies
after any other termination or withdrawal.
12.8 Continuing Authority. On termination of
the Business under Sections 12.1, 12.2 or 12.3 or the deemed
withdrawal of either Participant pursuant to Sections 5.2 or 10.5,
the Participant which was the Manager prior to such termination
or withdrawal (or the other Participant in the event of a
withdrawal by the Manager) shall have the power and authority to
do all things on behalf of both Participants which are reasonably
necessary or convenient to: (a) wind up Operations and
(b) complete any transaction and satisfy any obligation, unfinished
or unsatisfied, at the time of such termination or withdrawal, if
the transaction or obligation arises out of Operations prior to such
termination or withdrawal. The Manager shall have the power
and authority to grant or receive extensions of time or change the
method of payment of an already existing liability or obligation,
prosecute and defend actions on behalf of both Participants and the
Business, encumber Assets, and take any other reasonable action
in any matter with respect to which the former Participants
continue to have, or appear or are alleged to have, a common
interest or a common liability.
ARTICLE XIII
ACQUISITIONS WITHIN AREA OF INTEREST
13.1 General. Any interest or right to acquire
any interest in real property or water rights related thereto within
the Area of Interest either acquired or proposed to be acquired
during the term of this Agreement by or on behalf of either
Participant ("Acquiring Participant") or any Affiliate of such
Participant shall be subject to the terms and provisions of this
Agreement. BATTLE MOUNTAIN and ROYAL and their
respective Affiliates for their separate account shall be free to
acquire lands and interests in lands outside the Area of Interest
and to locate mining claims outside the Area of Interest. Failure
of any Affiliate of either Participant to comply with this Article
XIII shall be a breach by such Participant of this Agreement.
13.2 Notice to Non-Acquiring Participant.
Within thirty (30) days after the acquisition or proposed
acquisition, as the case may be, of any interest or the right to
acquire any interest in real property or water rights wholly or
partially within the Area of Interest (except real property acquired
by the Manager pursuant to a Program), the Acquiring Participant
shall notify the other Participant of such acquisition by it or its
Affiliate; provided further that if the acquisition of any interest or
right to acquire any interest pertains to real property or water
rights partially within the Area of Interest, then all such real
property (i.e., the part within the Area of Interest and the part
outside the Area of Interest) shall be subject to this Article XIII.
The Acquiring Participant's notice shall describe in detail the
acquisition, the acquiring party if that party is an Affiliate, the
lands and minerals covered thereby, any water rights related
thereto, the cost thereof, and the reasons why the Acquiring
Participant believes that the acquisition (or proposed acquisition)
of the interest is in the best interests of the Participants under this
Agreement. In addition to such notice, the Acquiring Participant
shall make any and all information concerning the relevant interest
available for inspection by the other Participant.
13.3 Option Exercised. Within thirty (30) days
after receiving the Acquiring Participant's notice, the other
Participant may notify the Acquiring Participant of its election to
accept a proportionate interest in the acquired interest equal to its
Participating Interest. Promptly upon such notice, the Acquiring
Participant shall convey or cause its Affiliate to convey to the
Participants, in proportion to their respective Participating
Interests, by special warranty deed with title held as described in
Section 3.4, all of the Acquiring Participant's (or its Affiliate's)
interest in such acquired interest, free and clear of all
Encumbrances arising by, through or under the Acquiring
Participant (or its Affiliate) other than those to which both
Participants have agreed. The acquired interests shall become a
part of the Properties for all purposes of this Agreement
immediately upon such notice. The other Participant shall
promptly pay to the Acquiring Participant its proportionate share
of the latter's actual out-of-pocket acquisition costs.
13.4 Option Not Exercised. If the other
Participant does not give such notice within the thirty (30) day
period set forth in Section 13.3, it shall have no interest in the
acquired interests, and the acquired interests shall not be a part of
the Assets or continue to be subject to this Agreement.
ARTICLE XIV
ABANDONMENT AND SURRENDER OF PROPERTIES
Either Participant may request the Management
Committee to authorize the Manager to surrender or abandon part
or all of the Properties. If the Management Committee does not
authorize such surrender or abandonment, or authorizes any such
surrender or abandonment over the objection of either Participant,
the Participant that desires to surrender or abandon shall assign to
the objecting Participant, by special warranty deed and without
cost to the objecting Participant, all of the abandoning
Participant's interest in the Properties sought to be abandoned or
surrendered, free and clear of all Encumbrances created by,
through or under the abandoning Participant other than those to
which both Participants have agreed. Upon the assignment, such
properties shall cease to be part of the Properties. The Participant
that desires to abandon or surrender shall remain liable for its
share (determined by its Participating Interest as of the date of
such abandonment, after first taking into account any reduction,
readjustment, and restoration of Participating Interests under
Sections 6.3, 9.5, 9.6 and 10.5) of any liability with respect to
such Properties, including, without limitation, Continuing
Obligations, Environmental Liabilities and Environmental
Compliance, whether accruing before or after such abandonment,
arising out of activities prior to the Effective Date and out of
Operations conducted prior to the date of such abandonment,
regardless of when any funds may be expended to satisfy such
liability.
ARTICLE XV
SUPPLEMENTAL BUSINESS AGREEMENT
At any time during the term of this Agreement, the
Management Committee may determine by unanimous vote of
both Participants after ROYAL's Initial Contribution obligations
have been fully satisfied that it is appropriate to segregate the
Area of Interest into areas subject to separate Programs and
Budgets for purposes of conducting further Exploration, Pre-
Feasibility or Feasibility Studies, Development, or Mining. At
such time, the Management Committee shall designate which
portion of the Properties will comprise an area of interest under
a separate business arrangement ("Supplemental Business"), and
the Participants shall enter into a new agreement ("Supplemental
Business Agreement") for the purpose of further exploring,
analyzing, developing, and mining such portion of the Properties.
The Supplemental Business Agreement shall be in substantially the
same form as this Agreement, with rights and interests of the
Participants in the Supplemental Business identical to the rights
and interests of the Participants in this Business at the time of the
designation, unless otherwise agreed by the Participants, and with
the Participants agreeing to new Capital and Equity Accounts
which reflect the capital expended on the segregated portion of the
Properties and other terms necessary for the Supplemental
Business Agreement to comply with the nature and purpose of the
designation. Following execution of the Supplemental Business
Agreement, this Agreement shall terminate insofar as it affects the
Properties covered by the Supplemental Business Agreement.
ARTICLE XVI
TRANSFER OF INTEREST; PREEMPTIVE RIGHT
16.1 General. A Participant shall have the right
to Transfer to a third party an interest in its Participating Interest,
including an interest in this Agreement or the Assets, solely as
provided in this Article XVI.
16.2 Limitations on Free Transferability. Any
Transfer by either Participant under Section 16.1 shall be subject
to the following limitations:
(a) Neither Participant shall Transfer
any interest in this Agreement or the Assets (including, but not
limited to, any royalty, profits, or other interest in the Products)
except in conjunction with the Transfer of part or all of its
Participating Interest;
(b) No transferee of all or any part of a
Participant's Participating Interest shall have the rights of a
Participant unless and until the transferring Participant has
provided to the other Participant notice of the Transfer, and,
except as provided in Subsections 16.2(g) and 16.2(h), the
transferee, as of the effective date of the Transfer, has committed
in writing to assume and be bound by this Agreement to the same
extent as the transferring Participant;
(c) Neither Participant, without the
consent of the other Participant, shall make a Transfer that shall
violate any Law, or result in the cancellation of any permits,
licenses, or other similar authorization;
(d) Without written consent of the non-
transferring Participant, no transfer permitted by this Article XVI shall
relieve the transferring Participant of its share of any
liability, whether accruing before or after such Transfer, which
arises out of Operations conducted prior to such Transfer or exists
on the Effective Date;
(e) Neither Participant, without the
consent of the other Participant, shall make a Transfer that shall
cause termination of the tax partnership established by Section
4.2. If such termination is caused, the transferring Participant
shall indemnify the other Participant for, from and against any and
all loss, cost, expense, damage, liability or claim therefor arising
from the Transfer, including without limitation any increase in
taxes, interest and penalties or decrease in credits caused by such
termination and any tax on indemnification proceeds received by
the Indemnified Participant.
(f) In the event of a Transfer of less
than all of a Participating Interest, the transferring Participant and
its transferee shall act and be treated as one Participant; provided
however, that in order for such Transfer to be effective, the
transferring Participant and its transferee must first:
(i) agree, as between
themselves, that one of them is authorized to act as the sole agent
("Agent") on their behalf with respect to all matters pertaining to
this Agreement and the Business; and
(ii) notify the other Participant of
the designation of the Agent, and in such notice warrant and
represent to other Participant that:
(A) the Agent has the sole
authority to act on behalf of, and to bind, the transferring
Participant and its transferee with respect to all matters pertaining
to this Agreement and the Business;
(B) the other Participant
may rely on all decisions of, notices and other communications
from, and failures to respond by, the Agent, as if given (or not
given) by the transferring Participant and its transferee; and
(C) all decisions of,
notices and other communications from, and failures to respond
by, the other Participant to the Agent shall be deemed to have
been given (or not given) to the transferring Participant and its
transferee.
The transferring Participant and its transferee may change the
Agent (but such replacement must be one of them) by giving
notice to the other Participant, which notice must conform to
Subsection 16.2(f)(ii).
(g) If the Transfer is the grant of an
Encumbrance in a Participating Interest to secure a loan or other
indebtedness of either Participant in a bona fide transaction, other
than a transaction approved unanimously by the Management
Committee or Project Financing approved by the Management
Committee, such Encumbrance shall be granted only in connection
with such Participant's financing payment or performance of that
Participant's obligations under this Agreement and shall be subject
to the terms of this Agreement and the rights and interests of the
other Participant hereunder (including without limitation under
Section 6.7). Any such Encumbrance shall be further subject to
the condition that the holder of such Encumbrance ("Chargee")
first enter into a written agreement with the other Participant in
form satisfactory to the other Participant, acting reasonably,
binding upon the Chargee, to the effect that:
(i) the Chargee shall not enter
into possession or institute any proceedings for foreclosure or
partition of the encumbering Participant's Participating Interest
and that such Encumbrance shall be subject to the provisions of
this Agreement;
(ii) the Chargee's remedies under
the Encumbrance shall be limited to the sale of the whole (but
only of the whole) of the encumbering Participant's Participating
Interest to the other Participant, or, failing such a sale, at a public
auction to be held at least sixty (60) days after prior notice to the
other Participant, such sale to be subject to the purchaser entering
into a written agreement with the other Participant whereby such
purchaser assumes all obligations of the encumbering Participant
under the terms of this Agreement. The price of any preemptive
sale to the other Participant shall be the remaining principal
amount of the loan plus accrued interest and related expenses, and
such preemptive sale shall occur within sixty (60) days of the
Chargee's notice to the other Participant of its intent to sell the
encumbering Participant's Participating Interest. Failure of a sale
to the other Participant to close by the end of such period, unless
failure is caused by the encumbering Participant or by the
Chargee, shall permit the Chargee to sell the encumbering
Participant's Participating Interest at a public sale; and
(iii) the charge shall be
subordinate to any then-existing debt, including Project Financing
previously approved by the Management Committee, encumbering
the transferring Participant's Participating Interest;
(h) If a sale or other commitment or
disposition of Products or proceeds from the sale of Products by
either Participant upon distribution to it pursuant to Article XI creates
in a third party a security interest by Encumbrance in
Products or proceeds therefrom prior to such distribution, such
sales, commitment or disposition shall be subject to the terms and
conditions of this Agreement including, without limitation,
Section 6.7.
16.3 Preemptive Right. Any Transfer by either
Participant under Section 16.1 and any Transfer by an Affiliate of
Control of either Participant shall be subject to a preemptive right
of the other Participant to the extent provided in Exhibit H.
Failure of a Participant's Affiliate to comply with this Article
XVI and Exhibit H shall be a breach by such Participant of this
Agreement.
ARTICLE XVII
DISPUTES
17.1 Governing Law. Except for matters of title
to the Properties or their Transfer, which shall be governed by the
law of their situs, this Agreement shall be governed by and
interpreted in accordance with the laws of the State of Nevada,
without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws
of any other jurisdiction.
17.2 Forum Selection. Any action or
proceeding to construe or enforce the terms of this Agreement
shall be commenced and maintained in the Nevada District Court
or in the United States District Court in Reno, Nevada.
17.3 Dispute Resolution. All disputes arising
under or in connection with this Agreement which cannot be
resolved by agreement between the Participants shall be resolved
in accordance with applicable Law. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this
Agreement, the successful or substantially prevailing Participant
shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
ARTICLE XVIII
CONFIDENTIALITY, OWNERSHIP, USE AND
DISCLOSURE OF INFORMATION
18.1 Business Information. All Business
Information shall be owned jointly by the Participants as their
Participating Interests are determined pursuant to this Agreement.
Both before and after the termination of the Business, all Business
Information may be used by either Participant for any purpose,
whether or not competitive with the Business, without consulting
with, or obligation to, the other Participant. Except as provided
in Sections 18.3 and 18.4, or with the prior written consent of the
other Participant, each Participant shall keep confidential and not
disclose to any third party or the public any portion of the
Business Information that constitutes Confidential Information.
18.2 Participant Information. In performing its
obligations under this Agreement, neither Participant shall be
obligated to disclose any Participant Information. If a Participant
elects to disclose Participant Information in performing its
obligations under this Agreement, such Participant Information,
together with all improvements, enhancements, refinements and
incremental additions to such Participant Information that are
developed, conceived, originated or obtained by either Participant
in performing its obligations under this Agreement
("Enhancements"), shall be owned exclusively by the Participant
that originally developed, conceived, originated or obtained such
Participant Information. Each Participant may use and enjoy the
benefits of such Participant Information and Enhancements in the
conduct of the Business hereunder, but the Participant that did not
originally develop, conceive, originate or obtain such Participant
Information may not use such Participant Information and
Enhancements for any other purpose. Except as provided in
Section 18.4, or with the prior written consent of the other
Participant, which consent may be withheld in such Participant's
sole discretion, each Participant shall keep confidential and not
disclose to any third party or the public any portion of Participant
Information and Enhancements owned by the other Participant that
constitutes Confidential Information.
18.3 Permitted Disclosure of Confidential
Business Information. Either Participant may disclose Business
Information that is Confidential Information: (a) to a Participant's
officers, directors, partners, members, employees, Affiliates,
shareholders, agents, attorneys, accountants, consultants,
contractors, subcontractors or advisors, for the sole purpose of
such Participant's performance of its obligations under this
Agreement; (b) to any party to whom the disclosing Participant
contemplates a Transfer of all or any part of its Participating
Interest, for the sole purpose of evaluating the proposed Transfer;
(c) to any actual or potential lender, underwriter or investor for
the sole purpose of evaluating whether to make a loan to or
investment in the disclosing Participant; or (d) to a third party
with whom the disclosing Participant contemplates any
independent business activity or operation.
The Participant disclosing Confidential
Information pursuant to this Section 18.3, shall disclose such
Confidential Information to only those parties who have a bona
fide need to have access to such Confidential Information for the
purpose for which disclosure to such parties is permitted under
this Section 18.3 and who have agreed in writing supplied to, and
enforceable by, the other Participant to protect the Confidential
Information from further disclosure, to use such Confidential
Information solely for such purpose and to otherwise be bound by
the provisions of this Article XVIII. Such writing shall not
preclude parties described in Subsection 18.3(b) from discussing
and completing a Transfer with the other Participant. The
Participant disclosing Confidential Information shall be
responsible and liable for any use or disclosure of the Confidential
Information by such parties in violation of this Agreement and
such other writing.
18.4 Disclosure Required By Law.
Notwithstanding anything contained in this Article XVIII, a
Participant may disclose any Confidential Information if, in the
opinion of the disclosing Participant's legal counsel: (a) such
disclosure is legally required to be made in a judicial,
administrative or governmental proceeding pursuant to a valid
subpoena or other applicable order; or (b) such disclosure is
legally required to be made pursuant to the rules or regulations of
a stock exchange or similar trading market applicable to the
disclosing Participant.
Prior to any disclosure of Confidential
Information under this Section 18.4, the disclosing Participant
shall give the other Participant at least ten (10) days prior written
notice (unless less time is permitted by such rules, regulations or
proceeding) and, in making such disclosure, the disclosing
Participant shall disclose only that portion of Confidential
Information required to be disclosed and shall take all reasonable
steps to preserve the confidentiality thereof, including, without
limitation, obtaining protective orders and supporting the other
Participant in intervention in any such proceeding.
18.5 Public Announcements. Prior to making
or issuing any press release or other public announcement or
disclosure of Business Information that is not Confidential
Information, a Participant shall first consult with the other
Participant as to the content and timing of such announcement or
disclosure, unless in the good faith judgment of such Participant,
there is not sufficient time to consult with the other Participant
before such announcement or disclosure must be made under
applicable Laws; but in such event, the disclosing Participant shall
notify the other Participant, as soon as possible, of the pendency
of such announcement or disclosure, and it shall notify the other
Participant before such announcement or disclosure is made if at
all reasonably possible. Any press release or other public
announcement or disclosure to be issued by either Participant
relating to this Business shall also identify the other Participant.
ARTICLE XIX
GENERAL PROVISIONS
19.1 Notices. All notices, payments and other
required or permitted communications ("Notices") to either
Participant shall be in writing, and shall be addressed respectively
as follows:
If to BATTLE MOUNTAIN: ▇▇▇ ▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Legal Department
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a Copy to: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
If to ROYAL: Suite 1000
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, President
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
All Notices shall be given (a) by personal
delivery to the Participant, (b) by electronic communication,
capable of producing a printed transmission, (c) by registered or
certified mail return receipt requested; or (d) by overnight or
other express courier service. All Notices shall be effective and
shall be deemed given on the date of receipt at the principal
address if received during normal business hours, and, if not
received during normal business hours, on the next business day
following receipt, or if by electronic communication, on the date
of such communication. Either Participant may change its address
by Notice to the other Participant.
19.2 Gender. The singular shall include the
plural, and the plural the singular wherever the context so
requires, and the masculine, the feminine, and the neuter genders
shall be mutually inclusive.
19.3 Currency. All references to "dollars" or
"$" herein shall mean lawful currency of the United States of
America.
19.4 Headings. The subject headings of the
Sections and Subsections of this Agreement and the Paragraphs
and Subparagraphs of the Exhibits to this Agreement are included
for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
19.5 Waiver. The failure of either Participant to
insist on the strict performance of any provision of this Agreement
or to exercise any right, power or remedy upon a breach hereof
shall not constitute a waiver of any provision of this Agreement
or limit such Participant's right thereafter to enforce any provision
or exercise any right.
19.6 Modification. No modification of this
Agreement shall be valid unless made in writing and duly
executed by both Participants.
19.7 Force Majeure. Except for the obligation
to make payments when due hereunder, including payments with
respect to Properties in which BATTLE MOUNTAIN holds an
interest under leases or contracts, the obligations of a Participant
shall be suspended to the extent and for the period that
performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without
limitation, labor disputes (however arising and whether or not
employee demands are reasonable or within the power of the
Participant to grant); acts of God; Laws, instructions or requests
of any government or governmental entity; judgments or orders
of any court; inability to obtain on reasonably acceptable terms
any public or private license, permit or other authorization;
curtailment or suspension of activities to remedy or avoid an
actual or alleged, present or prospective violation of
Environmental Laws; action or inaction by any federal, state or
local agency that delays or prevents the issuance or granting of
any approval or authorization required to conduct Operations
beyond the reasonable expectations of the Participant seeking the
approval or authorization (including, without limitation, a failure
to complete any review and analysis required by the National
Environmental Policy Act or any similar state law within eighteen
(18) months of initiation of that process); acts of war or conditions
arising out of or attributable to war, whether declared or
undeclared; riot, civil strife, insurrection or rebellion; fire,
explosion, earthquake, storm, flood, sink holes, drought or other
adverse weather condition; delay or failure by suppliers or
transporters of materials, parts, supplies, services or equipment or
by contractors' or subcontractors' shortage of, or inability to
obtain, labor, transportation, materials, machinery, equipment,
supplies, utilities or services; accidents; breakdown of equipment,
machinery or facilities; actions by native rights groups,
environmental groups, or other similar special interest groups; or
any other cause whether similar or dissimilar to the foregoing.
The affected Participant shall promptly give notice to the other
Participant of the suspension of performance, stating therein the
nature of the suspension, the reasons therefor, and the expected
duration thereof. The affected Participant shall resume
performance as soon as reasonably possible. During the period of
suspension the obligations of both Participants to advance funds
pursuant to Section 10.2 shall be reduced to levels consistent with
then current Operations.
19.8 Rule Against Perpetuities. The
Participants do not intend that there shall be any violation of the
Rule Against Perpetuities, the Rule Against Unreasonable
Restraints on the Alienation of Property, or any similar rule.
Accordingly, if any right or option to acquire any interest in the
Properties, in a Participating Interest, in the Assets, or in any real
property exists under this Agreement, such right or option must
be exercised, if at all, so as to vest such interest within time
periods permitted by applicable rules. If, however, any such
violation should inadvertently occur, the Participants hereby agree
that a court shall reform that provision in such a way as to
approximate most closely the intent of the Participants within the
limits permissible under such rules.
19.9 Further Assurances. Each of the
Participants shall take, from time to time and without additional
consideration, such further actions and execute such additional
instruments as may be reasonably necessary or convenient to
implement and carry out the intent and purpose of this Agreement
or as may be reasonably required by lenders in connection with
Project Financing.
19.10 Entire Agreement; Successors and
Assigns. This Agreement contains the entire understanding of the
Participants and supersedes all prior agreements and
understandings between the Participants relating to the subject
matter hereof. This Agreement shall be binding upon and inure
to the benefit of the respective successors and permitted assigns of
the Participants.
19.11 Memorandum. At the request of either
Participant, a Memorandum or short form of this Agreement, or
a Financing Statement(s) (to which copies of the Memorandum or
short form of this Agreement shall be attached) shall be prepared
by the Manager, executed and acknowledged by both Participants,
and delivered to the Manager for recording and filing in those
appropriate recording districts and Uniform Commercial Code
filing offices as may be necessary to provide constructive notice
of this Agreement and the rights and obligations of the
Participants hereunder. The Manager shall record and file in the
proper recording districts, county recording offices and Uniform
Commercial Code filing offices, all such documents delivered to
it by the Participants. Unless both Participants agree, this
Agreement shall not be recorded.
19.12 Counterparts. This Agreement may be
executed in any number of counterparts, and it shall not be
necessary that the signatures of both Participants be contained on
any counterpart. Each counterpart shall be deemed an original,
but all counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the Effective Date.
BATTLE MOUNTAIN EXPLORATION COMPANY
By ________________
▇▇▇ ▇▇▇▇▇▇▇▇
Senior Vice President, Exploration
By ________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
ROYAL GOLD, INC.
By ________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
President
State of Texas )
) ss.
County of ▇▇▇▇▇▇ )
On this 31st day of July 1998, before me
the undersigned, a Notary Public in and for said State, personally
appeared ▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ of Battle Mountain Exploration
Company, personally known to me or proved to me to be the person
who executed the within instrument.
_____/s/_____________________
Notary Public
My Commission Expires: Juy 31, 2000
State of Colorado )
) ss.
City and County of Denver )
On this 28th day of July 1998, before me
the undersigned, a Notary Public in and for said State, personally
appeared ▇▇▇▇▇ ▇. ▇▇▇▇▇, President of Royal Gold, Inc., personally
known to me or proved to me to be the person who executed the
within instrument.
____/s/_____________________
Notary Public
My Commission Expires: June 10,2000