SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CROWN ENERGY CORPORATION
(Name of Registrant as Specified In Its Charter)
(same)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
No fee required.
X Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies: n/a
2) Aggregate number of securities to which transaction
applies: n/a
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:1 n/a
4) Proposed maximum aggregate value of transaction: $500,000
5) Total fee paid: $100.00
__________________
1Set forth the amount on which the filing fee is calculated and
state how it was determined.
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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CROWN ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 21, 1997
TO THE SHAREHOLDERS OF CROWN ENERGY CORPORATION:
The 1997 Annual Meeting of Shareholders of Crown Energy
Corporation, a Utah corporation, will be held on Tuesday, October
21, 1997, at 2:30 p.m., Mountain Standard Time, in Salon I of the
Doubletree Hotel, 255 South West Temple, Salt Lake City, Utah, for
the following purposes:
1. To elect a Board of Directors, comprised of four persons, to
serve until the next Annual Meeting of Shareholders or until
their respective successors shall be duly elected or appointed.
2. To approve the appointment of Pritchett, Siler and Hardy as
the independent accountants for Crown Energy Corporation for
the 1997 fiscal year.
3. To approve the Crown Energy Corporation 1997 Long-Term
Incentive Compensation Plan.
4. To approve the transfer of the Company's oil sands reserves
and related technology to a Joint Venture with MCNIC Pipeline &
Processing Company.
Only shareholders of record at the close of business on September
5, 1997, the "Record Date," are entitled to notice of, and to vote
at, the Meeting. In accordance with Utah law, a list of the
Company's Shareholders entitled to vote at the 1997 Annual Meeting
will be available for examination at the offices of the Company, 215
South State Street, Suite 550, Salt Lake City, Utah 84111, for ten
business days prior to the Annual Meeting, between the hours of 9:00
a.m. and 5:00 p.m., and during the Annual Meeting.
All shareholders are cordially invited to attend the Meeting in
person.
Whether or not you expect to attend, please immediately sign and
complete the enclosed Proxy Designation and Instruction Card
("Proxy") and return it in the envelope provided so that your shares
may be represented at the Annual Meeting. No postage is required if
a proxy is mailed in the United States. If a majority of outstanding
shares are not present at the Meeting either in person or by proxy,
the Meeting must be adjourned without conducting business, and
additional expense will be incurred to resolicit the Shareholders
for a new Meeting date.
By Order of the Board of Directors
Date: October , 1997 Richard S. Rawdin, Secretary
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CROWN ENERGY CORPORATION
215 South State, Suite 550
Salt Lake City, Utah 84111
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 21, 1997
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Crown Energy
Corporation, a Utah corporation (the "Company"), in connection with
the solicitation by the Company of Proxies, in the enclosed form,
for use at the 1997 Annual Meeting of Shareholders of the Company
(the "Meeting") to be held on Tuesday, October 21, 1997, at 2:30
p.m., Mountain Standard Time, in Salon I of the Doubletree Hotel,
255 South West Temple, Salt Lake City, Utah. The purposes of the
Meeting are set forth in the accompanying Notice of Annual Meeting
of Shareholders.
A Proxy Designation and Instruction Card ("Proxy" "or Proxy Card")
for your use in connection with the Annual Meeting is enclosed. You
are requested to sign and date the Proxy Card and to return it in
the envelope provided.
Voting Securities
The Board of Directors has fixed the close of business on September
5, 1997 as the Record Date for determination of Shareholders
entitled to notice of and to vote at the 1997 Annual Meeting (the
"Record Date"). As of the Record Date, there were issued and
outstanding 11,572,141 shares of Common Stock. The holders of
record of the shares of the Company's Common Stock on the Record
Date entitled to be voted at the Annual Meeting are entitled to cast
one vote per share on each matter submitted to a vote at the Annual
Meeting.
Proxies
Shares of Common Stock which are entitled to be voted at the Annual
Meeting and which are represented by properly executed Proxies will
be voted in accordance with the instructions indicated on such
Proxies. If no instructions are indicated, such shares will be
voted FOR all of the proposals listed on the Notice of Annual
Meeting, including the election of each of the Director nominees
described herein; and, in the discretion of the designated Proxy
holders, as to any other matters which may properly come before the
Annual Meeting.
Any Shareholder signing and delivering a Proxy has the power to
revoke it at any time before the vote at the Annual Meeting (a) by
notifying the Secretary of the Company in writing prior to 2:30p.m.
M.S.T. on October 21, 1997, (b) by signing and dating a later Proxy
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and submitting the new Proxy in time to be counted for the Annual
Meeting, or (c) by attending the Annual Meeting and voting contrary
to the submitted Proxy at the time votes are requested. Any written
notice revoking a Proxy should be sent to Crown Energy Corporation,
215 South State, Suite 550, Salt Lake City, Utah 84111, Attention:
Richard S. Rawdin, Secretary.
If a Shareholder wishes to designate someone other than the
designated persons named on the Proxy Card as his authorized agent
to vote at the 1997 Annual Meeting, you may do so by crossing out
the names of all of the designated persons printed on the Proxy Card
and by writing in the name of another person or persons (not more
than 2) to act as agent for the Shareholder in voting his shares.
Such a special designation signed by the Shareholder(s) must be
presented at the Annual Meeting by the person or persons you have
designated on the Proxy Card.
The cost of preparing, assembling and mailing this Proxy Statement
and related materials will be borne by the Company. The
solicitation of Proxies by the Directors is being made by mail, and
may also be made by agents of the Company, in person, by telephone,
or by mail. No additional compensation will be given to employees
or Directors for such solicitation. Custodians of securities held
for Shareholders of record (for example, banks, brokers, etc.) may
be paid their reasonable out-of-pocket expenses incurred in
forwarding Proxy Cards and this Proxy Statement to Shareholders.
This Proxy Statement and the enclosed form of Proxy are being
mailed to Shareholders beginning on October 3, 1997. Mailed
together with this Proxy Statement is a copy of the Company's Annual
Report to Shareholders for the year ended December 31, 1996.
Shareholders who do not receive a copy of the 1996 Annual Report
with this Proxy Statement, or who desire extra copies, should
contact the Company at (801) 537-5610.
Votes Required For Action to be Taken at the 1997 Annual Meeting
A majority of the share votes entitled to be cast at the Annual
Meeting (legal ownership of outstanding shares as of the Record
Date) must be present in person or by Proxy for a quorum to exist at
the Annual Meeting. Abstentions and broker non-votes are counted
"present" for determining the presence or absence of a quorum for
the transaction of business.
In the election of Directors, the four (4) nominees receiving the
highest number of votes cast in their favor will be elected as the
Board of Directors of the Company for the 1997-98 period until the
1998 Annual Shareholders' Meeting. Accordingly, abstentions and
broker non-votes will not affect the outcome of the election of
Directors.
As to proposal Numbers 2 and 3 for shareholder action at the Annual
Meeting, a majority of the shares present at the Annual Meeting,
once a quorum is established, must be voted in favor of the proposal
for it to be adopted as the action of the Shareholders.
Accordingly, abstentions and broker non-votes will have the effect
of a NO vote, and thus could affect the outcome.
A majority of the shares entitled to vote on Proposal 4 will be
required to approve such matter. In other words, of the 11,572,141
shares of Common Stock outstanding and entitled to vote as of the
Record Date, at least 5,786,071 shares must be voted in favor of
Proposal 4 for it to pass as the action of the Shareholders.
Accordingly, abstentions and broker non-votes will have the effect
of a NO vote, and thus could affect the outcome.
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Holders of shares of Common Stock are entitled to one vote at the
Annual Meeting for each share held of record at the Record Date.
LAST YEAR'S (August 30, 1996) ANNUAL MEETING
The 1996 Annual Meeting of the Shareholders was held on August 30,
1996 in Salt Lake City, Utah. There were 6,645,949 shares of Common
Stock represented at the 1996 Annual Meeting in person or by proxy,
which shares constituted a legal quorum. Each of the nominees to
the Board of Directors presented to the 1996 Annual Meeting was
voted upon separately, and each was elected by the affirmative vote
of more than 97% of the shares present and voting.
MANAGEMENT OF THE COMPANY
Board of Directors
The business of the Company is managed under the direction of its
Board of Directors. The Board has responsibility for establishing
broad corporate policies, for the overall performance of the Company
and for the election and compensation of officers of the Company.
The Executive Officers of the Company are in charge of the day to
day affairs of the Company.
The Board of Directors meets regularly during the year to review
significant developments affecting the Company and to act on matters
requiring Board approval. It also holds special meetings when one
or more important matters requires Board action between scheduled
meetings.
As disclosed to the Company, the Board of Directors as presently
constituted beneficially own as a group 5,311,103 shares, or
approximately 39.7% of the Company's outstanding Common Stock as of
the Record Date, including 1,794,444 option shares exercisable
within 60 days of the Record Date but which were unexercised as of
the Record Date.
The Board of Directors held three (3) meetings during 1996. All
Directors attended all of the Board.
As presently constituted, the Board of Directors has no functioning
committees taking any of the responsibilities of the Board.
Executive Officers
Set forth on Table 1, below, are the names, ages, primary areas of
responsibility, and economic and beneficial stock ownership (as of
December 31, 1996) of the Company's Executive Officers. Executive
Officers serve at the pleasure of the Board of Directors, although
as disclosed later in this Proxy Statement, all of the Executive
Officers also are currently and proposed to continue as Directors of
the Company.
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Table 1
Executive Officers of Crown Energy Corporation
James A. Middleton, 61, is Chief Executive Officer of the Company
and Chairman of the Board of Directors. At the Record Date, Mr.
Middleton was the beneficial owner of 355,000 shares of Common
Stock, including 300,000 option shares exercisable within 60 days,
but not yet exercised.
Jay Mealey, 41, is President and Chief Operating Officer of the
Company, and is Director or the Company. At the Record Date, Mr.
Mealey beneficially owned 2,200199 shares of Common Stock, including
548,148 option shares exercisable within 60 days, but not yet
exercised. Also includes 110,000 shares gifted to Glenn Mealey, as
custodian for Mealey's children, Cameron and Andrew Mealey. Mr.
Mealey expressly disclaims beneficial ownership of the foregoing
gifted shares.
Richard S. Rawdin, 39, is Vice President and Chief Financial and
Accounting Officer of the Company. At the Record Date, Mr. Rawdin
beneficially owned 594,308 shares of Common Stock, including 398,148
option shares exercisable within 60 days, but not yet exercised.
Based on their disclosed share holdings at the Record Date, all of
the Company's Executive Officers as a group (three (3) persons,
beneficially owned a total of 3,149,507 shares, or approximately
24.65%, of the Company's Common Stock (including 960,000 shares
subject to unexercised options exercisable within 60 days), all
percentages calculated as of the Record Date.
COMPENSATION OF MANAGEMENT
Director Compensation
The Company does not compensate its Directors for service in that
capacity. Those Directors who are also Executive Officers are paid
compensation for that service. Directors who are not Executive
Officers serve without compensation, other than reimbursement of
expenses, but may be hired by the Company as professional advisors
and paid in that capacity.
Summary of Compensation to Certain Executive Officers
Set out in Table 2, below, is a Summary Compensation Table showing
the various elements of compensation earned during 1996 and during
the previous two years by the Company's Chief Executive Officer. No
Executive Officer was compensated at $100,000 or more during any of
the prior three years. The information on other Executive Officers
was calculated for each year was determined for this purpose on the
same basis as for the Chief Executive Officer):
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Table 2
Summary Compensation Table
Annual Long-Term
Compensation Compensation
Awards
Name and Year Salary Bonus1 Restricted Options/ All Other
Principal Position ($) ($) Stock SARs2 Compensation
Award(s) (#) ($)
($)
______________________________________________________________________
James A. 1996 -0- -0- -0- 300,000 -0-
Middleton, 1995 -0- -0- -0- -0- -0-
Chairman and 1994 -0- -0- -0- -0- -0-
Chief Executive
Officer of the
Company
_____________________________________________________________________
1Bonuses are listed in the year earned and normally accrued,
although such bonuses may be paid in the following year. Stock
bonuses are valued at the market value on the date of receipt.
2The Company has never issued SARs.
Stock Options and Similar Awards To Management.
Table 3 provides information concerning the stock options and
similar awards provided to the Executive Officers listed in Table 2
during 1996. There were no option exercises by these listed
Executive Officers during 1996.
Table 3
Option Grants To Certain Executive Officers During 1996
Individual Grants
% of Total
Options/SARS Options/SARS Exercise Potential
Granted Granted to or Base Expiration Realizable
Name (#)1 All Employees Price Date Value3
n Fiscal Year ($Sh)2 5% 10%
_________________________________________________________________________
James A. 300,000 100% $0.66 01/29/00 $54,000 $120,000
Middleton $120,000
__________________________________________________________________________
1 The Company has never issued SARs.
2 The 1996 Options were awarded by the Board of Directors on
February 2, 1996. The exercise price is [the "last sale" price
quotation for the Company's common stock on the last business
day prior to the date of grant.]
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Certain Relationships and Related Transactions
During the year ended December 31, 1996, the Company executed
promissory notes payable to Mr. Thomas W. Bachtell, Esq., a
Director of the Company, for loans to the Company including
accrued interest and salary payable in the amount of $63,051 and
bearing interest at the rate of 9% per annum replacing prior
promissory notes. The foregoing notes mature on July 1, 1998 (or
earlier upon the Company's receipt of at least $2,000,000 as a
result of any offering of its securities).
The Company also executed a promissory note payable to Mr. Jay
Mealey, President, Chief Operating Officer, Treasurer and a
Director of the Company for amounts loaned to the Company in the
amount of $58,196 and bearing interest at a rate of 9% per annum
replacing a prior promissory note. The foregoing note matures on
July 1, 1998 (or earlier upon the Company's receipt of at least
$2,000,000 as a result of an offering of its securities).
Other Transactions
During 1996, the Company incurred approximately $43,917 in legal
fees to Pruitt, Gushee & Bachtell, a law firm of which Mr. Thomas
W. Bachtell, a Director of the Company, is a shareholder and
director.
PRINCIPAL SHAREHOLDERS
The Messrs. Mealey and Bachtell are the only persons known to
the Company to be the beneficial owner (within the meaning of
applicable governmental regulations) of five percent (5%) or more
of any class of the Company's voting securities as of the Record
Date. Mr. Mealey's share ownership is set out under the heading
"EXECUTIVE OFFICERS OF THE COMPANY," above. At the Record Date,
Mr. Bachtell's beneficial share ownership consisted of 2,013,448
shares, including 400,000 option shares exercisable within 60
days, but not yet exercised, and 5,000 shares held as trustee of
the Nielson Family Trust - their addresses are set out under the
heading "ELECTION OF DIRECTORS," below.:
PROPOSALS FOR SHAREHOLDER ACTION
Item No. 1: Election of Directors
A board of four directors is to be elected at the Meeting, to
hold office until the next Annual Meeting of Shareholders and
until their respective successors are duly elected and qualified.
Unless otherwise instructed, the proxy holders will vote all
Proxies received by them FOR the election of the four nominees
named below, who are the nominees of the current Board of
Directors, all of whom are shareholders of the Company.
Nominations for election as a Director also will be accepted from
the floor by any Shareholder at the 1997 Annual Meeting. While
no formal procedure exists with respect to nominations for
Director outside of the Annual Meeting, Shareholders are free to
write to the President of the Company with any suggestions
concerning nominations to the Board of Directors.
Individuals receiving the most votes will be elected. All
nominees are present members of the Board of Directors. All duly
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signed and delivered proxies will be voted FOR the election of
ALL of the nominees listed below in the absence of contrary
direction. The Directors know of no reason why any nominee
listed below may be unable to serve as a Director. If any
nominee is unable to serve, the shares present at the 1997 Annual
Meeting through proxies will be voted FOR the election of such
other person(s) as the Board of Directors may nominate at the
Annual Meeting, or the current Directors may conclude to reduce
the number of Directors to be elected.
All of the nominees were elected to their present term of office
by a vote of the Shareholders at the 1996 Annual Meeting.
Nominees
There is set forth below as to each of the four (4) Board
nominees for election as a Director of the Company, his/her age,
the year he/she first became a Director of the Company, his/her
principal occupation, his/her business experience during the past
five years, other material officerships or directorships in other
companies held at this time. The beneficial stock ownership of
the nominees in the Company's common stock as of the Record Date
is set out under the heading "EXECUTIVE OFFICERS OF THE COMPANY,"
above.
James A. Middleton, 61, is Chairman and Chief Executive Officer
of the Company. Previously Mr. Middleton was President of ARDCO
Oil and Gas Company as well as Executive Vice President and a
member of the Board of Directors of Atlantic Richfield Company.
He remains on the Board of Directors of ARDCO Chemical Company
and is Executive Vice President - Emeritus of ARDCO. Mr.
Middleton also serves on the Board of Directors of Texas
Utilities Company as well as many community and civic
organizations. Mr. Middleton joined the Board of Directors of
Monterey Resources, Inc. in July, 1997.
Jay Mealey, 41, has been the President, Treasurer and a Director
of the Company since 1991. Mr. Mealey has been actively involved
in the oil and gas exploration and production business since
1978. Prior to employment with the Company, he was Vice
President of Ambra Oil and Gas Company and worked for Belco
Petroleum Corporation and Conoco, Inc. in their exploration
divisions. Mr. Mealey is responsible for managing the day to day
operations of the Company. He is a full-time employee and it is
anticipated that he will devote one hundred percent of his time
to the Company.
Richard S. Rawdin, 39, is Vice President and the Chief Financial
and Accounting Officer of the Company. Prior to joining the
Company in 1991, he was Controller and Vice President of Finance
for Kerry Petroleum Company, Inc. where he was responsible for
directing the financial and accounting affairs of the Company,
its two subsidiaries and six partnerships. Prior to that, he was
a Senior Consultant with Deloitte and Touche. Mr. Rawdin is a
full-time employee of the Company and it is anticipated that he
will devote one-hundred percent of his time to the Company.
Thomas W. Bachtell, 46, is a practicing natural resources
attorney and President of the law firm of Pruitt, Gushee &
Bachtell. Mr. Bachtell's law practice focuses on advising and
assisting oil, gas and mineral companies in their exploration and
development activities in the Rocky Mountain States.
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The Board of Directors Recommends a Vote FOR all four nominees.
Item No. 2: Approval of the Board's Selection of Auditors
At the Annual Meeting, the Shareholders will be asked to approve
the Board's selection of Pritchett, Siler and Hardy as the
independent public accountants to audit the financial statements
of the Company for the 1997 fiscal year. Pritchett, Siler and
Hardy has audited the financial statements of the Company for the
last seven fiscal years. The Company does not anticipate that
any representatives of Pritchett, Siler & Hardy will be present
at the Meeting.
Unless a contrary choice is specified, Proxies received by the
Company pursuant to this solicitation will be voted FOR the
appointment of Pritchett, Siler and Hardy as the independent
public accountants of the Company for the 1997 fiscal year.
The Board of Directors Recommends a Vote FOR the appointment
of Pritchett, Siler and Hardy as the independent public
accountants of the Company for the 1997 fiscal year.
Item No. 3: Approval of the Crown Energy Corporation Long Term
Equity-Based Incentive Plan
The Board of Directors has adopted the Crown Energy Corporation
Long-Term Equity-Based Incentive Plan ("Plan"), subject to
approval by the Shareholders at the Annual Meeting. (A copy of
the Plan is attached to this Proxy Statement as Appendix "A".
The information in the following summary statement is limited in
its scope. Please refer to the Plan itself for a fuller
explanation of its terms. If any conflict is seen between this
summary statement and the Plan itself, the Plan will govern all
such conflicts.) The purpose of the Plan is to assist the
Company in attracting, retaining and motivating executive
officers and other key employees essential to the success of the
Company through performance-related incentives linked to long-
range performance goals. Performance goals under the Plan may be
based on individual performance of the particular employee and/or
include criteria such as absolute or relative increases in total
shareholder return, revenues, sales, net income, or net worth of
the Company, any of its subsidiaries, divisions, business units
or other areas of the Company, all as the Board may determine.
The Board believes that the Plan is necessary in order for the
Company to attract and retain qualified executive officers
capable of directing the Company through an ever-changing and
increasingly competitive business environment, and that the Plan
will more closely align Executive Officer incentives and total
compensation with the economic interests of the Shareholders.
The Board also believes that the Plan is essential for the
Company to maintain for its key employees an appropriate and
competitive balance of base salaries, annual incentives and long-
term incentives.
The Plan provides for discretionary awards ("Awards") of
nonqualified stock options. All Awards will be made in, or based
on the value of, the Company's Common Stock at the date of award
grant.
The Plan will be administered by the Board of Directors. The
selection of key employees who are to receive Awards under the
Plan, as well as all terms, conditions, performance criteria and
restrictions applicable to each Award will be determined by the
Board in its discretion.
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The maximum number of shares of Common Stock for which Awards
may be granted under the Plan is 2,000,000 subject to adjustment
in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other similar
event. Shares subject to previously canceled, lapsed or
forfeited Awards may be reissued under the Plan. The shares to be
issued under the Plan may consist of authorized but unissued
shares or shares purchased in the open market.
Regular, full-time employees of the Company and its subsidiaries
or affiliates who are designated by the Board will be eligible to
participate in, and receive Awards under, the Plan. All of the
executive officers of the Company will be eligible to participate
in the Plan, and it is intended that all of them will
participate.
Stock Options. The number of shares and other terms of each
grant will be determined by the Board. The price payable upon
exercise of an option may not be less than 100% of the fair
market value of the Common Stock at the time of the grant, and
may be paid in cash or with shares of Common Stock. Under the
terms of the Plan, options may not be exercised until at least
six months after they are granted, except in the case of the
death or disability of the participant or a change in control of
the Company. Options may remain outstanding for no more than ten
years. During the lifetime of the employee receiving the Option
(the "Optionee"), the Option may be exercisable only by the
Optionee and shall not be assignable or transferrable. Each
Option will become exercisable in such installments, at such time
or times, and is subject to such conditions, as the Board, in its
discretion, may determine at or before the time the Option is
granted. The Board may provide for the accelerated
exercisability of an Option in the event of the death, disability
or retirement of the Optionee and may provide for expiration of
the Option prior to the end of its term in the event of the
termination of the Optionee's employment.
In the event of a change in control of the Company, all
outstanding stock options shall immediately become fully vested,
and all restrictions on all outstanding Awards shall be deemed to
have been fully satisfied, unless the transaction or event
constituting the change in control was approved in advance by a
majority of the Company's Board of Directors. Under the terms of
the Plan, a change in control shall be deemed to have occurred
if: (i) any person becomes the beneficial owner of 20% excluding
those shares acquired by Enron Capital & Trade Resources Corp.
per negotiations with the Company's Board of Directors or more of
the Company's voting securities; (ii) the Company is involved in
a merger, acquisition or similar transaction pursuant to which
the Company's directors immediately before the transaction ceases
to constitute a majority of the Company's directors after the
transaction; or (iii) the Company is involved in a transaction
pursuant to which it is not the surviving corporation, its Common
Stock is exchanged for, or converted into securities of another
entity, it becomes a subsidiary of another entity, or 50% or more
of its assets or business is sold to another entity.
The Plan may be amended, modified, suspended or terminated by
the Board of Directors at any time. No amendment shall be
effective prior to approval of the shareholders to the extent
such approval is necessary to comply with any legal requirement,
including the requirement for the performance based compensation
exception under Internal Revenue Code Section 162(m). If not
earlier terminated, the Plan shall terminate on December 31,
2006.
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Federal Income Tax Consequences
The grant of an option under the Plan will not cause the
recognition of ordinary income by the participant or entitle the
Company to a compensation deduction for federal income tax
purposes because, under existing Treasury regulations, such an
option does not have a "readily ascertainable" fair market value.
The exercise of an option which is not subject to any
restrictions on the participant's ownership or disposition
thereof will cause the recognition of taxable compensation income
in an amount equal to the difference between the exercise price
and the fair market value on the exercise date of the shares
purchased by the participant. The Company will be able to take a
corresponding tax deduction for compensation expense in an amount
equal to the compensation recognized by the participant.
If restrictions apply to the shares acquired upon exercise of an
option, the time of recognition of taxable compensation income
and the amount thereof, and the availability of a corresponding
tax deduction to the Company, will be determined when such
restrictions cease to apply.
The Board of Directors has previously adopted the Plan, subject
to shareholder approval at the 1997 Annual Meeting. The Board
believes that the approval and adoption of the Plan will advance
the interests of the Company and its shareholders by enabling the
Company to attract and retain high caliber, motivated executive
officers and other key employees by offering compensation
incentives which provide such officers and employees with a sense
of proprietorship through stock ownership.
Shareholder Approval; Effect of Non-Approval.
Approval of the Plan requires that a majority of the shares
present at the Annual Meeting vote in favor of the Plan at the
Annual Meeting exceed the number of votes cast in opposition to
the Plan. Approval of the Plan will not result directly in the
grant of any Awards to Executive Officers, key employees of the
Company. Shareholder approval will, however, allow the Company
to use the plan as it was intended and approved by the Directors:
as an incentive to excellent performance, even if the value of
Awards may total in excess of $1,000,000 over time. If the
Shareholders fail to approve the Plan in this vote, the Company
will continue to use the Plan and will grant future Awards under
it. The only result of Shareholder non-approval at this time is
that the Company may be denied a tax deduction for compensation
to an executive officer to the extent that compensation,
including option exercises under the Plan, exceeds $1,000,000.
Certain Interests of Directors
In considering the recommendation of the Board of Directors with
respect to the Plan, Shareholders should be aware that the
members of the Board of Directors have certain interests which
may present them with conflicts of interest in connection with
such proposal. All Directors would be eligible to participate in
the Plan.
The Board of Directors believes that the Plan is in the best
interests of the Company and its Shareholders, and therefore,
unanimously recommends a vote FOR the Plan. In considering the
foregoing recommendation of the Board of Directors, Shareholders
should be aware that the current members of the Board of
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Directors own, in the aggregate, approximately 38.13% of the
shares of the Company's issued and outstanding Common Stock,
including option shares exercisable within 60 days of the Record
Date.
The Board of Directors Recommends a Vote FOR Approval of the
Crown Energy Equity-Based Long-Term Incentive Plan.
Item No. 4: Approval of the Transfer of the Company's Oil Sands
Reserves and Related Technology to A Joint Venture with
MCNIC Pipeline & Processing Company
General Background of the Joint Venture Proposal
The Company has been actively seeking opportunities to develop
and profit from its large holdings of oil sands at Asphalt Ridge
in Eastern Utah, particularly as the revenue production abilities
of the Company's other assets declines. As part of its ongoing
efforts to finance the Asphalt Ridge project, the Company began
discussions with representatives of MCN Energy Group, Inc., a
large diversified energy holding company with approximately $4
billion in assets ("MCN"). These discussions produced an
agreement in principle for MCN to provide financial and other
resources to the Company to assist in the commercial exploitation
of the Company's oil sands reserves.
Further discussions produced a joint venture concept whereby the
Company's Crown Asphalt subsidiary, the legal owner of the oil
sands reserves and certain proprietary licenses to oil sands
technology ("Crown"), would form a new limited liability company
(the "Joint Venture") with MCN's MCNIC Pipeline & Processing Inc.
subsidiary ("MCNIC"). The deal calls for Crown to contribute
some cash equipment, the oil sands reserves, and the technology
licenses to the new Joint Venture, and for MCNIC to contribute
cash. In return both Crown and MCNIC would be equity members in
the Joint Venture, with the relative percentage of their
ownerships determined by the what each one ultimately puts into
the Joint Venture and, to some extent, how the Joint Venture
performs economically.
The following summary describes the Joint Venture in more
detail, focusing on its impact and potential for the Company.
The Company believes that the Joint Venture offers significant
potential economic benefits to the Company, including the
opportunity for profitable exploitation of its oil sands reserves
that are currently producing no revenue because the Company has
insufficient funds to develop them. For these reasons, the Board
of Directors has approved the Joint Venture unanimously, and
recommends that the Shareholders also vote to approve the Joint
Venture.
Shareholders who disagree with the Joint Venture are entitled to
perfect their Dissenters Rights under Utah law. See "RIGHTS OF
DISSENTING SHAREHOLDERS," below.
Because the Joint Venture is only recently formed, with limited
assets, it currently has no meaningful financial information to
provide to the shareholders of the Company other than as set
forth textually below. Detailed financial and other information
concerning the Company's oil sands reserves and the recent
financial results of the Company are contained in the Company's
Annual Report to Shareholders and in the Company's most recent
quarterly report on Form 10-Q, both of which accompany this Proxy
Statement. Shareholders who do not receive an Annual Report and
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a Form 10-Q for the June 30, 1997 quarter should contact the
Company and a set will be sent out to you. On September 2, 1997,
the date preceding the public announcement of the transaction,
the Company's shares traded on the NASD Electronic Bulletin Board
at bid and ask prices of $.75-$.81.
The Recommendation of the Board of Directors
The Board of Directors believes that the Joint Venture
represents a significant positive event in the Company's
development, and that the Joint Venture is a preferable course of
action to its other alternatives because the Joint Venture
provides the Company with the opportunity to develop its
considerable oil sands reserves in coordination with a
financially solid natural resource industry participant. The
Joint Venture provides for MCNIC to contribute 75% of the costs
of the Initial Plant and Crown to contribute all of its oil sands
reserves, certain equipment and cash equal to the 25% of the
total costs.
The Board of Directors unanimously recommends that the Company's
shareholders vote FOR the Joint Venture.
The Joint Venture will complete up to $400,000 of detailed
engineering and the Board has agreed to participate for its
$100,000 (25%) share, but will wait for the Shareholder vote to
proceed further with the Joint Venture. If the Shareholders do
not approve the transfer of the oil sands reserves to the Joint
Venture, the Company will not be obligated to reimburse MCNIC for
its initial capital contribution of $300,000, but will have lost
the Company's $100,000 contribution. (See below)
In coming to its decision to recommend the Joint Venture to the
Shareholders, the Board of Directors considered a number of
factors, including without limitation, (i) MCNIC's financial
resources and reputation in the natural resource industry; (ii)
its other financing alternatives; and (iii) the terms and
conditions of the Joint Venture agreement, including the required
capital contributions from both Crown and MCNIC, the ability of
Crown to participate meaningfully in the management of the Joint
Venture. The Board of Directors did not assign relative weights
to any specific factor in reaching its recommendation.
The Joint Venture
Various written agreements create and govern the Joint Venture.
These documents are not attached to this Proxy Statement because
of their size and complexity. The Joint Venture's Operating
Agreement will be filed with the Company's future public filings
and will be available publicly at that time.
Limited Liability Company Status
The Joint Venture is a new Utah limited liability company called
"Crown Asphalt Ridge, L.L.C.", and Crown and MCNIC are the
members of the Joint Venture. Crown and MCNIC will be entitled
to the protections and benefits afforded by the Utah Limited
Liability Company Act (the "Act"). Under the Act, members of
limited liability companies are afforded limited liability
protection similar to that afforded to shareholders of a
corporation in that the members' risk from the operation of the
enterprise is limited to the loss of the member's investment
without recourse to the members' other assets. Accordingly,
except as described below in connection with the Company's
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Guaranty of Crown's obligations, neither the Company nor Crown
will face liability from the operation of the Joint Venture which
exceeds the value of the oil sands properties and other capital
contributions made to the Joint Venture.
Sharing In Profits and Losses of the Joint Venture
MCNIC and Crown will initially own shares of 75% and 25%,
respectively, in the profits, losses and obligations of the Joint
Venture. Once the first processing plant is built by the Joint
Venture and the economic operations of the Joint Venture are
successful to the extent of paying out profits to MCNIC equal to
115% of its investment in the Joint Venture, excluding tax
benefits, Crown's interest in the Joint Venture will increase to
50%. Thereafter the Joint Venture may build other plants to
further develop the oil sands reserves. These plants will
require additional capital contributions from Crown and MCNIC,
which are described in more detail below. Crown or the Company
may participate up to 50% in additional facilities and there are
provisions for the Company to retain an interest in these
facilities after the recoupment of certain amounts in the event
the Company does not participate in its costs of such additional
facilities, asprovided in the "Back-In Option.
Required Capital Contributions from Crown and MCNIC
The Joint Venture will proceed in phases, in order to shepherd
the risks and resources of the Members. Each phase calls for the
Members to contribute new capital to move the Joint Venture
through the next phase. The first phase is now underway, this
phase calls for detailed engineering and verification of the oil
sands reserves of the Company. Approval by the Shareholders of
the Company for the transfer of the oil sands reserves and the
other Company property to the Joint Venture is part of this first
phase. MCNIC and Crown have already agreed to contributed
capital to the Joint Venture to achieve the first phase of
$300,000 and $100,000 respectively. This first phase is
scheduled to be completed by November 1, 1997, subject to the
Shareholders approval.
Based on the results of the first phase, either Crown or MCNIC
may choose to abandon the Joint Venture. If MCNIC elects not to
proceed, Crown retains all of the oil sands reserves and its
processing technology, but Crown may not recover its $100,000
initial contribution. If Crown elects not to proceed but MCNIC
wishes to do so, Crown must contribute to the Joint Venture a
sublicense of its License of proprietary oil sands extraction
technology from Park Guymon Enterprises and the oil sands
reserves, subject to Shareholder approval at the Annual Meeting,
and also subject to Crown's the Back-In Option, defined below.
Assuming Crown and MCNIC both elect to proceed with the
construction of the first processing plant, Crown must contribute
the following to the Joint Venture:
1. Crown's rights as lessee under certain equipment leases on
mining equipment with a fair market value of up to $3.5
million dollars (MCNIC has agreed that this contribution
will be accepted in lieu of $3.5 million in cash);
2. A sublicense of Crown's License of proprietary oil sands
refining technology from Park Guymon Enterprises;
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3. The oil sands reserves. (These properties are initially
valued for the first facility at $500,000); and
4. An amount of cash, if any, needed to bring Crown 's new
capital contributions up to 25% capital to construct the
Initial Plant, giving full credit to the $3.5 million of
equipment leases and the $500,000 of property rights in 1
and 3 above.
MCNIC will fund 75% of the amounts required by the Joint Venture
to construct the Initial Plant and to operate the Joint Venture.
It is presently estimated that the first Plant (the "Initial
Plant") will cost $15 million to construct, but the foregoing
number may be modified during the conducting of detailed
engineering.
Both Members may make such additional contributions as may be
required or agreed in the course of building the Initial Plant.
Penalties for Failure to Contribute Capital as Required
In the event either Crown or MCNIC (the "Delinquent Member")
fails to contribute as required, the Joint Venture or the other
Member (the "Non-Defaulting Member") may exercise several
specified remedies provided that under no circumstances may the
Delinquent Member be liable for more than the obligation owed.
The remedies which may be exercised by the Non-Defaulting Member
include, (i) legal action to collect the payment to the Joint
Venture by the Delinquent Member, together with interest thereon;
and (ii) the election by Non-Defaulting Member to advance the
Delinquent Member's contribution to the Joint Venture and
designate whether such advance is to be treated as a Capital
Contribution by the Non-Defaulting Member or as a loan repayable
on demand. In the event that the Non-Defaulting Member elects to
treat its advance as a Capital Contribution to the Joint Venture,
the Delinquent Member's interest in the Joint Venture will be
reduced by the percentage which the unpaid contribution bears to
the total Capital Contributions of all of the Members, including
the contribution made by the Non-Defaulting Member.
In order to secure any loan made by the Non-Defaulting Member to
the Delinquent Member, the Delinquent Member will also be
required to grant to the Joint Venture and to the Non-Defaulting
Member a security interest in the Delinquent Member's interests
in the Joint Venture.
Conditions Precedent to the Requirements to Contribute Capital
to the Joint Venture; Representations and Warranties
MCNIC and Crown have made representations, warranties and
covenants to each other in the Joint Venture agreements, and
these have been reviewed and approved by the management and legal
counsel of both Members. The obligations of both Members to
contribute capital to the Joint Venture are subject to the
satisfaction of certain conditions precedent, including the prior
performance of required acts by the other party, the truthfulness
of the representations and warranties made by the Members to each
other in the Joint Venture agreements, and the ongoing legal and
practical ability of the Joint Venture to perform as intended by
the Members.
Once certain time periods have passed and/or certain events have
occurred, the failure to make required capital contributions by a
Member may have different consequences.
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Subsequent Plants
Under the Joint Venture Operating Agreement, the Members may
construct up to two subsequent plants (the "Subsequent Plants"),
similar to the Initial Plant if the economics of the Joint
Venture's oil sands processing business so permit. In summary, a
Subsequent Plant may be constructed if certain economic returns
(approximately 18% on 50% of its Capital Contributions to the
Joint Venture or any Successor Joint Venture during any 12 month
period) have been experienced by MCNIC from the first processing
plant and if the Members believe or are independently advised
that a sufficient market exists to allow for the operation of the
Subsequent Plant without damaging the competitive position or
returns of the earlier already built plants. The agreement of
MCNIC and Crown is that any Subsequent Plant will be held and
operated by a separate legal entity (a "Successor Joint Venture")
formed by the Members with similar provisions as the Joint
Venture entity described above. Crown may elect to participate
in either of the Subsequent Plants and may obtain, at its option,
between 10% and 50% of the interests in the newly formed entity.
A portion of Crown's obligations to contribute to the Successor
Joint Venture may be satisfied through the value of the
contributed properties which Crown may be credited with, as
described below.
Following the determination by both Members or one Member to
proceed with the construction of a Subsequent Plant, the Joint
Venture will convey to the Successor Joint Venture sufficient oil
sands reserves or other property and water rights to enable it to
sustain operations in accordance with the applicable projections
and market study. If, during the twelve months prior to the sale
of products from the first Subsequent Plant, MCNIC has realized a
return of approximately 30% on 50% of its Capital Contributions
to the Joint Venture, Crown will be credited with a value for
these reserves and properties equal to $.10 per barrel for the
products estimated to be produced from the plant over a 20 year
period.
If Crown elects not to proceed with any Subsequent Plant, and to
not make the needed capital contributions to build and operate
the Subsequent Plant, Crown will have a reduced interest in the
Subsequent Plant (but will still be credited with an interest
equal to the value of the contributed properties if the requisite
return is achieved), subject to an escalation under the Back-In
Option.
Whether or not Crown elects to proceed with either Subsequent
Plant, if the Subsequent Plants reach certain levels of economic
success (approximately 115% of its investment without giving
effect to any tax benefits), Crown will receive an increased
interest of 10% in the Subsequent Plant as a result of its oil
sands properties and technology being used by the Subsequent
Plant(s).
Management of the Joint Venture; Major Decisions
The Joint Venture is governed by a Management Committee
consisting of five Managers. Initially, MCNIC is entitled to
appoint four Managers and Crown, one Manager. MCNIC's Manager
appointees have yet to be named. Crown's Manager appointee is
Mr. Jay Mealey, the Company's President. A Chairman of the
Management Committee is elected by a majority vote of the
Managers. Managers may be removed or replaced from time to time
by the Member which appointed them.
When the first plant is completed both Crown and MCNIC will be
entitled to appoint one Manager for each 20% of Joint Venture
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interest held by that Member (rounded to the nearest 20% level),
provided, that MCNIC and Crown shall each be entitled to at least
one Manager at all times that they are Members of the Joint
Venture. The size of the Management Committee may be increased
to six Managers if the foregoing calculation requires it.
In carrying out their duties, each Manager is required to manage
the Joint Venture in a good faith manner and with such care as an
ordinarily prudent person in a like position would exercise under
similar circumstances. The Managers shall not be liable to the
Joint Venture or to any Member for their good faith actions or
failures to act or for any errors of judgment or for any acts or
omissions believed in good faith to be within the scope of their
authority. Further, subject to the limitations of the Act, the
Joint Venture will indemnify and hold harmless each of the
Managers and any of the Joint Venture's officers, as described
below, from and against any third party claims arising as a
result of any good faith act or omission of any such Manager or
officer. The Joint Venture's obligation to indemnify the
foregoing persons, however, is limited to the extent of the net
assets of the Joint Venture.
The Managers may designate one or more persons to act as
officers of the Joint Venture. Such officers may bear the titles
and responsibilities typically associated with a business
corporation formed under the Utah Revised Business Corporation
Act, such as "President" or "Managing Director", etc. The
Managers shall serve without receiving any fee or salary from the
Joint Venture, but shall be entitled to reimbursement by the
Joint Venture for any reasonable out-of-pocket costs incurred on
the Joint Venture's behalf.
Management decisions shall generally be made through a majority
vote of the Managers. However, the certain "Major Decisions"
such as: (i) the approval of the detailed engineering for the
first plant; (ii) the approval of, or substantial amendment to,
the annual operating plan (the "Annual Operating Plan"); and
(iii) calls for additional Capital Contributions (except for
calls contemplated by the EPC Contract and those required to
maintain the Joint Venture in emergencies); most distributions to
the Members, require unanimous approval of the Managers.
The Joint Venture's operations shall be conducted each year
pursuant to an Annual Operating Plan. The Annual Operating Plan
shall address all aspects of the Joint Venture's operations for
the coming year, including budgeting for operations, the mining
of oil sands products and the marketing of those products. In
the event the Management Committee is unable to unanimously
approve an Annual Operating Plan for any given calendar year, a
majority of the Managers shall have the authority to continue to
maintain the Joint Venture's operations at levels comparable to
those approved under the last Annual Operating Plan.
Additional Opportunities Within the Project Area and Area of
Mutual Interest
The Joint Venture may elect to pursue Additional Opportunities
in its Project Area which are brought to its attention by one of
its Members. Should the Joint Venture elect to pursue such an
Additional Opportunity, it may do so either through the Joint
Venture entity or by forming a new company containing terms and
provisions substantially similar to those of the Joint Venture.
In the event that the Joint Venture does proceed with any
Additional Opportunity, Crown shall have the right, but not the
obligation, to obtain an equity interest in each such Additional
Opportunity of no less than 10% and no greater than 50% (with
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MCNIC obtaining the remaining interest). If the Management
Committee determines not to proceed with the Additional
Opportunity, any Member of the Joint Venture may then do so
alone, subject to the Back-In Option, discussed below, of the
nonparticipating Member.
If either Member desires to develop any interests in real
property, fixtures or improvements within the State of Utah
relating to the processing of oil 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 intellectual property covered by the
Crown Sublicense or any derivation thereof (an "AMI
Opportunity"), the AMI Opportunity must first be offered to the
Joint Venture. Crown or the Company, shall then have the option,
but not the obligation, of acquiring (i) up to a 50% equity
interest if the AMI Opportunity relates to, or is designed for,
the production and sale of asphalt or performance grade asphalt;
or, (ii) up to a 66b% equity interest if the AMI Opportunity
relates to the production of synthetic crude oil, diesel fuel or
any other similar products.
If the Joint Venture elects not to proceed with the AMI
Opportunity, the Member who brought the opportunity to the Joint
Venture may proceed alone and the nonparticipating Member shall
have no further interest in the activity covered by such
opportunity. Except as limited in the discussion above, each
Member of the Joint Venture shall have the right to independently
engage in any business activities except that MCNIC shall not be
entitled to use Crown's technology provided to the Joint Venture
in connection with such activities.
The Back-In Option
The Back-in Option is a means by which the Member which
initially elects not to participate in a plant may subsequently
participate at a later date upon favorable terms. The Back-in
Option shall apply if:
(i)Crown elects not to proceed with construction of the Initial
Plant following the completion of the Detailed Engineering
(and MCNIC elects to proceed);
(ii)either Member elects not to participate in the construction
of a Subsequent Plant; or
(iii) either Member elects not to participate in an Additional
Opportunity.
In the case of Crown's election not to participate in the Initial
Plant, Crown shall be entitled to receive a 50% interest in such
Plant following MCNIC's achievement of a 200% payout, as defined
below. In the case of any Subsequent Plants or Additional
Opportunity, Crown shall be entitled to a 60% interest in the
particular plant or opportunity if it is the non-participating
Member, and MCNIC shall be entitled to a 40% interest if it is
the non-participating Member, after the participating Member has
achieved a 200% payout of the costs of the respective facility.
Distributions; Allocations of Profits and Losses
The Management Committee shall cause the Joint Venture to
distribute Available Cash, as defined within the Operating
Agreement, to the Members quarterly, within 30 days following the
end of each quarter. Distributions will be made in connection
with the respective capital account balances after taking into
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account all allocations for profits and losses. Except as
expressly stated within the Operating Agreement, allocations for
profits and losses shall be made to the Members in accordance
with their respective interests in the Joint Venture.
Restrictions on Transfers of Interests; "Tag Along Rights"
Additional Members may not be admitted to the Joint Venture
without the prior written consent of all Members. In addition,
in the event that a Member (the "Soliciting Member") proposes to
sell or otherwise dispose of all or any part of its membership
interest in the Joint Venture, it must first notify the other
Member (the "Notified Member"), of such intent. The Notified
Member shall then have the option to present the Soliciting
Member with an offer to purchase its interest. The Soliciting
Member shall, in turn, have the option of accepting the Notified
Member's offer or of selling its interest to a third party for a
higher price.
Following the receipt by a Member of an offer to purchase its
interest in the Joint Venture from a third party, the remaining
Member may require the third party purchaser to also purchase a
proportionate share of its interests on identical terms. If
Crown is the non-transferring Member, the notice pursuant to
which the "Tag Along Rights" are triggered must also expressly
indicate whether the third party intends to remove Crown as the
Joint Venture operator under the Management Agreement, described
below.
Dissolution and Termination
The Joint Venture may be dissolved upon:
(i)the consent in writing of all Members,
(ii)the election by any nondefaulting Member following written
notice to the Joint Venture that the other Member is in
default of any material obligation under the Agreement and
the failure of such default to be cured (or efforts to cure
commenced) within 90 days;
(iii) the sale of all, or substantially all, of the assets of
the Joint Venture,
(iv)the occurrence of an event under the Act that causes the
dissolution of a limited liability company;
(v)unless the Members unanimously agree otherwise, the failure
of the Joint Venture to commence construction of the first
processing plant by January 1, 1999; or
(vi)if after commencement of construction of the first
processing 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.
Upon dissolution, the Management Committee shall appoint one or
more liquidators to wind up the affairs of the Joint Venture. If
the Joint Venture is dissolved at any time prior to commencement
of the construction of the Initial Plant, the oil sands reserves
and the technology will revert 100% back to Crown. Should the
Joint Venture be dissolved at any time after commencement of the
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construction of the Initial Plant, the liquidator of the Joint
Venture shall not have the right to sell the oil sands reserves
or the technology as part of the winding up process, but rather
such reserves and technology shall be distributed to Crown to the
extent of Crown's adjusted capital account balance. Any oil
sands reserves which remain following the foregoing distribution
to Crown may be distributed in kind to MCNIC.
During the five year period following the above distribution of
oil sands reserves in kind, either Member may only develop the
reserves its received from the Joint Venture after giving 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 if such development were an AMI
Opportunity (see above).
Indemnification
Crown will indemnify MCNIC and the Joint Venture against (i) any
claims, demands, causes of action, losses or damages incurred
with respect to the oil sands reserves which accrued prior to the
time Crown contributed the reserves to the Joint Venture; (ii)
any violation or breach of applicable environmental laws by the
Company or by Crown or their respective predecessors in title; or
(iii) any breach of any representation, warranty or covenant by
Crown. The sole remedy of MCNIC for any claim relating to the
loss of title to any portion of the reserves shall be Crown's
obligation to contribute to the Joint Venture the amount of such
loss or damage incurred up to $500,000 in the aggregate.
MCNIC is also required to indemnify Crown, the Company and the
Joint Venture against any losses from any claims, demands, causes
of action, losses, damages, liabilities, costs and expenses
incurred by any of the foregoing parties which result from a
breach by MCNIC of any warranty, agreement or covenant.
The Guaranty
MCNIC has required and the Company has agreed that the Company
will guarantee, for a period of two years, the obligations of
Crown under the Joint Venture agreements.
Management Agreement
Pursuant to a "Management Agreement", Crown will act as the
"Operator" of the first processing plant upon commencement of
operations. Under the Management Agreement, Crown will act as an
independent contractor to the Joint Venture and will (i) manage,
supervise and conduct the operations of the Joint Venture; (ii)
carry out the terms of the Annual Operating Plan adopted and
approved by the Management Committee of the Joint Venture; (iii)
implement the decisions made and instructions given from time to
time by the Management Committee. As compensation for the
services rendered under the Management Agreement, Crown will
receive (i) a monthly fee of $3,000; (ii) the payment of all out-
of-pocket expenses incurred through the performance of its
duties; (iii) the payment of the reasonable salaries, wages,
overtime and other similar compensation paid to employees who are
employed full time in connection with the operations of the Joint
Venture; and (iv) a monthly home office overhead charge of
$10,000.
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During the first two years, Crown may be removed as Operator
only for "good cause" as defined within the Management Agreement.
After this initial term, the agreement will automatically renew
for unlimited succeeding one year terms unless either party
indicates its desire to not renew within 90 days of the
expiration of the term. Also following the expiration of the
initial term, the Joint Venture may challenge Crown's status as
Operator on economic grounds by serving written notice to Crown
that it believes that the operations of the Plant may be
conducted more efficiently and cheaply and that it is willing to
become the Operator (or has a bona fide commitment from a third
party to do so) on a reduced charge basis. Following the receipt
of the economic challenge, Crown will have 30 days to notify the
Joint Venture that it elects to (i) allow the Joint Venture, or
its designee, to become the Operator under the proposed terms, or
(ii) continue as the Operator under the proposed terms.
Tax Effects of Contributing the Oil Sands Reserves and Technology
to the Joint Venture
Because the contribution of the oil sands reserves and the
technology to the Joint Venture will constitute a tax free
transaction by the Company, the Shareholders will not suffer an
adverse tax affect as a result.
RIGHTS OF DISSENTING SHAREHOLDERS
Requirements of Utah Law.
Under Utah law, a Shareholder who has perfected dissenter's
rights with respect to the MCNIC Joint Venture will be entitled
to receive in cash the fair value of his shares of the Company's
Common Stock, if and when the Company contributes its property to
the MCNIC Joint Venture, as described above. To perfect
dissenter's rights, a Shareholder must comply with the
requirements included in Part 13 of Chapter 10a of Title 16 of
the Utah Code.
The following is a summary of steps that Shareholders must take
for effective exercise of dissenters' rights. This summary is
qualified in its entirety by reference to the provisions of Utah
law creating and governing dissenters' rights, a copy of which is
included as Appendix "B" to this Proxy Statement. Any
Shareholder contemplating the exercise of dissenters' rights is
urged to review Appendix "B" carefully.
1. Action At or Prior to Special Meetings. A Shareholder
wishing to assert dissenters' rights must NOT vote in favor of
the MCNIC Joint Venture, and the Shareholder must send or deliver
a notice of dissent to the Company prior to or at the Annual
Meeting, but before the vote on the MCNIC Joint Venture is taken.
2. Shareholder Status. To claim dissenters' rights, a
Shareholders must have been a shareholder of the Company on the
Record Date.
3. Information and Payment to Be Submitted By the Company.
Within 10 days after the vote on the MCNIC Joint Venture, the
Company must notify all Shareholders who informed the Company
prior to the vote that they would claim dissenters' rights of the
results of the vote and with respect to the process to be
followed for redeeming the dissenting Shareholders' shares for
cash as provided in the Utah Code. The Company will provide
financial information and its calculation of the fair market
value of the Company's shares, along with a check for the same
amount, as part of the information required to be provided to
dissenting shareholders.
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4. Acceptance of Payment For Shares. Any Shareholder who
accepts the Company's calculation and offer of fair value for his
shares in the Company will be deemed to have settled with the
Company unless within 60 days of receiving the Company's offer,
the dissenting Shareholder commences an action in Third District
Court in Salt Lake City to dispute the Company's valuation of the
dissenting shares.
If a dissenting Shareholder votes against the transfer of
oil sands reserves and related technology to the MCNIC Joint
Venture but otherwise fails to perfect a dissent, or who notifies
the Company of his intent to dissent, but then votes in favor of
the transfer to the MCNIC Joint Venture shall have effectively
lost his or her right to appraisal of and payment for the fair
value of his or her shares, and such dissenting Shareholder shall
be treated identically to a nondissenting Shareholder.
ANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF DISSENTERS'
RIGHTS WITH RESPECT TO HIS OR HER SHARES IS URGED TO REVIEW
CAREFULLY THE PROVISIONS OF APPENDIX "B" INASMUCH AS
DISSENTERS' RIGHTS MAY BE LOST IF THE REQUIREMENTS OF UTAH
LAW ARE NOT FULLY AND PRECISELY SATISFIED.
Tax Consequences to Dissenting Shareholders.
The redemption of a dissenting Shareholder's shares in the
Company by the Company pursuant to Utah law, as described above,
is equivalent to a sale of such shares under Federal and State
income tax laws. The cash received from the Company will be
taxable as a capital gain to the extent the value received from
the Company is in excess of the dissenting Shareholder's basis in
his shares. Whether the gain will be taxed as long term capital
gains or short term capital gains will depend on how long the
dissenting shareholder has held his shares.
Dissenting shareholders should consult their own tax advisor(s)
for a full understanding the tax effects on them from and
exercise of dissenters rights in connection with the MCNIC Joint
Venture.
SHAREHOLDER PROPOSALS
Any proposals that shareholders of the Company desire to have
presented at the Company's 1998 Annual Meeting of Shareholders
must be received by the Company, at its principal office, no
later than April 15, 1998, or within a reasonable period of time
prior to the solicitation of proxies for such meeting. All such
proposals should be transmitted to the Company by Certified
United States Mail, with return receipt requested.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity
securities, to file certain reports regarding ownership of and
transactions in the Company's securities with the Securities and
Exchange Commission (the "SEC"). Such officers, directors and
ten-percent stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms that
they file.
21
<PAGE>
Based solely on its review of copies of such forms or "no
filings required" letters received by it, the Company believes
that during the fiscal year ended December 31, 1996, all of its
officers, directors and ten percent shareholders complied with
all applicable requirements of Section 16(a).
OTHER MATTERS
The Company knows of no other matters that will be presented at
the 1997 Annual Meeting of Shareholders. If any other matter
properly comes before the Meeting, it is the intention of the
persons named as proxies on the Proxy Cards to vote all common
shares represented by such Proxy Cards in accordance with the
directions of the present Board of Directors.
By Order of the Board of Directors
/S/Richard S. Rawdin
Richard S. Rawdin
Secretary
245341
<PAGE>
This document is being submitted as required by 14(A)3 of
schedule 14(A) and will not be attached as an appendix to
the proxy statement mailed to the shareholders.
OPERATING AGREEMENT
FOR
CROWN ASPHALT RIDGE L.L.C.
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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
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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
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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
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11.5 Place of Meeting 54
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
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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
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
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<PAGE>
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)
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<PAGE>
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
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<PAGE>
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 50 W. Broadway, Salt Lake City, Utah 84101.
1.5 Principal Place of Business . The location of the
principal place of business of the Company shall be at
215 South State, Suite 550, Salt Lake City, Utah 84111, 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 150 West
Jefferson Avenue
Suite 1700
Detroit, Michigan 48226
Crown Asphalt Corporation 215 South State
Suite 550
Salt Lake City, Utah 84111
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<PAGE>
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.
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<PAGE>
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 1.704-2(g)(1) and 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 1.704-2(d)
of the Treasury Regulations) and in the minimum gain
attributable to any Member for nonrecourse debt (as
determined under 1.704-2(i)(3) of the Treasury
Regulations); and
(b) Debit to such Capital Account the items
described in 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 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).
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<PAGE>
"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).
"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
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<PAGE>
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).
"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.
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<PAGE>
"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.
"Effective Date" shall mean August 1, 1997.
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<PAGE>
"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
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<PAGE>
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.
"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
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<PAGE>
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.
"Guymon" shall mean Park Guymon Enterprises, Inc.
"Guymon License" shall mean that License Agreement
dated as of January 20, 1989, between Park Guymon
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.
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"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.
"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).
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<PAGE>
"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
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<PAGE>
(iii) depreciation, depletion and
amortization.
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
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<PAGE>
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 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.
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<PAGE>
"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.
"Profit or Loss" shall mean the income or loss of the
Company as determined under the capital accounting rules of
Treasury Regulation 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.
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<PAGE>
"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.
"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.
#325596.v2
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<PAGE>
"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
#325596.v2
17
<PAGE>
upon Crown's determination to proceed with the development
of the Initial Plant:
(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 Guymon 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 Guymon 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.
#325596.v2
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<PAGE>
(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
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
#325596.v2
19
<PAGE>
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.
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.
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<PAGE>
(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
(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
#325596.v2
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<PAGE>
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 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-
#325596.v2
22
<PAGE>
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.
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
#325596.v2
23
<PAGE>
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
#325596.v2
24
<PAGE>
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.
(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 Guymon
written confirmation reasonably satisfactory to MCNIC
confirming that (i) the Guymon 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
Guymon 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
#325596.v2
25
<PAGE>
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
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
#325596.v2
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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 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
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(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 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
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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 Guymon 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 Guymon License is valid and has not been
terminated and no party to the Guymon 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.
(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 Guymon License have heretofore been
granted, including any options or contingent interests, to
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<PAGE>
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 Guymon 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 E.
Guymon Enterprises, Inc., pursuant to the Guymon 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
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<PAGE>
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 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.
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(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
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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.
(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
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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
Environmental Law; (v) any radioactive material, including
any source, special nuclear or by-product material as
defined at 42 U.S.C. 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
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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 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.
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(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.
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.
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.
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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% mark (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
(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
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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));
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(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;
(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
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(xviii) the selection of the auditor to
conduct the audit described in Section 12.6.
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.
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,
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(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."
(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
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<PAGE>
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.
(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
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<PAGE>
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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<PAGE>
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
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
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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 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
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<PAGE>
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.
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<PAGE>
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
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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 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
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<PAGE>
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 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
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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.
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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.
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<PAGE>
(a) Decision to Construct Plant 2.
(i) If:
(A) the Initial Plant 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 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
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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
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(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:
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(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 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:
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<PAGE>
(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 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
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<PAGE>
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 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:
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(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 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
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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.
(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
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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
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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
Member's Capital Accounts into 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:
(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:
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(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 1.704-2(f), if there is a
net decrease in partnership minimum gain (as defined in
Treasury Regulation 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 1.704-2(f) and
1.704-2(j)(2).
(c) Member Minimum Gain Chargeback. Except as
otherwise provided in Treasury Regulation 1.704-2(i)(4),
if there is a net decrease in Member nonrecourse debt
minimum gain (as defined in Treasury Regulation 1.704-
2(i)(2) and 1.704-2(i)(3)) attributable to a Member
nonrecourse debt (as defined in Treasury Regulation 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 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
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 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 as possible.
(e) Member Nonrecourse Deductions. Any Member
nonrecourse deductions (as defined in Treasury Regulation
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 1.704-2(b)(4)) to
which such Member nonrecourse deductions are attributable in
accordance with Treasury Regulation 1.704-2(i)(1).
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(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
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 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
1.752-3(a)(3), the Members' interests in Profits shall be
their Sharing Ratios.
(c) To the extent permitted by Treasury
Regulation 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 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.
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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 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 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.
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
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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.
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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.
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.
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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
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.
(b) Consistent with the provisions of Treasury
Regulation 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
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 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.
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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, 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
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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.
(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.
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(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 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
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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.
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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
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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.
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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
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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). 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
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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 VI. The 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.
(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
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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, 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.
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(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 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
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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 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
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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
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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 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.
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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:
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If to MCNIC:
MCNIC Pipeline & Processing Company
150 West Jefferson Avenue
Suite 1700
Detroit, Michigan 48226
Attention: William E Kraemer
Facsimile: (313) 256-6918
with a copy to:
MCN Energy Group
500 Griswold
10th Floor
Detroit, Michigan 48226
Attention: Daniel L. Schiffer, Esq.
Facsimile: (313) 965-0009
If to Crown:
Crown Asphalt Corporation
215 South State
Suite 550
Salt Lake City, Utah 84111
Attention: Mr. Jay Mealey
Facsimile: (801) 537-5609
If to Crown Parent:
Crown Energy Corporation
215 South State
Suite 550
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Salt Lake City, Utah 84111
Attention: Mr. Jay Mealey
Facsimile: (801) 537-5609
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.
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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.
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/Joseph L. Roberts
Name: Joseph L. Roberts
Title: President
Date: September 3, 1997
CROWN ASPHALT CORPORATION
By: /s/Jay Mealey
Name: Jay Mealey
Title: President
Date: September 3, 1997
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Schedule 2.1
Crown Intellectual Property
That certain License Agreement dated January 20, 1989
between Park Guymon Enterprises and Crown Asphalt
Corporation (formerly BuenaVentura Resources Corporation)
for the Territory covering the state of Utah relating to the
solvent/surfactant wash process for extraction of bitumen
from tar sands.
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Schedule 2.2
Detailed Engineering
I. Engineering
A. Complete PFD
B. Complete equipment data sheets for equipment and bid
long lead equipment
C. Complete soils testing and foundation design
D. Select plant site and establish elevations for
equipment layout
E. Complete technical/location issues for utilities
F. Complete and "freeze" P&ID for process facility
G. Obtain firm quote for EPC Contract
II. Reserve Verification
A. Complete a core hole twin to prior SOHIO core hole
and test oil saturation to verify prior reserve
data. (If correlation does not verify prior data,
drill additional core holes).
B. Award contract for mine plan development
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Schedule 2.3
Existing Data
1. Reserve Report prepared by SOHIO for Asphalt Ridge
2. Report of the Initial Production Facility prepared by
SWACO Geologaph
3. Mine Pre-feasibility Study prepared by Weir
International Mining Consultants
4. Opinion of Probable Costs prepared by Redd Engineering
5. Copies of Permits
Utah Division of Oil, Gas and Mining
Utah Division of Air Quality
Utah Division of Water Quality (Permit-by-Rule letter)
Uintah County, Utah Conditional Use Permit
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Schedule 3.3(a)(i)
Leased Equipment
The equipment necessary for Mining operations at the Project
which generally includes the following (the actual equipment
is subject to change upon completion of a detailed mine
plan):
Item Manufacturer Model X
Sand Loader O & K 40D
Haul Trucks (3) Caterpillar 769C (40 ton)
Tractor Truck Dump Caterpillar D8N
Loader Sand Dump Caterpillar 938F
Crusher Schroeder Industries FB50-72-2
Conveyor - Tailings Continental Conveyor 30"X1,400'
@ 150 tph
Truck Mech Hvd Duty Ford/Chevrolet F60C
Pick Ups Ford/Chevrolet 3/4 T 4X4
Welder Mobile 400 Amp
Light Towers20-30 KW
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Schedule 4.2
Litigation
NONE
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Schedule 4.3
Compliance Matters
NONE
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Schedule 4.6
Project Area
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Schedule 4.6(a)(i)
Fee & Titled Interests
Crown and BVRC owns no fee titled interests, patented mining
claims, patented millsites or severed or reserved mineral
interest relating to the Properties.
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Schedule 4.6(a)(ii)
Leases
Lease
Number Lessor Description
BVR-001 USITLA Township 4 South, Range 21 East, S. L.
B. & M.
ML-44027 Section 30: NE/4SE/4
Section 31: LOTS 1, 2, E/2NW/4, SE/4SW/4
BVR-002 USITLA Township 5 South, Range 20 East, S. L.
B. & M.
ML-44028 Section 1: LOTS 1, 2, S/2NE/4
BVR-003 USITLA Township 5 South, Range 21 East, S. L.
B. & M.
ML-44155 Section 5: LOTS 8, 9, 10, 11
Section 6: LOTS 1, 2, 3, 4, S/2N/2, SE/4
Section 8: LOTS 1, 2, 5, 6, W/2NE/4,
S/2NW/4, SW/4
Section 18: NE/4
BVR-004 USITLA Township 4 South, Range 21 East, S. L.
B. & M.
ML-44156 Section 19: LOTS 1, 2, 3, 4, E/2SW/4,
W/2SE/4, W/2SE/4SE/4
BVR-005 USITLA Township 4 South, Range 20 East, S. L.
B. & M.
ML-44428 Section 24: LOTS 3, 4, W/2SE/4
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BVR-007 USITLA Township 4 South, Range 20 East, S. L.M.
ML-44590 Section 24: S/2SW/4
Section 25: LOTS 3, 4, W/2, W/2SE/4
BVR-008 USITLA Township 4 South, Range 21 East, S. L.M.
ML-44591 Section 30: N/2NE/4, SE/4NE/4
BVR-009 USITLA Township 4 South, Range 21 East, S. L.
B. & M.
ML-44597 Section 31: LOTS 1, 2, 3, 4, E/2W/2
BVR-010 WEMBCO Township 4 South, Range 21 East, S. L.M.
FEE Section 30: W/2SE/4, SE/4SE/4
Section 31: W/2NE/4, SE/4NE/4, SE/4,
NE/4NE/4
Section 32: SW/4
Township 4 South, Range 20 East, S. L.M.
Section 23: S/2NE/4, N/2SE/4
Section 24: S/2NW/4, N/2SW/4
Reserving and excepting from Lease BVR-010 an amount
equal to $134,450.12 which represents the advanced
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minimum royalty paid by Crown through the Effective
Date pursuant to the lease terms. Royalties will be
paid directly to Crown until the full amount is
recouped after which royalties will be paid to the
Lessors in accordance with the lease terms.
Lease
Number Lessor Description
BVR-012 USITLA Township 4 South, Range 21 East, S. L.M.
ML-46289 Section 31: LOTS 3,4, NE/4SW/4
Section 32: S/2NE/4
BVR-013 USITLA Township 4 South, Range 21 East, S. L.
B. & M.
ML-46672 Section 19: LOTS 1, 2, 3, 4, E/2SW/4,
W/2SE/4, W/2SE/4SE/4
Section 32: W/2NW/4, SE/4NW/4
BVR-014 USITLA Township 5 South, Range 21 East, S. L.
B. & M.
ML-46673 Section 10: SW/4SW/4
Section 23: LOTS 9 & 10, W/2SE/4
Section 25: LOT 11
Section 26: E/2
BVR-015 USITLA Township 5 South, Range 22 East, S. L.
B. & M.
ML-46803 Section 30: LOT 4, SE/4SW/4
Section 31: LOTS 1, 2, 4, E/2NW/4, NE/4
BVR-016 USITLA Township 6 South, Range 22 East, S. L.
B. & M.
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ML-46905 Section 5: LOT 1, S/2
Section 6: LOTS 1, 2, 6, 7, S/2NE/4,
SE/4, E/2SW/4
BVR-017 USITLA Township 5 South, Range 21 East, S. L.M.
ML-47446--OBA Section 35: ALL
Section 36: ALL
BVR-018 A.R.I. Township 4 South, Range 20 East S.L.M
(Option to Lease) Section 25: NE/4
Township 4 South, Range 21 East S.L.M
Section 30: NW/4
Township 5 South, Range 21 East S.L.M
Section 4: SW/4NW/4, NW/4SW/4, E/2SW/4
Section 15: W/2NW/4, SE/4NW/4, SW/4NE/4
Section 25: W/2, SE/4
1. Township 5 South Range 22 East S.L.M
Section 31: SE/4, NW/4SW/4, E/2SW/4
Section 32: SW/4
A lease document for this option with
final terms has not been executed. The option expires
September 15, 1997.
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Schedule 4.6(a)(iii)
Unpatented Mining Claims
Enterprise #1 Unpatented Placer Mining Claim UMC 266760
Township 4 South Range 20 East
Section 31: SE/4
This unpatented claim was leased to the Company from
Wembco, Inc. by the Oil, Gas and Minerals Lease (#010)
described in Schedule 4.6(a)(ii).
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Schedule 4.6(a)(iv)
Water Rights
Two second feet of water which was segregated from the Utah
Division of Water Rights Water Application No. 29105 (49-
219) and assigned to Wembco, Inc. from Standard Oil
Alternate Development Company on August 8, 1986. This water
right was leased to the Company from Wembco, Inc. by the
Oil, Gas and Minerals Lease (#010) described in Schedule
4.6(a)(ii).
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Schedule 4.6(h)(i)
Permits
Agency Permit
Division of Air Quality Notice of Intent (NOI)*
Division of Oil, Gas and Mining NOI - Large
Mining Operations*
Division of Water Quality Ground Water
Discharge Permit*
Utah Pollutant Discharge
Elimination System Permit
(UPDES)**
Division of Water Rights Water Appropriation
Division of State History Jurisdiction of State
Historic Preservation
Officer
Uintah County Conditional Use Permit*
Building Permits
Sanitary Waste Permit (if
necessary)
U. S. Environmental
Protection Agency Spill Prevention Control
and Countermeasures Plan**
U. S. Department of the Treasury Explosives Permit
(if necessary)
Department of Labor
MSHA Legal Identity Report
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* Approval received
** Approval upon filing
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Schedule 4.6(h)(ii)
Compliance Expenditure Obligations
There are no outstanding material commitments to federal,
state or local governmental authorities that require Crown
to expend funds.
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Schedule 4.6(l)
Material Contracts
I. A Joint Venture Agreement dated December 31, 1995
between Crown, formerly BuenaVentura Resources
Corporation (BVRC), and Eagle Bay Resources, Inc. for
the manufacture and sale of pre-packaged road repair
and surfacing products. MCNIC has received a full copy
of the agreement and all amendments.
II. A Tar Sands Supply and Mining Agreement dated May 15,
1996 between Crown, formerly BVRC, and Uintah County
which provides for the expansion of Uintah County's
mine and removal of overburden in return for the
dedication of tar sands ore to Uintah County. MCNIC
has received a full copy of the agreement and all
amendments.
III. A Participation Agreement dated March 28, 1994 between
Crown, formerly BVRC, and Asphalt Ridge Limited
Partnership Net Profits Agreement with Asphalt Ridge
Limited Partnership (ARLP) wherein ARLP is entitled to
a 2.5% net profits interest, proportionately reduced
upon certain conditions. MCNIC has received a full
copy of the agreement and all amendments.
IV. A License Agreement dated January 20, 1989 between Park
Guymon Enterprises, Inc. and Crown, formerly BVRC,
amended effective July 1, 1993 and July 1, 1996,
licensing the use of certain process technology to
remove bitumen from tar sands. The agreement provides
for a 2% Production Royalty on Net Returns to the
Licensor. MCNIC has received a full copy of the
agreement and all amendments.
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Schedule 4.6(m)
Crown Parent Financial Statements
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PROXY
CROWN ENERGY CORPORATION
215 South State Street, Suite 550, Salt Lake City, UT 84111
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The Undersigned stockholder of CROWN ENERGY CORPORATION (the
"Company") hereby appoints JAMES A. MIDDLETON and the Corporate
Secretary of Crown Energy Corporation as proxies of the undersigned,
with the powers the undersigned would possess if personally present,
and with full power of substitution, to vote all shares of Common
Stock of the Company at the annual meeting of stockholders of the
Company to be held on Tuesday, October 21, 1997, at 2:30 p.m.,
Mountain Standard Time, in Salon I of the Doubletree Hotel, 255
South West Temple, Salt Lake City, Utah, and any adjournment or
postponement thereof, upon all subjects that may properly come
before the meeting, including the matters described in the proxy
statement furnished herewith, subject to any directors indicated
below.
PROPOSAL 1 -- Election of Directors:
(__) FOR all four nominees listed below.
(__) WITHHOLD AUTHORITY to vote for all four nominees for director
listed below.
(__) FOR all four nominees for director listed below, except
WITHHOLD AUTHORITY to vote for the nominee(s) whose name(s) is
(are) lined through.
Nominees: James A. Middleton, Jay Mealey, Thomas W.
Bachtell, Richard S. Rawdin
PROPOSAL 2 -- Appointment of Pritchett, Siler and Hardy as the
Independent Accountants for the Corporation.
(__) FOR (__) AGAINST (__) ABSTAIN
PROPOSAL 3 -- Approval of Crown Energy Long-Term Equity-Based
Incentive Compensation Plan.
(__) FOR (__) AGAINST (__) ABSTAIN
PROPOSAL 4 -- Approval of Transfer of Tar Sands Reserves and Related
Technology to a Joint Venture with MCN Investment Corporation.
(__) FOR (__) AGAINST (__) ABSTAIN
PROXY
CROWN ENERGY CORPORATION
215 South State Street, Suite 550, Salt Lake City, UT 84111
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The Undersigned stockholder of CROWN ENERGY CORPORATION (the
"Company") hereby appoints JAMES A. MIDDLETON and the Corporate
Secretary of Crown Energy Corporation as proxies of the undersigned,
with the powers the undersigned would possess if personally present,
and with full power of substitution, to vote all shares of Common
Stock of the Company at the annual meeting of stockholders of the
Company to be held on Tuesday, October 21, 1997, at 2:30 p.m.,
Mountain Standard Time, in Salon I of the Doubletree Hotel, 255
South West Temple, Salt Lake City, Utah, and any adjournment or
postponement thereof, upon all subjects that may properly come
before the meeting, including the matters described in the proxy
statement furnished herewith, subject to any directors indicated
below.
PROPOSAL 1 -- Election of Directors:
(__) FOR all four nominees listed below.
(__) WITHHOLD AUTHORITY to vote for all four nominees for director
listed below.
(__) FOR all four nominees for director listed below, except
WITHHOLD AUTHORITY to vote for the nominee(s) whose name(s) is
(are) lined through.
Nominees: James A. Middleton, Jay Mealey, Thomas W.
Bachtell, Richard S. Rawdin
PROPOSAL 2 -- Appointment of Pritchett, Siler and Hardy as the
Independent Accountants for the Corporation.
(__) FOR (__) AGAINST (__) ABSTAIN
PROPOSAL 3 -- Approval of Crown Energy Long-Term Equity-Based
Incentive Compensation Plan.
(__) FOR (__) AGAINST (__) ABSTAIN
PROPOSAL 4 -- Approval of Transfer of Tar Sands Reserves and Related
Technology to a Joint Venture with MCN Investment Corporation.
(__) FOR (__) AGAINST (__) ABSTAIN
PROXY
CROWN ENERGY CORPORATION
215 South State Street, Suite 550, Salt Lake City, UT 84111
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The Undersigned stockholder of CROWN ENERGY CORPORATION (the
"Company") hereby appoints JAMES A. MIDDLETON and the Corporate
Secretary of Crown Energy Corporation as proxies of the undersigned,
with the powers the undersigned would possess if personally present,
and with full power of substitution, to vote all shares of Common
Stock of the Company at the annual meeting of stockholders of the
Company to be held on Tuesday, October 21, 1997, at 2:30 p.m.,
Mountain Standard Time, in Salon I of the Doubletree Hotel, 255
South West Temple, Salt Lake City, Utah, and any adjournment or
postponement thereof, upon all subjects that may properly come
before the meeting, including the matters described in the proxy
statement furnished herewith, subject to any directors indicated
below.
PROPOSAL 1 -- Election of Directors:
(__) FOR all four nominees listed below.
(__) WITHHOLD AUTHORITY to vote for all four nominees for director
listed below.
(__) FOR all four nominees for director listed below, except
WITHHOLD AUTHORITY to vote for the nominee(s) whose name(s) is
(are) lined through.
Nominees: James A. Middleton, Jay Mealey, Thomas W.
Bachtell, Richard S. Rawdin
PROPOSAL 2 -- Appointment of Pritchett, Siler and Hardy as the
Independent Accountants for the Corporation.
(__) FOR (__) AGAINST (__) ABSTAIN
PROPOSAL 3 -- Approval of Crown Energy Long-Term Equity-Based
Incentive Compensation Plan.
(__) FOR (__) AGAINST (__) ABSTAIN
PROPOSAL 4 -- Approval of Transfer of Tar Sands Reserves and Related
Technology to a Joint Venture with MCN Investment Corporation.
(__) FOR (__) AGAINST (__) ABSTAIN
<PAGE>
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction
is made, the Proxy will be voted "FOR" the nominees of the Board of
Directors in the election of directors and "FOR" all other
proposals. This proxy also delegates discretionary authority to
vote with respect to any other business which may properly come
before the meeting or any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
ANNUAL MEETING, THE PROXY STATEMENT FURNISHED IN CONNECTION
THEREWITH AND THE ANNUAL REPORT AND HEREBY RATIFIES ALL THAT THE
SAID DIRECTORS AND PROXIES MAY DO BY VIRTUE HEREOF.
Dated: , 1997
(Complete Date)
(Stockholder's Signature)
(Stockholder's Signature)
NOTE: Please mark, date and
sign this proxy card and
return it to the address on
the reverse side of this card.
Please sign as your name
appears on the label. If
shares are registered in more
than one name, all owners
should sign. If signing in a
fiduciary or representative
capacity, please give full
title and attach evidence of
authority. Corporations
please sign with full
corporate name by a duly
authorized officer and affix
corporate seal.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction
is made, the Proxy will be voted "FOR" the nominees of the Board of
Directors in the election of directors and "FOR" all other
proposals. This proxy also delegates discretionary authority to
vote with respect to any other business which may properly come
before the meeting or any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
ANNUAL MEETING, THE PROXY STATEMENT FURNISHED IN CONNECTION
THEREWITH AND THE ANNUAL REPORT AND HEREBY RATIFIES ALL THAT THE
SAID DIRECTORS AND PROXIES MAY DO BY VIRTUE HEREOF.
Dated: , 1997
(Complete Date)
(Stockholder's Signature)
(Stockholder's Signature)
NOTE: Please mark, date and
sign this proxy card and
return it to the address on
the reverse side of this card.
Please sign as your name
appears on the label. If
shares are registered in more
than one name, all owners
should sign. If signing in a
fiduciary or representative
capacity, please give full
title and attach evidence of
authority. Corporations
please sign with full
corporate name by a duly
authorized officer and affix
corporate seal.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction
is made, the Proxy will be voted "FOR" the nominees of the Board of
Directors in the election of directors and "FOR" all other
proposals. This proxy also delegates discretionary authority to
vote with respect to any other business which may properly come
before the meeting or any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
ANNUAL MEETING, THE PROXY STATEMENT FURNISHED IN CONNECTION
THEREWITH AND THE ANNUAL REPORT AND HEREBY RATIFIES ALL THAT THE
SAID DIRECTORS AND PROXIES MAY DO BY VIRTUE HEREOF.
Dated: , 1997
(Complete Date)
(Stockholder's Signature)
(Stockholder's Signature)
NOTE: Please mark, date and
sign this proxy card and
return it to the address on
the reverse side of this card.
Please sign as your name
appears on the label. If
shares are registered in more
than one name, all owners
should sign. If signing in a
fiduciary or representative
capacity, please give full
title and attach evidence of
authority. Corporations
please sign with full
corporate name by a duly
authorized officer and affix
corporate seal.
<PAGE>
PART 13
DISSENTERS' RIGHTS
16-10a-1301. Definitions.
For purposes of Part 13:
(1) "Beneficial shareholder" means the person who
is a beneficial owner of shares held in a voting trust
or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares
held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share
exchange of that issuer.
(3) "Dissenter" means a shareholder who is
entitled to dissent from corporate action under Section
16-10a-1302 and who exercises that right when and in
the manner required by Sections 16-10a-1320 through 16-
10a-1328.
(4) "Fair value" with respect to a dissenter's
shares, means the value of the shares immediately
before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation
or depreciation in anticipation of the corporate
action.
(5) "Interest" means interest from the effective
date of the corporate action until the date of payment,
at the statutory rate set forth in Section 15-1-1,
compounded annually.
(6) "Record shareholder" means the person in
whose name shares are registered on the records of a
corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent the
beneficial owner is recognized by the corporation as
the shareholder as provided in Section 16-10a-723.
(7) "Shareholder" means the record shareholder or
the beneficial shareholder.
16-10a-1302. Right to dissent.
(1) A shareholder, whether or not entitled to vote, is
entitled to dissent from, and obtain payment of the fair
value of shares held by him in the event of, any of the
following corporate actions:
(a) consummation of a plan of merger to which the
corporation is a party if:
(i) shareholder approval is required for the
merger by Section 16-10a-1103 or the articles of
incorporation; or
(ii) the corporation is a subsidiary that is
merged with its parent under Section 16-10a-1104;
(b) consummation of a plan of share exchange to
which the corporation is a party as the corporation
whose shares will be acquired;
(c) consummation of a sale, lease, exchange, or
other disposition of all, or substantially all, of the
property of the corporation for which a shareholder
vote is required under Subsection 16-10a-1202(1), but
<PAGE>
not including a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders within
one year after the date of sale; and
(d) consummation of a sale, lease, exchange, or
other disposition of all, or substantially all, of the
property of an entity controlled by the corporation if
the shareholders of the corporation were entitled to
vote upon the consent of the corporation to the
disposition pursuant to Subsection 16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain
payment of the fair value of his shares in the event of any
other corporate action to the extent the articles of
incorporation, bylaws, or a resolution of the board of
directors so provides.
(3) Notwithstanding the other provisions of this part,
except to the extent otherwise provided in the articles of
incorporation, bylaws, or a resolution of the board of
directors, and subject to the limitations set forth in
Subsection (4), a shareholder is not entitled to dissent and
obtain payment under Subsection (1) of the fair value of the
shares of any class or series of shares which either were
listed on a national securities exchange registered under
the federal Securities Exchange Act of 1934, as amended, or
on the National Market System of the National Association of
Securities Dealers Automated Quotation System, or were held
of record by more than 2,000 shareholders, at the time of:
(a) the record date fixed under Section 16-10a-
707 to determine the shareholders entitled to receive
notice of the shareholders' meeting at which the
corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-
704 to determine shareholders entitled to sign writings
consenting to the proposed corporation action; or
(c) the effective date of the corporate action if
the corporate action is authorized other than by a vote
of shareholders.
(4) The limitation set forth in Subsection (3) does not
apply if the shareholder will receive for his shares,
pursuant to the corporate action, anything except:
(a) shares of the corporation surviving the
consummation of the plan of merger or share exchange;
(b) shares of a corporation which at the
effective date of the plan of merger or share exchange
either will be listed on a national securities exchange
registered under the federal Securities Exchange Act of
1934, as amended, or on the National Market System of
the National Association of Securities Dealers
Automated Quotation System, or will be held of record
by more than 2,000 shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in
Subsection (4), or cash in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain
payment for his shares under this part may not challenge the
2
<PAGE>
corporate action creating the entitlement unless the action
is unlawful or fraudulent with respect to him or to the
corporation.
16-10a-1303. Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights
as to fewer than all the shares registered in his name only
if the shareholder dissents with respect to all shares
beneficially owned by any one person and causes the
corporation to receive written notice which states the
dissent and the name and address of each person on whose
behalf dissenters' rights are being asserted. The rights of
a partial dissenter under this subsection are determined as
if the shares as to which the shareholder dissents and the
other shares held of record by him were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters'
rights as to shares held on his behalf only if:
(a) the beneficial shareholder causes the
corporation to receive the record shareholder's written
consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with
respect to all shares of which he is the beneficial
shareholder.
(3) The corporation may require that, when a record
shareholder dissents with respect to the shares held by any
one or more beneficial shareholders, each beneficial
shareholder must certify to the corporation that both he and
the record shareholders of all shares owned beneficially by
him have asserted, or will timely assert, dissenters' rights
as to all the shares unlimited on the ability to exercise
dissenters' rights. The certification requirement must be
stated in the dissenters' notice given pursuant to Section
16-10a-1322.
16-10a-1320. Notice of dissenters' rights.
(1) If a proposed corporate action creating
dissenters' rights under Section 16-10a-1302 is submitted to
a vote at a shareholders' meeting, the meeting notice must
be sent to all shareholders of the corporation as of the
applicable record date, whether or not they are entitled to
vote at the meeting. The notice shall state that
shareholders are or may be entitled to assert dissenters'
rights under this part. The notice must be accompanied by a
copy of this part and the materials, if any, that under this
chapter are required to be given the shareholders entitled
to vote on the proposed action at the meeting. Failure to
give notice as required by this subsection does not affect
any action taken at the shareholders' meeting for which the
notice was to have been given.
(2) If a proposed corporate action creating
dissenters' rights under Section 16-10a-1302 is authorized
without a meeting of shareholders pursuant to Section 16-10a-
704, any written or oral solicitation of a shareholder to
execute a written consent to the action contemplated by
Section 16-10a-704 must be accompanied or preceded by a
3
<PAGE>
written notice stating that shareholders are or may be
entitled to assert dissenters' rights under this part, by a
copy of this part, and by the materials, if any, that under
this chapter would have been required to be given to
shareholders entitled to vote on the proposed action if the
proposed action were submitted to a vote at a shareholders'
meeting. Failure to give written notice as provided by this
subsection does not affect any action taken pursuant to
Section 16-10a-704 for which the notice was to have been
given.
16-10a-1321. Demand for payment - Eligibility and notice of
intent.
(1) If a proposed corporate action creating
dissenters' rights under Section 16-10a-1302 is submitted to
a vote at a shareholders' meeting, a shareholder who wishes
to assert dissenters' rights:
(a) must cause the corporation to receive, before
the vote is taken, written notice of his intent to
demand payment for shares if the proposed action is
effectuated; and
(b) may not vote any of his shares in favor of
the proposed action.
(2) If a proposed corporate action creating
dissenters' rights under Section 16-10a-1302 is authorized
without a meeting of shareholders pursuant to Section 16-10a-
704, a shareholder who wishes to assert dissenters' rights
may not execute a writing consenting to the proposed
corporate action.
(3) In order to be entitled to payment for shares
under this part, unless otherwise provided in the articles
of incorporation, bylaws, or a resolution adopted by the
board of directors, a shareholder must have been a
shareholder with respect to the shares for which payment is
demanded as of the date the proposed corporate action
creating dissenters' rights under Section 16-10a-1302 is
approved by the shareholder, if shareholder approval is
required, or as of the effective date of the corporate
action if the corporate action is authorized other than by a
vote of shareholders.
(4) A shareholder who does not satisfy the
requirements of Subsection (1) through (3) is not entitled
to payment for shares under this part.
16-10a-1322. Dissenters' notice.
(1) If proposed corporate action creating dissenters'
rights under Section 16-10a-1302 is authorized, the
corporation shall give a written dissenters' notice to all
shareholders who are entitled to demand payment for their
shares under this part.
(2) The dissenters' notice required by Subsection (1)
must be sent no later than ten days after the effective date
of the corporate action creating dissenters' rights under
Section 16-10a-1302, and shall:
(a) state that the corporate action was
authorized and the effective date or proposed effective
date of the corporate action;
4
<PAGE>
(b) state an address at which the corporation
will receive payment demands and an address at which
certificates for certificated shares must be deposited;
(c) inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after
the payment demand is received;
(d) supply a form for demanding payment, which
form requests a dissenter to state an address to which
payment is to be made;
(e) set a date by which the corporation must
receive the payment demand and by which certificates
for certificated shares must be deposited at the
address indicated in the dissenters' notice, which
dates may not be fewer than 30 nor more than 70 days
after the date the dissenters' notice required by
Subsection (1) is given;
(f) state the requirement contemplated by
Subsection 16-10a-1303(3), if the requirement is
imposed; and
(g) be accompanied by a copy of this part.
16-10a-1323. Procedure to demand payment.
(1) A shareholder who is given a dissenters' notice
described in Section 16-10a-1322, who meets the requirements
of Section 16-10a-1321, and wishes to assert dissenters'
rights must, in accordance with the terms of the dissenters'
notice:
(a) cause the corporation to receive a payment
demand, which may be the payment demand form
contemplated in Subsection 16-10a-1322(2)(d), duly
completed, or may be stated in another writing;
(b) deposit certificates for his certificated
shares in accordance with the terms of the dissenters'
notice; and
(c) if required by the corporation in the
dissenters' notice described in Section 16-10a-1322, as
contemplated by Section 16-10a-1327, certify in
writing, in or with the payment demand, whether or not
he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares
before the date of the first announcement to news media
or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under
Section 16-10a-1302.
(2) A shareholder who demand payment in accordance
with Subsection (1) retains all rights of a shareholder
except the right to transfer the shares until the effective
date of the proposed corporate action giving rise to the
exercise of dissenters' rights and has only the right to
receive payment for the shares after the effective date of
the corporate action.
(3) A shareholder who does not demand payment and
deposit share certificates as required, by the date or dates
set in the dissenters' notice, is not entitled to payment
for shares under this part.
5
<PAGE>
16-10a-1324. Uncertificated shares.
(1) Upon receipt of a demand for payment under Section
16-10a-1323 from a shareholder holding uncertificated
shares, and in lieu of the deposit of certificates
representing the shares, the corporation may restrict the
transfer of the shares until the proposed corporate action
is taken or the restrictions are released under Section 16-
10a-1326.
(2) In all other respects, the provisions of Section
16-10a-1323 apply to shareholders who own uncertificated
shares.
16-10a-1325. Payment.
(1) Except as provided in Section 16-10a-1327, upon
the later of the effective date of the corporate action
creating dissenters' rights under Section 16-10a-1302, and
receipt by the corporation of each payment demand pursuant
to Section 16-10a-1323, the corporation shall pay the amount
the corporation estimates to be the fair value of the
dissenters' shares, plus interest to each dissenter who has
complied with Section 16-10a-1323, and who meets the
requirements of Section 16-10a-1321, and who has not yet
received payment.
(2) Each payment made pursuant to Subsection (1) must
be accompanied by:
(a) (i) (A) the corporation's balance sheet as
of the end of its most recent fiscal year, or
if not available, a fiscal year ending not
more than 16 months before the date of
payment;
(B) an income statement for that year;
(C) a statement of changes in
shareholders' equity for that year and a
statement of cash flow for that year, if the
corporation customarily provides such
statements to shareholders; and
(D) the latest available interim
financial statements, if any;
(ii) the balance sheet and statements
referred to in Subsection (i) must be audited if
the corporation customarily provides audited
financial statements to shareholders;
(b) a statement of the corporation's estimate of
the fair value of the shares and the amount of interest
payable with respect to the shares;
(c) a statement of the dissenters' right to
demand payment under Section 16-10a-1328; and
(d) a copy of this part.
16-10a-1326. Failure to take action.
(1) If the effective date of the corporate action
creating dissenters' rights under Section 16-10a-1302 does
not occur within 60 days after the date set by the
corporation as the date by which the corporation must
receive payment demands as provided in Section 16-10a-1322,
the corporation shall return all deposited certificates and
release the transfer restrictions imposed on uncertificated
6
<PAGE>
shares, and all shareholders who submitted a demand for
payment pursuant to Section 16-10a-1323 shall thereafter
have all rights of a shareholder as if no demand for payment
had been made.
(2) If the effective date of the corporate action
creating dissenters' rights under Section 16-10a-1302 occurs
more than 60 days after the date set by the corporation as
the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, then the
corporation shall send a new dissenters' notice, as provided
in Section 16-10a-1322, and the provisions of Sections 16-
10a-1323 through 16-10a-1328 shall again be applicable.
16-10a-1327. Special provisions relating to shares acquired
after announcement of proposed corporate action.
(1) A corporation may, with the dissenters' notice
given pursuant to Section 16-10a-1322, state the date of the
first announcement to news media or to shareholders of the
terms of the proposed corporate action creating dissenters'
rights under Section 16-10a-1302 and state that a
shareholder who asserts dissenters' rights must certify in
writing, in or with the payment demand, whether or not he or
the person on whose behalf he asserts dissenters' rights
acquired beneficial ownership of the shares before that
date. With respect to any dissenter who does not certify in
writing, in or with the payment demand that he or the person
on whose behalf the dissenters' rights are being asserted,
acquired beneficial ownership of the shares before that
date, the corporation may, in lieu of making the payment
provided in Section 16-10a-1325, offer to make payment if
the dissenter agrees to accept it in full satisfaction of
his demand.
(2) An offer to make payment under Subsection (1)
shall include or be accompanied by the information required
by Subsection 16-10a-1325(2).
16-10a-1328. Procedure for shareholder dissatisfied with
payment or offer.
(1) A dissenter who has not accepted an offer made by
a corporation under Section 16-10a-1327 may notify the
corporation in writing of his own estimate of the fair value
of his shares and demand payment of the estimated amount,
plus interest, less any payment made under Section 16-10a-
1325, if:
(a) the dissenter believes that the amount paid
under Section 16-10a-1325 or offered under Section 16-
10a-1327 is less than the fair value of the shares;
(b) the corporation fails to make payment under
Section 16-10a-1325 within 60 days after the date set
by the corporation as the date by which it must receive
the payment demand; or
(c) the corporation, having failed to take the
proposed corporate action creating dissenters' rights,
does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated
shares as required by Section 16-10a-1326.
7
<PAGE>
(2) A dissenter waives the right to demand payment
under this section unless he causes the corporation to
receive the notice required by Subsection (1) within 30 days
after the corporation made or offered payment for his
shares.
16-10a-1330. Judicial appraisal of shares - Court action.
(1) If a demand for payment under Section 16-10a-1328
remains unresolved, the corporation shall commence a
proceeding within 60 days after receiving the payment demand
contemplated by Section 16-10a-1328, and petition the court
to determine the fair value of the shares and the amount of
interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unresolved the amount
demanded.
(2) The corporation shall commence the proceeding
described in Subsection (1) in the district court of the
county in this state where the corporation's principal
office, or if it has no principal office in this state, the
county where its registered office is located. If the
corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in
the county in this state where the registered office of the
domestic corporation merged with, or whose shares were
acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters who have
satisfied the requirements of Sections 16-10a-1321, 16-10a-
1323, and 16-10a-1328, whether or not they are residents of
this state whose demands remain unresolved, parties to the
proceeding commenced under Subsection (2) as an action
against their shares. All such dissenters who are named as
parties must be served with a copy of the petition. Service
on each dissenter may be by registered or certified mail to
the address stated in his payment demand made pursuant to
Section 16-10a-1328. If no address is stated in the payment
demand, service may be made at the address stated in the
payment demand given pursuant to Section 16-10a-1323. If no
address is stated in the payment demand, service may be made
at the address shown on the corporation's current record of
shareholders for the record shareholder holding the
dissenter's shares. Service may also be made otherwise as
provided by law.
(4) The jurisdiction of the court in which the
proceeding is commenced under Subsection (2) is plenary and
exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment
to it. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding
commenced under Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court
finds that the fair value of his shares, plus interest,
exceeds the amount paid by the corporation pursuant to
Section 16-10a-1325; or
8
<PAGE>
(b) for the fair value, plus interest, of the
dissenters' after-acquired shares for which the
corporation elected to withhold payment under Section
16-10a-1327.
16-10a-1331. Court costs and counsel fees.
(1) The court in an appraisal proceeding commenced
under Section 16-10a-1330 shall determine all costs of the
proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that
the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the
extent the court finds that the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding
payment under Section 16-10a-1328.
(2) The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts
the court finds equitable:
(a) against the corporation and in favor of any
or all dissenters if the court finds the corporation
did not substantially comply with the requirements of
Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more
dissenters, in favor of any other party, if the court
finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by this
part.
(3) If the court finds that the services for counsel of
any dissenter were of substantial benefit to other
dissenters similarly situated, and that the fees for those
services should not be assessed against the corporation, the
court may award to those counsel reasonable fees to be paid
out of the amounts awarded the dissenters who were
benefitted.
245964.01/art
9
<PAGE>
APPENDIX "A"
THE CROWN ENERGY LONG TERM EQUITY-BASED INCENTIVE PLAN
Section 1. Purpose
Crown Energy Corporation, a Utah corporation (the "Company"),
hereby establishes the Crown Energy Long Term Equity-Based
Incentive Plan (the"Plan") to promote the interests of the
Company and its shareholders through the (i) attraction and
retention of executive officers and other key employees essential
to the success of the Company; (ii) motivation of executive
officers and other key employees using performance-related
incentives linked to long-range performance goals and the
interests of Company shareholders; and (iii) enabling of such
employees to share in the long-term growth and success of the
Company. The Plan permits the grant of Nonqualified Stock Options
as the Board, in its sole and complete discretion, may determine
to be appropriate in carrying out the intent and purposes of this
Plan.
Section 2. Definitions
When used in the Plan, the following terms shall have the
meanings set forth below:
2.1"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 under the Exchange Act.
2.2"Agreement" or "Option Agreement" means a written agreement
between the Company and a Participant implementing the grant,
and setting forth the particular terms, conditions and
restriction of each Award.
2.3"Award" means a grant under the Plan of Nonqualified Stock
Options.
2.4"Award Date" or "Grant Date" means the date on which an Award
is made by the Board under the Plan.
2.5"Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 under the Exchange Act.
2.6"Board" or "Board of Directors" means the Board of Directors
of the Company.
2.7"Cashless Exercise" means the exercise of an Option by the
Participant through the use of a brokerage firm to make
payment to the Company of the exercise price either from the
proceeds of a loan to the Participant from the brokerage firm
or from the proceeds of the sale of Stock issued pursuant to
the exercise of the Option, and upon receipt of such payment,
the Company delivers the exercised Shares to the brokerage
firm.
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2.8"Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs
shall have been satisfied:
(a) Any Person, corporation or other entity or group,
including any "group" as defined in Section 13(d)(3) of
the Exchange Act, becomes the Beneficial Owner of Share
of the Company having 20% (excluding those shares acquired
by Envon Capital Trade Resources Corp as negotiated by the
Board) or more of the total number of votes that may be
cast for the election of directors of the Company; or
(b) As the result of, or in connection with, any tender
or exchange offer, merger or other business combination,
sale of assets, sale of securities, contested election,
or any combination of the foregoing (a "Transaction"),
the persons who were directors of the Company immediately
before the Transaction shall cease to constitute a
majority of the Board of Directors of the Company or any
successor to the Company or its assets; or
(c) If at any time: (i) the Company shall consolidate or
merge with any other Person and the Company shall not be
the continuing or surviving corporation; (ii) any Person
shall consolidate or merge with the Company, and the
Company shall be the continuing or surviving corporation
and in connection therewith, all or part of the
outstanding Stock shall be converted into, or exchanged
for, stock or other securities of any other Person or
cash or any other property; (iii) the Company shall be a
party to a statutory share exchange with any other Person
after which the Company is a Subsidiary of any other
Person; or (iv) the Company shall sell or otherwise
transfer 50% or more of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to
any Person or Persons.
2.9"Code" means the Internal Revenue Code of 1986 and the rules
and regulations promulgated thereunder, or any successor law,
as amended from time to time.
2.10"Common Stock" or "Stock" means the Common Stock of the
Company or such other security or right or instrument into
which such Common stock may be changed or converted in the
future.
2.11"Company" means Crown Energy Corporation, including all
Affiliates and wholly-owned subsidiaries, or any successor
thereto.
2.12"Designated Beneficiary" means the beneficiary designated by
the Participant, pursuant to procedures established by the
Board, to receive amounts due to the Participant in the
event of the Participant's death. If the Participant does
not make an effective designation, then the Designated
Beneficiary will be deemed to be the Participant's estate.
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2.13"Disability" means (i) the mental or physical disability of
the Participant defined as "Disability under the terms of
the Crown Energy Corporation Employee Long-Term Disability
Income Plan, as amended from time to time in accordance with
the provisions of such plan; or (ii) a determination by the
Board, in its sole discretion, of total disability (based on
medical evidence) that precludes the Participant from
engaging in any occupation or employment for wage or profit
for at least twelve moths and appears to be permanent. All
decisions by the Board relating to a Participant's
Disability (including a decision that a Participant is not
disabled), shall be final and binding on all parties.
2.14"Divestiture" means the sale of, or closing by, the Company
of the business operations in which the Participant is
employed.
2.15"Exchange Act" means the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, or any
successor law as amended from time to time.
2.16"Executive Officer" means any employee considered by the
Company to be an Executive Officer.
2.17"Fair Market Value" means, on any given date, the closing
price of Stock as reported on the Electronic Bulletin Board.
2.18"Full-time Employee" means an individual who is employed by
the Company or a Subsidiary in a customary employer-employee
relationship, is on the payroll of the Company or such
Subsidiary, and is designated in the internal payroll or
other records of the Company or a Subsidiary as a regular,
full-time employee. This designation excludes all leased
employees (within the meaning of Code Section 414(n)), part-
time employees, temporary employees, or contract employees,
as well as all consultants to, the Company.
2.19"Key Employee" means a Full-time Employee who is an officer
or other key employee of the Company or its Subsidiaries as
designated or determined by the Board.
2.20"Nonqualified Stock Option" or "NQSO" means an option to
purchase Stock, granted under Article 6 herein, which is not
intended to qualify as, or constitute an Incentive Stock
Option.
2.21"Option" means a Nonqualified Stock Option.
2.22"Participant' means a Key Employee who has been granted an
Award under the Plan.
2.23"Performance Criteria" means the objectives established by
the Board for a Performance Period, for the purpose of
determining when an Award subject to such objectives has
been earned.
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2.24"Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d).
2.25"Plan" means the Crown Energy Corporation Long-Term
Incentive Plan as herein established and as hereafter
amended from time to time.
2.26"Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act as adopted in Exchange Act Release No. 34-37269
(May 30, 1996), or any successor rule as amended from time
to time.
2.27"Section 162(m)" means Section 162(m) of the Code, or any
successor section under the Code, as amended from time to
time and as interpreted by final or proposed regulations
promulgated thereunder from time to time.
2.28"Securities Act" means the Securities Act of 1933 and the
rules and regulations promulgated thereunder, or any
successor law, as amended from time to time.
2.29"Stock" or "Shares" means the Common Stock of the Company.
2.30"Subsidiary" means a corporation in which the Company owns,
either directly or through one or more of its Subsidiaries,
at least 50% of the total combined voting power of all
classes of stock.
Section 3. Administration
3.1 The Board. The Plan shall be administered and interpreted by
the Board which shall have full authority, discretion and
power necessary or desirable for such administration and
interpretation. The express grant in this Plan of any
specific power to the Board shall not be construed as
limiting any power or authority of the Board. In its sole
and complete discretion the Board may adopt, alter, suspend
and repeal any such administrative rules, regulations,
guidelines, and practices governing the operation of the
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Plan as it shall from time to time deem advisable. In
addition to any other powers and, subject to the provisions
of the Plan, the Board shall have the following specific
power: (i) to determine the terms and conditions upon which
Awards may be made and exercised; (ii) to determine the
Participants to which Awards shall be made; (iii) to
determine all terms and provisions of each Agreement, which
need not be identical for types of Awards nor for the same
type of Award to different Participants; (iv) to construe
and interpret all terms, conditions and provisions of the
Plan and all Agreements; (v) to establish, amend, or waive
rules or regulations for the Plan's administration; (vi) to
accelerate the exercisability of any Award, the length of a
Performance Period or the termination of any Period of
Restriction; and (vii) to make all other determinations and
take all other actions necessary or advisable for the
administration or interpretation of the Plan. The Board may
seek the assistance or advice of any persons it deems
necessary to the proper administration of the Plan.
3.2 Board Decisions. Unless strictly and expressly prohibited
by law, all determinations and decisions made by the Board
pursuant to the provisions of this Plan shall be final,
conclusive, and binding upon all persons, including
Participants, Designated Beneficiaries, the Company, its
shareholders and employees.
3.3 Rule 16b-3 and Section 162(m) Requirements. Notwithstanding
any other provision of the Plan, the Board may impose such
conditions on any Award as it may deem to be advisable or
required to satisfy the requirements of Rule 16b-3 or
Section 162(m).
Section 4. Eligibility
The Board shall have sole and complete discretion in determining
those Key Employees who shall participate in the Plan. The Board
may request recommendations for individual awards from the
Company's Chief Executive Officer and may delegate to the Chief
Executive Officer the authority to make Awards to Participants
who are not Executive Officers of the Company.
Section 5. Shares Subject to the Plan
5.1 Number of Shares. Subject to adjustment as provided for in
Section 5.4 below, the maximum aggregate number of Shares
that may be issued pursuant to Awards made under the Plan
shall not exceed 2,000,000 Shares. Shares of Common Stock
may be available from the authorized but unissued Shares or
Shares purchased in the open market for purposes of the
Plan. Except as provided in Section 5.2 and 5.3 herein, the
issuance of Share in connection with the exercise of, or as
other payment for, Awards under the Plan shall reduce the
number of Shares available for future Awards under the Plan.
5.2 Lapsed Awards or Forfeited Shares. In the event that (i)
any Option granted under the Plan terminates, expires, or
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lapses for any reason without having been exercised in
accordance with its terms, the Options subject to such Award
shall thereafter be again available for grant of an Award
under the Plan.
5.3 Delivery of Shares as Payment. In the event a Participant
pays for any Option through the delivery of previously
acquired shares of Common Stock, the number of shares of
Common Stock available for Awards under the Plan shall be
increased by the number of shares surrendered by the
Participant.
5.4 Capital Adjustments. The Option Price and the aggregate
number shall be subject to adjustment, if any, as the Board
deems appropriate, based on the occurrence of a number of
specified and non-specified events. Such specified events
are discussed in this Section 5.4, but such discussion is
not intended to provide an exhaustive list of such events
which may necessitate adjustments.
(a) If the outstanding Shares are increased, decreased or
exchanged through merger, consolidation, sale of all or
substantially all of the property of the Company,
reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other
distribution in respect to such Shares, for a different
number or type of Shares, or if additional Shares or new or
different Shares are distributed with respect to such
Shares, an appropriate and proportionate adjustment shall
be made in: (i) the maximum number of shares of Stock
available for the Plan as provided in Section 5.1 herein,
(ii) the type of shares or other securities available for
the Plan, (iii) the number of shares of Stock subject to
any then outstanding Awards under the Plan, and (iv) the
price (including Exercise Price) for each share of Stock
(or other kind of shares or securities) subject to then
outstanding Awards, but without change in the aggregate
purchase price as to which such Options remain exercisable
or Restricted Stock releasable.
(b) In the event other events not specified above in this
Section 5.4, such as any extraordinary cash dividend, split-
up, reverse split, spin-off, combination, exchange of share,
warrants or rights offering to purchase Common Stock, or
other similar corporate event, affect the Common Stock such
that an adjustment is necessary to maintain the benefits or
potential benefits intended to be provided under this Plan,
then the Board its discretion may make adjustments to any or
all of (i) the number and type of shares which thereafter
may be optioned and sold or awarded under the Plan, (ii) the
grant, exercise or conversion price of any Award made
under the Plan thereafter, and (iii) the number and
price (including Exercise Price) of each share of Stock
(or other kind of shares or securities) subject to the
then outstanding Awards.
(c) Any adjustment made by the Board pursuant to the
provisions of this Section 5.4 shall be final, binding and
conclusive. A notice of such adjustment, including
identification of the event causing such adjustment, the
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calculation method of such adjustment, and the change in
price and the number of shares of Stock, or securities, cash
or property purchasable subject to each Award shall be sent
to each Participant. No fractional interests shall be issued
under the Plan based on such adjustments.
Section 6. Stock Options
6.1 Grant of Stock Options. Subject to the terms and provisions
of the Plan and applicable law, the Board, at any time and
from time to time, may grant Options to Key Employees as it
shall determine. The Board shall have sole and complete
discretion in determining the number of Options granted, the
Option Price (as hereinafter defined), the duration of the
Option, the number of Shares to which an Option pertains,
any conditions imposed upon the exercisability or the
transferability of the Options, including vesting
conditions, the conditions under which the Option may be
terminated, and any such other provisions as may be
warranted to comply with the law or rules of any securities
trading system or stock exchange. Each Option grant shall
have such specified terms and conditions detailed in an
Option Agreement.
6.2 Option Price. The exercise price per share of Stock covered
by an Option ("Option Price") shall be determined on the
Grant Date by the Board; provided that the Option Price
shall not be less than 100% of the Fair Market Value of the
Common Stock on the Grant Date.
6.3 Exercisability. Options granted under the Plan shall be
exercisable at such times and be subject to such
restrictions and conditions as the Board shall determine,
which will be specified in the Option Agreement and need not
be the same for each Participant. However, no Option granted
under the Plan may be exercisable until the expiration of at
least six months after the Grant Date (except that such
limitations shall not apply in the case of death or
Disability of the Participant, or a Change in Control), nor
after the expiration of ten years from the Grant Date.
6.4 Method of Exercise. Options shall be exercised by the
delivery of a written notice from the Participant to the
Company in a form prescribed by the Board setting forth the
number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares. The
Option price shall be payable to the Company in full in
cash, or its equivalent, or by delivery of Shares of Stock
(not subject to any security interest or pledge) having a
Fair market Value at the time of exercise equal to the
exercise price of the Shares, or by a combination of the
foregoing. In addition, at the request of the Participant,
and subject to applicable laws and regulations, the Company
may (but shall not be required to) cooperate in a Cashless
Exercise of the Option. As soon as practicable, after
receipt of written notice and full payment of the exercise
price, the Company shall deliver to the Participant a stock
certificate, issued in the Participant's name, evidencing
the number of Shares with respect to which the Option was
exercised.
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Section 7. Change in Control
Notwithstanding any other provision of this Plan, in the event of
a Change in Control: (i) all outstanding Options shall
immediately become fully vested and exercisable; (ii) all Periods
of Restriction shall be deemed to have been completed; (iii) all
Performance Criteria shall be deemed to have been satisfied in
full; and (iv) all other restrictions of any kind applicable to
all outstanding awards shall be deemed to have lapsed or been
satisfied in full; provided that none of the effects described in
(i) - (iv) above shall occur if the Change in Control, or the
transaction, event or occurrence causing the Change in Control
was duly and effectively approved in advance by the affirmative
vote of a majority of the company's Board of Directors.
Section 7. General Provisions
7.1 Plan Term. The Plan was adopted by the Board on September
2, 1997, and became effective upon receiving shareholder
approval on October 21, 1997. The Plan shall terminate
December 31, 2006; however, all Awards made prior to, and
which are outstanding on such date, shall remain valid in
accordance with their terms and conditions.
7.2 Withholding. The Company shall have the right to deduct or
withhold, or require a Participant to remit to the Company,
any taxes required by law to be withheld from Awards made
under this Plan. In the event an Award is paid in the form
of Common Stock, the Board may require the Participant to
remit to the Company the amount of any taxes required to be
withheld from such payment in Common Stock, or in lieu
thereof, the Company may withhold (or the Participant may be
provided the opportunity to elect to tender) the number of
shares of Common Stock equal in Fair market Value to the
amount required to be withheld.
7.3 Awards. Each Award granted under the Plan shall be
evidenced in a corresponding Award Agreement provided in
writing to the Participant, which shall specify the terms,
conditions and any rules applicable to the Award, including
but not limited to the effect of a Change in Control, or
death, Disability, Divestiture, Early Retirement, Normal
Retirement or other termination of employment of the
Participant on the Award.
7.4 Nontransferability. Except with respect to Nonqualified
Stock Option, no Award granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or
hypothecated, except by will or the laws of descent and
distribution. Further, no lien, obligation, or liability of
the Participant may be assigned to any right or interest of
any participant in an Award under this Plan.
7.5 No Right to Employment. Neither the Plan, nor any Award
made, or any other action taken, hereunder shall be
construed as giving any Participant or other person any
right of employment or continued employment with the
Company.
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7.6 Rights as Shareholder. Subject to the terms and
conditions of each particular Award, no Participant or
Designated Beneficiary shall be deemed a shareholder of
the Company nor having rights as such with respect to
any shares of Common Stock to be provided under the
Plan until he or she has become the holder of such
shares.
7.7 Construction of the Plan. The Plan and all Agreements
shall be governed, construed, interpreted and
administered in accordance with the laws of the State
of Utah. In the event any provision of the Plan or any
Agreement shall be held invalid, illegal or
unenforceable, in whole or in part, for any reason,
such determination shall not affect the validity,
legality or enforceability of any remaining provision,
portion of provision or Plan overall, which shall
remain in full force and effect as if the Plan had been
absent the invalid illegal or unenforceable provision
or portion thereof.
7.8 Amendment of Plan. The Board or the Board of Directors
may amend, suspend, or terminate the Plan or any potion
thereof at any time, provided such amendment is made
with shareholder approval if and to the extent such
approval is necessary to comply with any legal
requirement, including for these purposes any approval
requirement which is a requirement for the performance-
based compensation exception under Code section 162(m).
7.9 Amendment of Award. In its sole and complete
discretion, the Board may at any time amend any Award
for the following reasons: (i) additions and/or changes
to the Code, any federal or state securities law, or
other law or regulations applicable to the Award, are
made prior to the Grant Date, and the Board determines
that such additions and/or changes have some effect on
the Award; or (ii) any other event not described in
clause (i) occurs and the Participant gives his or her
consent to such amendment.
7.10Exemption from Computation of Compensation for Other
Purposes. By acceptance of an applicable Award under
this Plan, subject to the conditions of such Award,
each Participant shall be considered in agreement that
all shares of Stock sold or awarded and all Options
granted under this Plan shall be considered
extraordinary, special incentive compensation and will
not be included as "earning," "wages," "salary" or
"compensation" in any pension, welfare, life insurance,
or other employee benefit arrangement of the Company.
7.11Legend. In its sole and complete discretion, the Board
may elect to legend certificates representing Shares
sold or awarded under the Plan, to make appropriate
references to the restrictions imposed on such Shares.
7.12Certain Participants. All Award Agreements for
Participants subject to Section 16(b) of the Exchange
Act shall be deemed to include any such additional
terms, conditions, limitations and provisions as Rule
16b-3 requires, unless the Board in its discretion
determines that any such Award should not be governed
by Rule 16b-3. All performance-based Awards to Covered
Participants shall be deemed to include any such
additional terms, conditions, limitations and
provisions as are necessary to comply with the
performance-based compensation exemption of Code
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Section 162(m), unless the Board, in its discretion,
determines that any such Award is not intended to
qualify for the exemption for performance-based
compensation under Code Section 162(m).
EXECUTED on this ___ day of ____________, 1997.
CROWN ENERGY CORPORATION
By:____________________________
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