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