EXHIBIT 10.5

NORTHERN COMSTOCK LLC
 
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
 
LIMITED LIABILITY COMPANY OPERATING AGREEMENT dated as of October 19, 2010 among
the undersigned signatories hereto.
 
WITNESSETH:
 
WHEREAS, the undersigned have caused a Certificate of Formation to be filed with
the Secretary of State of the State of Nevada for the purpose of forming a
limited liability company under Chapter 86 of the Nevada Revised Statutes Act
and such Certificate of Formation has become effective; and
 
WHEREAS, the name of such limited liability company is Northern Comstock LLC;
and
 
WHEREAS, the undersigned desire to set forth in this Agreement the terms and
conditions which shall govern the affairs of such limited liability company;
 
NOW, THEREFORE, in consideration of the premises, representations and warranties
and the mutual covenants and set forth herein and other good, valuable and
sufficient consideration, the receipt of which is hereby acknowledged, the
undersigned, intending to be legally bound, hereby agree as follows:
 
ARTICLE 1

 
DEFINITIONS; REPRESENTATIONS
 
1.1           Definitions.  As used herein, the following terms shall have the
following meanings:
 
“Accelerated Capital Call” has the meaning set forth in Section 3.2(c).
 
“Additional Member” means a Person who is admitted to the Company as a Member
pursuant to Section 7.3.
 
“Adjusted Capital Account Balance” of a Member means the balance in such
Member’s Capital Account (a) increased by any amount such Member is deemed to be
obligated to contribute to the Company pursuant to Treasury Regulation section
1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) or 1.704-2(i)(5) and (b) reduced by any
allocations or distributions to such Member described in Treasury Regulation
section 1.704-1(b)(2)(ii)(d)(4), (5) or (6).
 
“Affiliate” means, with respect to any Person, any other Person that controls,
is controlled by or is under common control with, directly or indirectly, such
Person, and, if such Person is a natural person, includes any member of such
Person’s immediate family, or, if such Person is an entity, includes (a) any
trustee, general partner, manager, director or executive officer of, or any
Person performing similar functions for, such entity and (b) any Person with the
power directly or indirectly to vote or direct the voting of more than 50% of
the voting shares in such entity, to elect or appoint a majority of the
trustees, directors, general partners or managers of such entity or to otherwise
manage or direct the management of the business and affairs of such entity,
whether by reason of ownership of securities, contractual rights or otherwise.
 
 
 

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“Agreement” means this Limited Liability Company Operating Agreement.
 
“Assign” an Ownership Interest means to assign, transfer, sell, pledge, donate,
bequeath, hypothecate, mortgage or otherwise encumber or dispose of such
Ownership Interest by any means, whether voluntarily or involuntarily and
including by merger, by transfer of ownership of an entity that holds such
Ownership Interest, in connection with any Proceeding under any Law relating to
bankruptcy, insolvency or the rights of creditors generally, and by operation of
Law.
 
“Bankruptcy” of a Person means:
 
(a)  the filing by such Person of a petition commencing a voluntary Proceeding
under any applicable bankruptcy, insolvency or similar Law;
 
(b)  the entry against such Person of an order for relief under any applicable
bankruptcy, insolvency or similar Law, if such order shall not have been vacated
or stayed within 120 days after such entry;
 
(c)  the written admission by such Person of its inability to pay its debts as
they mature or the assignment by such Person of all or substantially of its
assets for the benefit of creditors; or
 
(d)  the appointment of a trustee, receiver or similar representative to manage
or wind up the affairs, or manage or liquidate all or substantially all of the
assets, of such Person.
 
“Book Value” of any asset of the Company means the adjusted basis of such assets
for federal income tax purposes, except that:
 
(a)  the initial Book Value of any asset contributed by a Member to the Company
will be the Fair Market Value of such asset as of the date of contribution; and
 
(b)  the Book Values of all assets (including intangible assets such as
goodwill) will be adjusted to equal their respective Fair Market Values as of
the following times:
 
(i)  the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis capital contribution;
 
(ii)  the distribution by the Company to a Member of more than a de minimis
amount of cash or property as consideration for an interest in the Company; and
 
(iii)  the liquidation of the Company within the meaning of Treasury Regulation
section 1.704-1(b)(2)(ii)(g).

 
 

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This definition is intended to comply with the provisions of Treasury Regulation
section 1.704-1(b)(2)(iv) and will be interpreted and applied consistently
therewith.
 
“Capital Account” of a Member means the account maintained by the Company for
such Member pursuant to Section 3.4.
 
“Capital Contribution” of a Member means the Fair Market Value of property
contributed by such Member to the capital of the Company.
 
“Certificate” means the Certificate of Formation of Northern Comstock LLC filed
with the Secretary of State of the State of Nevada.
 
“Claim” means a complaint, allegation, charge, petition, appeal, demand, notice,
filing or claim of any kind that commences, alleges a basis to commence or
threatens to commence any Proceeding by or before any Governmental Authority or
Judicial Authority or that asserts, alleges a basis to assert or threatens to
assert any right, breach, default, violation, noncompliance, termination,
cancellation or other action or omission that could reasonably be expected to
result in a Liability or Loss.
 
“Code” means the Internal Revenue Code of 1986.
 
“Company” means the limited liability company formed pursuant to the Certificate
and governed by this Agreement.
 
“Company Business” has the meaning set forth in Section 2.3.
 
“Company Expenses” mean expenses, costs, fees and other charges incurred by the
Company.  Company Expenses shall include:
 
(a)  costs and expenses incurred in connection with the offices of the Company;
 
(b)  salaries, bonuses and other compensation and benefits of employees of the
Company;
 
(c)  fees and expenses of consultants, accountants, counsel and other
third-party professionals engaged by the Company;
 
(d)  premiums and fees for insurance coverage maintained with respect to the
Company Business or the Managers, Managing Directors or employees of the
Company;
 
(e)  taxes, fees and governmental charges assessed or levied against the Company
or imposed on property owned or used by the Company;
 
(f)  indemnification payments and expense advancements by the Company;
 
(g) royalty expenses of 1% of Net Smelter Returns to Art Wilson with respect to
the DWC Property;

 
 

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(h) royalty expenses of 5% of Net Smelter Returns to Sutro Tunnel Company with
respect to the Sutro Property;
 
(i) royalty expenses of 5% of Net Smelter Returns, pre-production rent of $500
per month and post-production rent of $1,000 per month (credited against royalty
payments, if applicable), in each case, with respect to the VCV Property; and
 
(j)  fees, expenses and costs incurred in connection with the formation of the
Company.
 
“Company Minimum Gain” means the aggregate amount of gain (of whatever
character), determined for each nonrecourse liability of the Company, that would
be realized by the Company if it disposed of the property subject to such
liability in a taxable transaction in full satisfaction thereof, determined in
accordance with Treasury Regulation section 1.704-2(d).
 
“Company Nonrecourse Deductions” mean the excess, if any, of the net increase,
if any, in the amount of Company Minimum Gain during a fiscal year over the
aggregate amount of any distributions during that fiscal year of proceeds of a
nonrecourse liability as defined in Treasury Regulation section 1.704-2(c).
 
“Comstock Mining” means Comstock Mining Inc., a Nevada corporation.
 
“Contract” means a written or oral contract, agreement, note, bond, mortgage,
indenture, deed of trust, lease, sublease, license, sublicense, purchase or sale
order, or other commitment, obligation or instrument of any kind that is legally
binding or enforceable under applicable Law.
 
“DWC” means DWC Resources, Inc., a Nevada corporation.
 
“DWC Property” means the real property and improvements, and all patented and
unpatented lode mining claims located in Storey County, Nevada as more
particularly described on Exhibit A attached hereto.
 
“Fair Market Value” of any asset of the Company, any Ownership Interest or the
Company Business means the value thereof determined in accordance with Article
9.
 
“Fiscal Year” has the meaning set forth in Section 8.3.
 
“Force Majeure” has the meaning set forth in Section 6.11(b).
 
“Governmental Authority” means a government (including any federal, foreign,
state, provincial, city, municipal, cantonal or county government), a political
subdivision thereof and a governmental, administrative, ministerial, regulatory,
central bank, self-regulatory, quasi-governmental, taxing, executive or
legislative department, commission, body, agency, authority or instrumentality
of any thereof.
 
“Indemnified Action” has the meaning set forth in Section 6.7(a).

 
 

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“Indemnified Party” has the meaning set forth in Section 6.7(a).
 
“Information” of a Person (the “Disclosing Party”), in relation to any other
Person (the “Receiving Party”), means all information (whether in written,
electronic, oral or other form and including trade secrets and non-public,
confidential or proprietary information), including information relating to
technology, intellectual property, financing sources, business opportunities,
contact information, ideas, developments, strategies and plans, developed or
acquired by or for such Disclosing Party and all files, books, records, notes,
compilations, analyses, forecasts, studies, reports and other documents (whether
in written or electronic form) prepared by or for such Disclosing Party or any
of its Representatives, to the extent they contain or reflect any of such
information.  “Information” of a Disclosing Party, in relation to a Receiving
Party, includes any of such information obtained through visual inspection of
properties or through meetings.  “Information” does not, however, include
information which (i) is at the time of receipt by the Receiving Party or
becomes after such time publicly available or in the public domain, other than
as a result of a disclosure by the Receiving Party or its Representatives which
constitutes a breach of this Agreement, (ii) is at the time of receipt or
becomes after such time known on a non-confidential basis from a source which is
not prohibited from disclosing such information by a contractual, statutory,
fiduciary or other obligation or (iii) was or is developed independent of any
information furnished by or for the Disclosing Party or any of its
Representatives.  Information will not be deemed to be (i) so publicly available
if it relates to business opportunities or contact information and was directly
or indirectly brought to the attention of the Receiving Party or any of its
Representatives by, for or through the Disclosing Party or any of its
Representatives (unless it is so widely known that a reasonable individual could
not consider it to be valuable confidential information) or (ii) so known on a
non-confidential basis or so independently developed unless such knowledge or
development is clearly demonstrated by dated written records of a type
customarily generated and maintained in the ordinary course of business.
 
“Judicial Authority” means a court, arbitrator, special master, receiver,
tribunal or similar body of any kind.
 
“Law” means a treaty, code, statute, law (including common law of any Judicial
Authority), rule, regulation or ordinance of any kind of any Governmental
Authority.
 
“Leased Property” means the Sutro Property and the VCV Property.
 
“Liability” means a liability, duty, responsibility, obligation, assessment,
cost, expense, expenditure, charge, fee, penalty, fine, contribution, premium or
obligation of any kind, whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due
or to become due.
 
“Liquidator” has the meaning set forth in Section 10.2(a).
 
“LLC Act” means Chapter 86 of the Nevada Revised Statutes.
 
“Loss” means a Liability, shortage, damage, diminution in value, deficiency or
loss of any kind.

 
 

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“Majority Interest” means one or more Ownership Interests which, taken together,
represent more than 50% of the aggregate of all of the Ownership Interests as
measured by the aggregate value of Members’ Capital Accounts, without regard to
any special allocations, bonuses or similar adjustments of any kind.
 
“Manager” has the meaning set forth in Section 6.1(a).
 
“Managing Director” has the meaning set forth in Section 6.1(c).
 
“Member” means, initially, each of the undersigned (an “Initial Member”) and, at
any time thereafter, each of the undersigned and each of the other Persons who
at such time shall have become an Additional Member or a Substituted Member in
accordance herewith, but excluding each of the undersigned and each of such
other Persons who, at such time, shall have ceased to be a Member in accordance
herewith.
 
“Member Nonrecourse Debt” has the meaning set forth in Treasury Regulation
section 1.704-2(b)(4).
 
“Member Nonrecourse Debt Minimum Gain” means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if
such Member Nonrecourse Debt were treated as a nonrecourse liability, determined
in accordance with Treasury Regulation section 1.704-2(i).
 
“Member Nonrecourse Deductions” mean the excess, if any, of the net increase, if
any, in the amount of Member Nonrecourse Debt Minimum Gain attributable to a
Member Nonrecourse Debt during a Fiscal Year over the aggregate amount of any
distributions during such Fiscal Year to the Member that bears the economic risk
of loss for the related Member Nonrecourse Debt to the extent such distributions
are made from the proceeds of such Member Nonrecourse Debt and are allocable to
an increase in Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulation section
1.704-2(i).
 
“Membership Period” has the meaning set forth in Section 7.6(b).
 
“Minerals” has the meaning set forth in Section 6.10(a).
 
“Minerals Produced” means the bullion or other minerals recovered from the ore
mined out of the ground but untreated and minerals produced from the milling or
reduction of ore to a higher grade produced from the DWC Property or Leased
Property, as applicable,  or finished products produced from any such property.
 
“Net Income” and “Net Loss” for each Fiscal Year or part thereof means the
Company’s taxable income or loss for such Fiscal Year determined in accordance
with Code section 703(a) (and for this purpose, all items of income, gain, loss
or deduction required to be stated separately pursuant to Code section 703(a)(1)
will be included in taxable income or loss), with the following adjustments:
 
 
 

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(a)  any income of the Company that is exempt from federal income tax will be
added to such taxable income or loss;
 
(b)  any expenditures of the Company described in Code section 705(a)(2)(B) or
treated as such pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(i) (to
the extent such expenditures are not taken into account in computing the
Members’ shares of Company Nonrecourse Deductions or Member Nonrecourse
Deductions) will be subtracted from such taxable income or loss;
 
(c)  gain or loss resulting from any disposition of property of the Company with
respect to which gain or loss is recognized for federal income tax purposes will
be computed with reference to the Book Value of the property disposed, rather
than the adjusted tax basis of such property;
 
(d)  such taxable income or loss will not be deemed to include any income, gain,
loss, deduction or other item thereof allocated pursuant to Section 5.1(b)
(relating to allocations caused by the occurrence of deficit Adjusted Capital
Account Balances or the presence of nonrecourse debt);
 
(e)  if any property of the Company is distributed in kind to any Member, the
difference between its Fair Market Value and its Book Value at the time of
distribution will be treated as Net Income or Net Loss, as the case may be,
recognized by the Company as if it arose from a sale of such property; and
 
(f)  if the value of any assets of the Company are adjusted pursuant to clause
(b) of the definition of Book Value, the difference between their Fair Market
Value and their Book Value at the time will be treated as Net Income or Net
Loss, as the case may be, recognized by the Company as if from a sale of such
assets.
 
“Net Smelter Returns” shall mean the actual financial proceeds received from any
mint, smelter, refinery, or other purchaser from the sale of bullion, dore,
concentrates or finished products produced from the relevant property, less the
following costs: shipping, all minting, smelter or refinery costs.  In the event
smelting or refining are carried out in facilities owned or controlled, in whole
or in part, by Comstock Mining, charges, costs and penalties for such operations
shall mean the amount Comstock Mining would have incurred if such operations
were carried out at facilities not owned or controlled by Comstock Mining then
offering comparable services for comparable products on prevailing terms.

“Order” means a judgment, writ, decree, directive, decision, injunction, ruling,
award or order (including any consent decree or cease and desist order) of any
kind of any Governmental Authority or Judicial Authority.
 
“Ownership Interest” of a Member means the legal and beneficial ownership
interest of such Member in the Company, including all of such Member’s rights in
and obligations to the Company.
 
“Person” means an individual, a partnership, a sole proprietorship, a company, a
firm, a corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization, a union, a
group acting in concert, a Judicial Authority, a Governmental Authority or any
other entity or association of any kind.
 
 
 

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“Proceeding” means an action, suit, arbitration, mediation, litigation, hearing,
investigation, inquiry or other proceeding of any kind involving any
Governmental Authority, any Judicial Authority or any other Person.
 
“Representatives” of a Person mean controlling persons, trustees, general
partners, managers, directors, officers, employees, representatives, advisors,
attorneys, consultants, accountants and agents of such Person.
 
“RRA” means the Registration Rights Agreement dated August 31, 2010 among
Comstock Mining and the other parties thereto.
 
“Securities Purchase Agreement” means the Securities Purchase Agreement dated as
of August 31, 2010, among Comstock Mining and the other parties thereto.
 
“Series A-1 Certificate of Designation” means the 7 ½% Series A-1 Convertible
Preferred Stock Certificate of Designation filed by Comstock Mining with the
Secretary of State of Nevada on October 19, 2010.
 
“Series A-1 Preferred Stock” means Comstock Mining’s 7 ½% Series A-1 Convertible
Preferred Stock having the rights, preferences and privileges set forth in the
Series A-1 Certificate of Designation.
 
“Subsidiary” means, with respect to any Person, any other Person which, directly
or indirectly, is a controlled Affiliate of such Person.
 
“Substituted Member” means a Person who is admitted to the Company as a Member
pursuant to Section 7.2.
 
“Sutro Property” means the real property that is the subject of the Mineral
Exploration and Mining Lease Agreement dated January 1, 2008 between Sutro
Tunnel Company and John V. Winfield as more fully described in the lease
attached hereto as Exhibit B.
 
“VCV Property” means the real property that is the subject of the Mineral
Exploration and Mining Lease Agreement dated January 1, 2008 between Virginia
City Ventures, Inc. and John V. Winfield as more fully described in the lease
attached hereto as Exhibit C.
 
“Winfield” means John V. Winfield, a resident of the State of California.
 
“Yearly Distribution Date” has the meaning set forth in Section 5.2(a)(i).
 
1.2         Interpretations.  Unless otherwise expressly stated in this
Agreement:
 
(a)  the words “hereof”, “hereby” and “hereunder,” and correlative words, refer
to this Agreement as a whole and not any particular provision;

 
 

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(b)  the words “includes” and “including”, and correlative words, are deemed to
be followed by the phrase “without limitation”;
 
(c)  the word “written” and the phrase “in writing,” and correlative words and
phrases, include e-mail, pdf and facsimile transmissions;
 
(d)  the words “asset” and “property” are synonymous and include owned, leased
and licensed real, personal and intangible property of every kind, including
contractual rights, tort claims, cash, securities and information;
 
(e)  the masculine, feminine or neuter form of a word includes the other forms
of such word and the singular and plural forms of a word have correlative
meanings;
 
(f)  the word “or” is not exclusive;
 
(g)  the words “will” and “shall” shall be construed to have the same meaning
and effect;
 
(h)  references to any Contract or Order mean such Contract or Order as amended
and, in the case of any Law, mean such Law as amended, supplemented or modified
and any successor Law and, in the case of any Contract, includes any and all
exhibits, annexes, schedules and documents attached thereto, incorporated
therein or constituting a part thereof;
 
(i)  references to an Article, Section, Schedule or Exhibit mean an Article or
Section of, or a Schedule or Exhibit to, this Agreement;
 
(j)  references to “amendments” of a Contract or other document, and correlative
terms, include amendments, modifications, supplements, novations, waivers,
releases, discharges and other changes to such Contract or document; and
 
(k)  capitalized terms that are correlative to terms defined in Section 1.1
shall have correlative meanings.
 
1.3           Representations and Warranties of All Members.  Each Member
represents and warrants to the Company and the other Members, as of the date
such Person becomes a Member, as follows:
 
(a)           If it is a Person other than an individual, such Member is duly
organized or formed, validly existing and in good standing under the laws of its
jurisdiction of organization or formation.
 
(b)           Such Member has all power and authority necessary to execute,
deliver and perform his or its obligations under this Agreement and consummate
the transactions contemplated hereby to be consummated by him or it.
 
(c)           If it is a Person other than an individual, the execution and
delivery by it of this Agreement, the performance by it of its obligations
hereunder and the consummation by it of the transactions contemplated hereby to
be consummated by him or it have been duly authorized by all necessary action
required to be taken by it.

 
 

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(d)           This Agreement constitutes the legal, valid and binding obligation
of such Member, enforceable against him or it in accordance with its terms.  The
execution and delivery by such Member of this Agreement, the performance by such
Member of his or its obligations hereunder and the consummation by such Member
of the transactions contemplated hereby by him or it will not conflict with,
result in any violation of or constitute a default under any Contract or Order
to which he or it is a party or by which he or it is bound or, if such Member is
a Person other than individual, under its operating agreement, certificate or
articles of formation, by-laws or other organizational instruments.
 
(e)           No approval, consent, exemption, authorization or license is
required to be obtained from, no notice is required to be given to and no filing
is required to be made with any third party (including, without limitation,
financial institutions and governmental and quasi-governmental agencies,
commissions, boards, bureaus and instrumentalities) by such Member in order (i)
for this Agreement to constitute his or its legal, valid and binding obligation
or (ii) to authorize or permit the consummation by his or it of the transactions
contemplated hereby to be consummated by him or it.
 
1.4           Representations and Warranties of Comstock Mining to each other
Member.  Comstock Mining hereby makes all of the representations and warranties
set forth in Section 3.1 of the Securities Purchase Agreement mutatis mutandis,
as if such representations and warranties were set forth in this Agreement in
their entirety.
 
1.5           Representations and Warranties of DWC to each other Member. DWC
hereby represents and warrants to each other Member that (a) it solely owns all
right, title and interest in and to the DWC Property and has not conveyed any
interest or other right in the DWC Property to any other Person or otherwise
subjected, or allowed to be subject, the DWC Property to any liens, easements,
restrictions on use, or other encumbrances, except as set forth on Schedule 1.5
and (b) the transactions contemplated by this Agreement will result in Comstock
Mining (on behalf of the Company) having the exclusive rights to mine and
explore the DWC Property, free and clear of any and all liens, easements,
restrictions on use, or other encumbrances, except as set forth on Schedule 1.5.
 
1.6           Representations and Warranties of Winfield to each other Member.
Winfield hereby represents and warrants to each other Member that (a) he holds
valid and enforceable leasehold interests in the Leased Property, free and clear
of any and all liens and other encumbrances, all of the terms and conditions of
which leasehold interest are set forth in the Mineral Exploration and Mining
Lease Agreements, each dated January 1, 2008, between Sutro Tunnel Company and
Winfield, and Virginia City Ventures, Inc. and Winfield, correct and complete
copies of which, including any amendments, supplements and other documents
relating thereto, are attached as Exhibit B and Exhibit C hereto, (b) none of
Sutro Tunnel Company, Virginia City Ventures, Inc. or Winfield is in breach of,
or default under, the lease agreements pertaining to the Leased Property and no
event or occurrence has occurred that, with or without the passage of time or
the giving or receipt of notice, will result in any breach of or default under
either lease, (c) this Agreement will convey to Comstock Mining (on behalf of
the Company) the sole right to use all of the Leased Property, (d) there are no
other restrictions on use by Comstock Mining of the Leased Property and (e)
Winfield is permitted to contribute the Leased Property to the Company pursuant
to the terms of his leases of the Leased Property.

 
 

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ARTICLE 2
 
FORMATION; GENERAL PROVISIONS
 
2.1           Formation.  The Company has been formed as a limited liability
company under the Certificate pursuant to the LLC Act.  When and as required
under the LLC Act, the Manager shall cause the Certificate to be properly
amended.
 
2.2           Name.  The name of the Company is “Northern Comstock LLC” or such
other name as may be determined from time to time by the Manager.
 
2.3           Business.  The business of the Company (the “Company Business”)
shall be to:
 
(a)  explore, analyze, permit, drill, excavate, produce and sell gold and silver
ore from the DWC Property and the Leased Property;
 
(b)  develop and engage in any and all businesses and activities which are
incidental, ancillary, supplementary or complementary to, or may be associated
with or related to, the businesses described in Section 2.3(a); and
 
(c)  engage in any lawful activity for which a limited liability company may be
formed under the LLC Act as determined by the Manager.
 
2.4           Powers.  The Company shall have the power to:
 
(a)  acquire, own, lease, license, sell and otherwise deal with real, personal
and intangible property of any kind;
 
(b)  hire, engage, compensate, provide benefits to, award interests in the
Company to, discharge and otherwise deal with employees, agents, consultants,
counsel, accountants, advisers, independent contractors, partners, investors,
creditors and other Persons in any manner;
 
(c)  incur, guaranty, pay, satisfy, discharge, defend against, commence,
prosecute, settle and otherwise deal with Liabilities, Losses, Claims and
Proceedings;
 
(d)  prepare, file, publish, acknowledge, execute, deliver, undertake, perform
and terminate Contracts and reports, applications, registrations, returns and
other documents of any kind; and
 
(e)  exercise any and all powers which a limited liability company may be
permitted to exercise under the LLC Act.

 
 

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2.5           Offices.  The principal offices of the Company shall be located at
1200 American Flat Road, Virginia City, Nevada 89440 and such other locations as
may be determined by the Manager.
 
2.6           Term.  The term of the Company commenced upon the date hereof and
shall continue in perpetuity, unless earlier terminated pursuant to Article 10.
 
2.7           Ownership of Company Property.  Except as otherwise provided in
this Agreement, all property now held or hereafter acquired by the Company shall
be owned by the Company as an entity, and no Member, individually, shall have
any ownership interest therein.  Each Member hereby expressly waives the right
to require partition of any Company property or any part thereof.
 
2.8           No Partnership; No Agency.  The Members desire the Company to be
treated as a limited liability company, and not as a partnership, limited
partnership or joint venture of any kind.  No Member shall be an agent, partner
or joint venturer of any other Member by virtue of this Agreement or admission
to or membership in the Company, except that a Member may act as an agent of any
other Member for tax purposes pursuant to tax elections duly made.
 
ARTICLE 3

 
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
 
3.1           Initial Capital Contributions.  On or promptly after the date
hereof, each of the Initial Members shall contribute either real property rights
or capital stock to the capital of the Company as set forth on Schedule A
opposite its name in consideration for its initial Ownership Interest.
 
3.2           Additional Capital Contributions.
 
(a)  On each anniversary of this Agreement, up to and including the thirty-ninth
(39th) anniversary of this Agreement, Comstock Mining shall make Capital
Contributions to the Company in the amount of Eight-Hundred Sixty-Two Thousand
Five-Hundred and 00/100 Dollars ($862,500.00).  Such annual Capital
Contributions shall be made in the form of: (i) subject to the Equity Conditions
(as defined in the Series A-1 Certificate of Designation), in shares of Series
A-1 Preferred Stock; or (ii) if such stock is unavailable, or if the Equity
Conditions have not been satisfied, or if the Company requests the same (but
subject to subsection (b) below), then in the form of cash.  Any Member may
contribute additional cash or property to the Company in such amount or amounts
and at such time or times as, but only as, shall have been approved by the
Manager.  Except as set forth in this Section 3.2 and Section 3.3, no Member
shall be required to make any Capital Contributions to the Company, cure any
deficit in such Member’s Capital Account or lend any cash or property to the
Company.
 
(b)  Notwithstanding anything to the contrary set forth in subsection (a) above,
if the Company desires that a cash payment be made in lieu of any Series A-1
Preferred Stock, the Company shall notify Comstock Mining no later than six (6)
months prior to the date of the next scheduled Capital Contribution.  If
Comstock Mining’s Board of Directors, in good faith and upon reasonable
diligence, concludes that payment in cash would have a material adverse effect
on Comstock Mining’s cash flow or liquidity, then, subject to satisfaction of
the Equity Conditions, Comstock Mining may disregard such request and such
payment shall be made in Series A-1 Preferred Stock, as set forth in subsection
(a) above.

 
 

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(c)  Notwithstanding anything to the contrary set forth in subsection (a) above,
for each 200,000 ounces of gold equivalent validated after the date hereof
through an independent external report (that is, a National Instrument 43-101
Compliant Mineral Resource Estimate Report or its successor of qualified
resources (at least measured and indicated) and reserves (probable and proven)
on the DWC Property and Leased Property, the Capital Contributions of Comstock
Mining shall be automatically accelerated (in reverse order beginning with the
last Capital Contribution due on the thirty-ninth (39th) anniversary of this
Agreement) equal to $5,000,000 (“Accelerated Capital Call”) whereupon the
Accelerated Capital Call shall be paid in shares of Series A-1 Preferred Stock
within sixty (60 days) after the date of such occurrence.  Upon the payment of
an Accelerated Capital Call, the amount of the aggregate future Capital
Contributions to be made by Comstock Mining to the Company shall be reduced by
the difference of $5,000,000 less $862,500 for each such Accelerated Capital
Call.
 
(d)  Any expenditures made by Comstock Mining pursuant to its obligations set
forth in Section 6.10(b) and Section 6.10(c), shall be recorded in Comstock
Mining’s Capital Account as Capital Contributions to the Company.
 
3.3           Additional Members.  Any Person admitted to the Company as an
Additional Member after the date hereof pursuant to Section 7.3 shall contribute
cash and property to the capital of the Company in such amount or amounts and at
such time or times as shall have been specified by the Manager in connection
with such admission.
 
3.4           Capital Accounts.
 
(a)  A separate Capital Account shall be established for each Member and
maintained in accordance with the provisions of Treasury Regulation section
1.704-1(b)(2)(iv).  Each Member’s Capital Account shall be (i) increased by such
Member’s Capital Contributions and by such Member’s allocable share of  Net
Income and items of Company income and gain, (ii) decreased by such Member’s
allocable share of Net Loss (calculated in accordance with Section 5.1 herein)
and items of Company loss and deduction and by the amount of cash and the net
Fair Market Value of property distributed by the Company to such Member and
(iii) otherwise adjusted in the manner provided in this Agreement.
 
(b)  Immediately prior to any distribution of Company assets in kind, each
Member’s Capital Account shall be adjusted to reflect the manner in which the
unrealized income, gain, loss or deduction inherent in the assets to be
distributed (and not already reflected in the Members’ Capital Accounts) would
be allocated among the Members pursuant to Article 5 if such assets were sold
for Fair Market Value on the date of distribution.

 
 

--------------------------------------------------------------------------------

 

(c)  Immediately prior to (i) any contribution of cash or property to the
capital of the Company by a new or existing Member as consideration for an
Ownership Interest in the Company, (ii) any distribution of cash or property by
the Company to a Member in redemption of all or part of such Member’s Ownership
Interest or (iii) the liquidation of the Company pursuant to Article 10, each
Member’s Capital Account shall be adjusted to reflect the manner in which the
unrealized income, gain, loss or deduction inherent in all Company assets (and
not already reflected in the Members’ Capital Accounts) would be allocated among
the Members pursuant to Article 5 if such assets were sold for Fair Market Value
on the date of such contribution, distribution or liquidation.
 
(d)  If any asset is contributed by a Member to the capital of the Company, the
amount credited to such Member’s Capital Account for such contribution will be
equal to the Fair Market Value of such asset as of the date of contribution.
 
3.5           No Return of Capital; No Interest.  No Member will have the right
to the return of all or any part of such Member’s Capital Account or Capital
Contribution, to withdraw all or any part of such Member’s Capital Account or
Capital Contribution, to require the acquisition of such Member’s Capital
Account or Ownership Interest by the Company, to receive interest on such
Member’s Capital Account or Capital Contributions or to receive any
distributions or payments of any kind from the Company, except as expressly
provided in this Agreement.
 
ARTICLE 4

 
COMPANY EXPENSES
 
The Company shall be responsible for and shall pay, and shall reimburse the
Members and the Manager for their payment of, Company Expenses.  Company
Expenses shall be paid out of funds of the Company and, subject to the last
sentence of this Article 4, shall be paid when and as determined by the
Manager.  Notwithstanding anything contained in the preceding two sentences or
the definition of Company Expenses to the contrary, expenses, costs, fees and
other charges incurred for the benefit of the Company by Members, the Manager or
employees shall not constitute Company Expenses to the extent that such
incurrence or related documentation shall be inconsistent with policies or
procedures adopted by the Manager.  Promptly after the date hereof, the Company
shall pay or reimburse the Members for their payment of all fees, expenses and
costs incurred on behalf of the Company in connection with the formation of the
Company and, to the extent approved by the Manager, other activities on behalf
of the Company prior to the date hereof.
 
ARTICLE 5
 
ALLOCATIONS; DISTRIBUTIONS; LOANS
 
5.1           Allocations of Net Income and Net Losses.
 
(a)  Subject to Section 5.1(b), the Net Income and Net Losses of the Company for
each Fiscal Year will be allocated to the Members in the following manner:
 
(i)   Net Income in an amount equal to any distribution made to DWC pursuant to
Section 5.2(b)(i) shall be allocated to DWC as Net Income for such Fiscal Year;

 
 

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(ii)  Net Income in an amount equal to any distribution made to Winfield
pursuant to Section 5.2(b)(ii) shall be allocated to Winfield as Net Income for
such Fiscal Year; and
 
(iii) all remaining Net Income or Net Losses of the Company, as the case may
be,  for each Fiscal Year shall be allocated to Comstock Mining.
 
(b)  Notwithstanding the general allocation rules set forth in Section 5.1(a),
the following special allocation rules shall apply under the circumstances
described therein.
 
(i)   If in any Fiscal Year a Member unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulation section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such adjustment, allocation or
distribution causes or increases a deficit Adjusted Capital Account Balance for
such Member, then, before any other allocations are made under this Agreement,
such Member shall be allocated items of income and gain (consisting of a pro
rata portion of each item of Company income, including gross income and gain) in
an amount and manner sufficient to eliminate such deficit Adjusted Capital
Account Balance as quickly as possible.
 
(ii)  If there is a net decrease in Company Minimum Gain during any Fiscal Year,
each Member shall be allocated items of income and gain for such Fiscal Year
(and, if necessary, for subsequent Fiscal Years) in proportion to and to the
extent of an amount equal to such Member’s share of the net decrease in Company
Minimum Gain, in accordance with Treasury Regulation section 1.704-2(f) and (g).
 
(iii)  If there is a net decrease in Member Nonrecourse Debt Minimum Gain
attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member
who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Treasury Regulation
section 1.704-2(i), will be specially allocated items of Company income and gain
for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount
equal to such Member’s share of the net decrease in Member Nonrecourse Debt
Minimum Gain attributable to such Member Nonrecourse Debt, determined in
accordance with Treasury Regulation section 1.704-2(i).
 
(iv)  Member Nonrecourse Deductions 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 to which such Member Nonrecourse Deductions are
attributable in accordance with Treasury Regulation section 1.704-2(i).
 
(c)  The following tax allocations shall be applicable.
 
(i)  Except as set forth in Section 5.1(c)(ii), allocations for tax purposes of
items of income, gain, loss, deduction and credit shall be made in the same
manner as allocations for book purposes.

 
 

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(ii)  In accordance with Code section 704(c) and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its initial Book Value.  The Manager will make such allocations in
accordance with Treasury Regulation section 1.704-3 using the method selected by
the Manager.
 
(iii)  Allocations pursuant to this Section 5.1(c) are solely for purposes of
federal, state and local taxes and will not affect, or in any way be taken into
account in computing, any Member’s Capital Account or share of profits, losses,
tax items or distributions pursuant to any other provision of this Agreement.
 
(d)  Pursuant to Treasury Regulation section 1.752-3(a), Company nonrecourse
liabilities shall be allocated in the following order:
 
(i)  first, to each Member to the extent of its respective share of Company
Minimum Gain; and
 
(ii)  second, to each Member in the amount of any taxable gain that would be
allocated to that Member under Code section 704(c) or in connection with a
revaluation of Company property pursuant to Treasury Regulation section
1.704-1(b)(2)(iv)(f) or (r), if the Company disposed of (in a taxable
transaction) all Company property subject to one or more nonrecourse liabilities
of the Company in full satisfaction of such liabilities and for no other
consideration; and
 
(iii)  thereafter, to the Members pro rata in proportion to their respective
Capital Accounts.
 
5.2           Distributions; Record Dates.
 
(a)        To the extent the Company holds Series A-1 Preferred Stock, and
subject to Section 5.3, the Company shall make:
 
(i)      to DWC on the 366th day after the date hereof and on each anniversary
of such date thereafter (each such date a “Yearly Distribution Date”), a
distribution of five hundred (500) shares of Series A-1 Preferred Stock plus any
shares previously retained pursuant to this Section 5.2(a)(i) and not so
distributed; provided, that the Company shall not make such distribution unless
DWC shall deliver written notice to the Company at least sixty (60) days prior
to such Yearly Distribution Date requesting that such shares be distributed; and
 
(ii)     to Winfield on each Yearly Distribution Date, a distribution of three
hundred sixty two and one half (362.5) shares of Series A-1 Preferred Stock plus
any shares previously retained pursuant to this Section 5.2(a)(ii) and not so
distributed; provided, that the Company shall not make such distribution unless
Winfield shall deliver written notice to the Company at least sixty (60) days
prior to such Yearly Distribution Date requesting that such shares be
distributed.
 
(b)   For as long as the Company shall exist, the Company shall make:

 
 

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(i)     to DWC (or its permitted Assigns), a distribution of cash flows as a
percentage of the Net Smelter Returns on the Minerals Produced from the DWC
Property, as listed in the following table:
 
Gold Price / Ounce
 
Up to 500,000
oz.
   
Over 500,000
oz.
 
$250.00 of less
    1.0 %     2.0 %
$250.00 to $500.00
    1.5 %     3.0 %
$501.00 to $750.00
    2.0 %     5.0 %
$751.00 or over
    3.0 %     6.0 %

(ii)     to Winfield (or his permitted Assigns), a distribution of cash flows as
a percentage of the Net Smelter Returns on the Minerals Produced from the Sutro
Property, as listed in the following table:
 
Gold Price / Ounce
 
Up to 500,000
oz.
   
Over 500,000
oz.
 
$250.00 of less
    0.5 %     1.0 %
$250.00 to $500.00
    1.0 %     2.0 %
$501.00 or over
    1.0 %     2.0 %

 
(iii)   to Comstock Mining (or its permitted Assigns), a distribution of the
remaining cash flows on the Minerals Produced from the DWC Property and the
Sutro Property after any distributions made to DWC or Winfield pursuant to
Section 5.2(b)(i) and Section 5.2(b)(ii), and all cash flows on the Minerals
Produced from the VCV Property.
 
Distributions made pursuant to Section 5.2(b)(i), Section 5.2(b)(ii) or Section
5.2(b)(iii) shall be made no later than thirty (30) days after receipt of
payment from the smelter or other purchaser; provided, that upon request by DWC,
Winfield or Comstock Mining, as the case may be (or their respective Assigns),
the Company shall give a written instruction to the smelter, refinery or other
purchaser that such distributions are to be paid directly to DWC, Winfield or
Comstock Mining (or their respective Assigns) from the sums payable to the
Company.  If any Initial Member shall Assign less than all of its Ownership
Interests to another Person in accordance with this Agreement, distributions
made pursuant to Section 5.2(b)(i), Section 5.2(b)(ii) or Section 5.2(b)(iii)
shall be prorated between or among such Initial Members and its Assign(s) in
proportion to the respective Capital Accounts of such Initial Member and its
Assign(s) (or as otherwise agreed to by the Initial Members and their Assigns).
All payments shall be accompanied by a statement explaining the manner in which
the payment was calculated, including a determination of weights and values of
the Minerals Produced.
 
(c)  Except as provided in Section 5.2(b) or Article 10, without the prior
written consent of each Member, the Company shall not be permitted, and none of
the Manager(s), any Managing Director or any other Person shall cause the
Company, to make any distributions of cash or any other property of the Company
to the Members except for distributions in the form of Series A-1 Preferred
Stock.  To the extent deemed to be necessary or appropriate by the Manager, the
Manager may fix a record date for the determination of Members entitled to
receive any such distribution.

 
 

--------------------------------------------------------------------------------

 
 
5.3           Limitation upon Distributions.  No distribution shall be made by
the Company unless, after the distribution is made, the fair value of the assets
of the Company exceeds the liabilities of the Company, except liabilities to
Members on account of their Capital Contributions, in each case, as determined
by the Manager.
 
5.4           Loans by Members.  Any Member may provide credit of any kind to
the Company so long as (but only so long as) such indebtedness by the Company
shall have been approved by the Manager.
 
ARTICLE 6

 
MANAGEMENT OF THE COMPANY
 
6.1           Manager and Managing Directors.
 
(a)  Subject to Section 6.1(b), Section 6.1(c) and Section 6.1(d), the Company
shall be managed, and the conduct of its affairs, operations and activities
shall be controlled, exclusively by or under the direction of  John V. Winfield
(the “Manager”) in accordance with this Agreement.
 
(b)  The number of Managers shall be determined by, and only by, the Members
holding a Majority Interest of the Company.  The initial number of Managers
shall be 1. A Manager must be an individual, but need not be a Member.  If there
is more than one Manager, each Manager shall have no authority as such, but
shall act only as a board.   Managers may be elected at any time.  Each Manager
shall hold office until his or her such successor is elected and qualified or
until his or her earlier resignation or removal as such.  Removal as such will
not affect any rights or obligations of a Manager (i) such as those under
Sections 6.4, 6.6 and 6.7 or (ii) as a Managing Director or a Member hereunder
or under any other Contract, in each case, except as otherwise expressly
provided herein or therein.  A Manager may resign as such at any time by giving
written notice to that effect to the Members.
 
(c)  The Manager may delegate the management and conduct of the Company’s
day-to-day business affairs, operations and activities to one or more managing
directors (the “Managing Directors”).  The number of Managing Directors shall be
determined by, and only by, the Manager.  The initial number of Managing
Directors shall be 1. Managing Directors shall be appointed by, and only by, the
Manager.  Managing Directors may be appointed at any time.  Each Managing
Director shall hold office until his or her such successor is elected and
qualified or until his or her earlier resignation or removal as such. Any or all
Managing Directors (including those set forth in Schedule B) may be removed as
such at any time by, and only by, the Manager.  Removal as such shall not affect
any rights or obligations of a Managing Director (i) such as those under
Sections 6.4, 6.6 and 6.7 or (ii) as a Manager or a Member hereunder or under
any other Contract, in each case, except as otherwise expressly provided herein
or therein.  A Managing Director may resign as such at any time by giving
written notice to the effect to the Members.  The initial Managing Directors
shall be those Persons set forth on Schedule B.

 
 

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(d)  Notwithstanding any provision of this Agreement to the contrary, so long as
Winfield is a Member, none of the Company, any Manager or any Managing Director
may take any of the following actions without the prior written consent of
Winfield:
 
(i)  the sale, transfer, conveyance or other disposition of any portion of the
DWC Property or the Leased Property;
 
(ii) the distribution of any assets of the Company to any Member;
 
(iii) the admission of any Additional Member;
 
(iv) the issuance of any equity interest in the Company;
 
(v) the incurrence of any indebtedness other than trade payables in the ordinary
course of business; or
 
(vi) the existence of any lien or other encumbrance on the DWC Property or the
Leased Property.
 
6.2           Action by Multiple Managers.  If there is more than one Manager:
 
(a)  Regular meetings of the Managers shall be held when and as determined by
the Managers.  A copy of every resolution fixing or changing the time or place
of regular meetings shall be given to all Managers at least 5 days before the
first meeting held pursuant thereto.  Any and all business may be transacted at
a regular meeting.
 
(b)  Special meetings of the Managers may be held at any time.  Special meetings
may be called by, and only by, (i) a Manager or (ii) Members holding a Majority
Interest.  Written notice of the day, hour and place of each special meeting
shall be given to all Managers at least 2 days before the meeting by the Person
or Persons calling such meeting.  No business shall be transacted at any special
meeting except the business described in the notice thereof; provided, however,
that, if all of the Managers shall be present, and shall so agree, any other
business may be transacted thereat.
 
(c)  Meetings shall be held at the principal office of the Company or at such
other place as the Managers or the Person or Persons calling such meetings, as
the case may be, may reasonably determine.
 
(d)  The presence of a majority of the Managers then serving at any duly called
meeting of the Managers shall be required in order to constitute a quorum for
the transaction of business thereat.  If at any meeting of the Managers there
shall be less than a quorum, a majority of those Managers present may adjourn
such meeting to a different time and place. Any business which could have been
transacted at such meeting may be transacted at the adjourned meeting so long as
written notice of the adjourned meeting shall have been given to all Managers at
least 1 day prior to the adjourned meeting.
 
 
 

--------------------------------------------------------------------------------

 
 
(e)  No proposed or purported act at any meeting of the Managers shall have been
duly authorized unless authorized (i) at a duly called meeting at which a quorum
is present at either the commencement of such meeting or the time such
authorization is given at such meeting and (ii) by a majority of the Managers
present at such meeting.
 
(f)  Managers may participate in a meeting of the Managers by means of
conference telephone or similar communications equipment by means of which all
Persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
 
(g)  Any action required or permitted to be taken at any meeting of the Managers
may be taken without a meeting if all Managers consent thereto in writing.
 
(h)  The Managers shall use good faith reasonable efforts to keep minutes or
other records of their actions, decisions and determinations, including those
relating to matters that may be within or without the scope of the Company
Business, and minutes or other records of actions, decisions and determinations
of the Members.
 
6.3           Duties of the Manager.
 
(a)  The Manager shall take or cause to be taken all actions as may be necessary
or appropriate for the conduct of the Company Business in accordance with this
Agreement and applicable Laws.  The Manager shall act at all times in good faith
and in such manner as he reasonably believes to be in the best interests of the
Company and the Members.
 
(b)  Prior to conducting any business in any jurisdiction, the Manager shall use
reasonable efforts to cause the Company either to comply with all requirements
for the qualification of the Company to conduct business as a limited liability
company in such jurisdiction or to conduct business in such jurisdiction through
other entities or by such other means as the Manager, upon the advice of
counsel, determines to be necessary or appropriate to preserve the Members’
limited liability.
 
6.4           Reliance.  Each Manager and Managing Director shall be fully
protected in relying in good faith upon the records of the Company and upon
information, opinions, reports or statements presented to the Company by any
Manager, Managing Director or employee of the Company (other than such Manager
or Managing Director) or by any other Person as to matters which such Manager or
Managing Director reasonably believes to be within the scope of responsibility
and competence of such Manager, Managing Director, employee or other Person and
whom such Manager or Managing Director reasonably believes to have been selected
with reasonable care by or on behalf of the Company, including information,
opinions, reports or statements as to the value or amount of Claims,
Liabilities, Losses, profits or assets or as to any facts pertinent to the
existence and amount of assets from which distributions to which Members might
properly be paid.
 
6.5           Managing Director’s Authority to Act for the Company.  Each
Managing Director shall have the authority inherent in such position, including
the authority to act for and bind the Company (including the authority to
execute and deliver any Contract on behalf of the Company) to the extent (but
only to the extent) that such act is taken in accordance with this Agreement,
except as such authority may be otherwise expanded or limited, generally or in a
specific instance, by the Manager.

 
 

--------------------------------------------------------------------------------

 
 
6.6           Limitation on Liability.  Notwithstanding anything contained
herein to the contrary, no Manager or Managing Director (i) shall be liable,
responsible or accountable in damages or otherwise to the Company or any Member
for any action taken or failure to act (including action or failure to act that
constitutes a breach of this Agreement), except to the extent that such action
or failure to act constitutes gross negligence, bad faith, willful misconduct or
fraud, or (ii) shall have any obligation, responsibility or duty (by virtue of
this Agreement, as a fiduciary to the Company or the Members, or otherwise) to
disclose information, take action or refrain from taking action to the extent
that such disclosure, taking or refraining could reasonably be expected to
violate or breach an obligation, responsibility or duty owed to another
Person.  If such an obligation, responsibility or duty to another Person could
reasonably be expected to be materially adverse to the Company or to present a
material conflict of interest with the Company, such Manager or Managing
Director shall disclose it, in reasonable detail, to all of the Managers prior
to the date on which such Manager or Managing Director becomes such or the date
on which such service to such other Person commences, whichever is
later.  Thereafter, such Manager or Managing Director shall seek to establish
arrangements satisfactory to the Members in its good faith judgment to minimize
any material adverse consequences to the Company (and, if such obligation,
responsibility or duty relates to a Managing Director who is not an Affiliate of
an Initial Member, the Manager shall have the right to exercise its authority
under Section 6.1(c) to limit or change the duties, responsibilities and
authority of, or to remove, such Managing Director).
 
6.7           Indemnification of Managers and Managing Directors.
 
(a)  The Company shall indemnify and hold harmless, to the fullest extent
permitted by Law, each Manager and Managing Director (an “Indemnified Party”)
for, from and against any and all Liabilities and Losses from any and all Claims
and Proceedings (each, an “Indemnified Action”) in which such Indemnified Party
may be involved, or threatened to be involved, as a party, a witness or
otherwise, as a result of such Person’s status as a Manager or Managing
Director, regardless of whether such Indemnified Party continued or continues in
such capacity at the time of occurrence, assertion, commencement, incurrence or
payment thereof, or otherwise, and regardless of whether such Indemnified Action
is brought by a third party or a Member or by or in the right of the Company, so
long as the Indemnified Party acted in good faith and in a manner the
Indemnified Party reasonably believed to be in or not opposed to the best
interests of the Company (and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful).
 
(b)  The Company shall pay or reimburse, to the fullest extent permitted by
applicable Law, in advance of the final disposition of each Indemnified Action,
all fees, charges, expenses and costs incurred by an Indemnified Party in
connection with any Indemnified Action, when and as incurred.  Such Indemnified
Party shall repay all amounts received from the Company pursuant to this Section
6.7(b) if such Indemnified Party is a defendant or respondent in such
Indemnified Action and it shall ultimately be determined at the final
disposition of such Indemnified Action that such Indemnified Party is not
entitled to be indemnified by the Company hereunder, unless the relevant
Judicial Authority or the disinterested Members shall have determined that
repayment is not warranted under the circumstances.  Such Indemnified Party may
request such a determination at any time before, or within a reasonable time
after, such final disposition.  The Manager or Members shall promptly afford the
Indemnified Party a reasonable opportunity to be heard in respect of such
determination and shall make such determination in good faith.  If such a
request is made, repayment shall not be required until a decision as to such
determination shall have been made.

 
 

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(c)  The Manager may cause the Company to purchase and maintain insurance or
establish other arrangements to protect the Indemnified Parties or the Company
against any Claim, Liability or Loss asserted or incurred by reason of a
Person’s status as a Manager or Managing Director, regardless of whether the
Company would have the power to indemnify such Person in respect thereof under
this Section 6.7.  The indemnification and expense advancement provided by this
Section 6.7 shall be in addition to, and shall not be a limitation on, any other
rights to which the Indemnified Parties may be entitled under any Contract, by
reason of any determination or vote of the Members or the Manager, as a matter
of Law, or otherwise, and shall inure to the benefit of the estates, heirs,
successors, assigns and legal representatives of the Indemnified Parties.
 
6.8           Compensation and Reimbursement of Managers and Managing
Directors.  Each Manager and Managing Director shall be entitled to such
compensation for his or her services as such as may determined by the Members
holding a Majority Interest.  The Company shall reimburse each Manager and
Managing Director for all out-of-pocket expenses reasonably incurred by him or
her in his or her capacity as such.
 
6.9           Acceptance by Managers and Managing Directors.  Each Manager and
Managing Director agrees, by accepting to undertake the duties and accept the
rights and benefits as such, to observe and bound by the provisions of this
Agreement relating to such capacity as if a party to it.
 
6.10         Operations.
 
(a)  Other than as provided in Section 6.11, for as long as the Company shall
exist, Comstock Mining, on behalf of the Company, shall have the exclusive right
to:
 
(i)   explore, develop and mine all minerals, metals and ores (collectively, the
“Minerals”) on or in the DWC Property and the Leased Property and, perform such
exploration, development and mining in any manner deemed necessary or convenient
by Comstock Mining, whether by surface, underground, solution or other mining
methods;
 
(ii)  temporarily to store, or permanently to dispose of minerals, water, waste
rock or other materials produced from or near the DWC Property or the Leased
Property;
 
(iii)  to crush, grind, or otherwise prepare for transportation to an off-site
processing facility all Minerals on the DWC Property or the Leased Property,
whether such Minerals were produced from the DWC Property, the Leased Property
or other proximate lands;
 
 
 

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(iv)  to use, alter, or destroy, consume and deplete so much of the surface and
surface resources of the DWC Property or the Leased Property as Comstock Mining
may deem desirable or convenient in connection with its operations on the DWC
Property or the Leased Property.  Notwithstanding the foregoing, Comstock Mining
shall be responsible for the undertaking and completing any and all land
reclamation resulting from its activities during the term of this Agreement as
required by federal and state law, and county ordinance; and
 
(v)  exercise such other rights as are reasonably necessary to accomplish the
foregoing.
 
(b)  With respect to the DWC Property, Comstock Mining shall expend not less
than $150,000 in the first twelve (12) months following the date hereof, and at
least $150,000 per year during each of the following four (4) years following
the execution of this Agreement.   Within thirty (30) days after the end of each
twelve (12) month period, Comstock Mining shall deliver to the Members
reasonable supporting documentation showing compliance with Comstock Mining’s
obligations hereunder.
 
(c)  With respect to the Sutro Property, Comstock Mining shall expend not less
than $100,000 in the first twelve (12) months following the date hereof, and at
least $100,000 per year during each of the following five (5) years following
the execution of this Agreement, and not less than $750,000 in the aggregate
during the five (5) years following the execution of this Agreement.   Within
thirty (30) days after the end of each twelve (12) month period, Comstock Mining
shall deliver to the Members reasonable supporting documentation showing
compliance with Comstock Mining’s obligations hereunder.
 
(d)  Comstock Mining agrees to conduct its operations hereunder in a good and
miner-like manner and in compliance with all applicable laws, rules and
regulations of any governmental entity having jurisdiction over such operations
or the DWC Property or the Leased Property including, but not limited to, mine
safety and health, environmental, land-use and zoning and operational permits
and consents.
 
(e)  Comstock Mining shall continuously engage in exploration, development,
mining or processing operations upon the DWC Property and the Leased Property so
that at no time will there be any period of 180 consecutive days in which no
exploration, development, mining or processing operations are conducted on the
respective properties (excluding periods of Force Majeure as defined below).
 
 
 

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6.11         Defaults by Comstock Mining; Remedies.

(a)  If: (i) Comstock Mining fails to make any Capital Contribution pursuant to
Section 3.2, and fails to remedy such default within thirty (30) days following
notice from the Company; or (ii) Comstock Mining defaults in fulfilling any
other covenant of this Agreement and Comstock Mining fails to remedy such
default within sixty (60) days after notice by the Company specifying the nature
of such default (or, if said default cannot be completely cured or remedied
within said sixty (60) day period and Comstock Mining shall not have diligently
commenced curing such default within such sixty (60) day period; or (iii) a
Bankruptcy of Comstock Mining, and such Bankruptcy shall continue and remain
undischarged or unstayed for an aggregate period of one hundred twenty (120)
days (whether or not consecutive) or shall not be remedied by Comstock Mining
within one hundred twenty (120) days; or (iv) Comstock Mining fails to comply
with its obligations set forth in Section 8 of the Series A-1 Certificate of
Designation and Comstock Mining fails to remedy such default pursuant to Section
8(c) of the Series A-1 Certificate of Designation within thirty (30) days after
notice by the Company; or (v) Comstock Mining defaults under Section 4.2 of the
Securities Purchase Agreement and fails to remedy such default under the
provisions of Section 5.13(b) of the Securities Purchase Agreement; or (vi)
Comstock Mining fails to comply with its obligations under Section 2(a) of the
RRA and fails to remedy such default within thirty (30) days after notice by the
Company; or (vii) Comstock Mining fails to comply with its obligations under
Section 2(b) of the RRA in that the Registration Statement (as defined therein)
is not declared effective no later than the one (1) year anniversary of the
Closing Date (as defined therein) and Comstock Mining fails to remedy such
default within thirty (30) days after notice by the Company; or (viii) a Change
of Control Transaction (as defined in the Series A-1 Certificate of Designation)
occurs; then the same shall constitute a default by Comstock Mining under this
Agreement and, if and so long as such default shall continue uncured or
unremedied, the Company shall have and be entitled to exercise, in its sole
discretion, by written notice one of the remedies set forth below.  If the
Company’s notice of default shall indicate its election of either remedy set
forth in (i) or (ii) of subsection (b) below and the date for expiration of the
applicable cure period, then the Company’s election of the remedy in subsection
(b) below shall be effective as of such date set forth in the default notice
(provided, however, that such default remains uncured or unremedied at such
date) and, without any further action by or notice from the Company, either (x)
this Agreement shall terminate and the Company shall be dissolved in accordance
with Article 10 hereof; or (y) this Agreement shall continue in full force and
effect  and the remaining Capital Contributions to be made by Comstock Mining
shall accelerate and be due and payable in the form of shares of Series A-1
Preferred Stock to the Company on such date, as the case may be, as provided by
the Company in the notice of default.   Notwithstanding the foregoing, it shall
be deemed that Comstock Mining is not in default under the terms of this
Agreement by reason of mining operations or other required activities having
been suspended or prevented or prohibited by Law, by the inability to obtain
permits or licenses, by scarcity or inability to obtain equipment, material,
power or fuel, by strike, lockout or industrial disturbance, by failure of
carriers to transport or furnish facilities for transportation, by operation of
any Acts of God (including, without limitation, lightning, earthquake, fire,
storm, flood, washout), by breakage or accident to machinery or facilities, or
by any cause beyond Comstock Mining’s control (the foregoing are collectively
referred to as “Force Majeure”); provided, however, that Comstock Mining shall
exercise reasonable diligence to resume mining operations.
 
(b)  In case of any such default,  the Manager shall have the right to either:
(i) terminate this Agreement and dissolve the Company in accordance with Article
10 hereof; or (ii) continue this Agreement in full force and effect and
accelerate the remaining Capital Contributions to be made by Comstock Mining in
the form of shares of Series A-1 Preferred Stock from such date until the thirty
ninth (39th) anniversary of the execution of this Agreement.  If this Agreement
is terminated, Comstock Mining may remove all of its personal property within
three (3) months after said termination.  The 3-month period may be extended for
periods when inclement weather will not allow the removal of equipment. All such
items not removed within six months shall become the property of the then holder
of the DWC Property or the lessee of the Leased Property, as applicable.
 
 
 

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6.12         Rights of First Refusal; Right to Purchase.

 
(a)  The Company hereby assigns to Comstock Mining, subject to the condition of
limitation and termination that no default by Comstock Mining shall have
occurred and be continuing under Section 6.11 of this Agreement, (i) all of its
rights under Section 29 of the lease with Sutro Tunnel Company set forth in
Exhibit B and, the Company shall cause the Sutro Tunnel Company to recognize
Comstock Mining’s right of first refusal with respect to any sale of the Sutro
Property and (ii) all of its rights under Section 13 of the lease with Virginia
City Ventures, Inc. set forth in Exhibit C and, the Company shall cause Virginia
City Ventures, Inc. to recognize Comstock Mining’s right of first refusal with
respect to any sale of the VCV Property.
 
(b)  Notwithstanding subsection (a) above, if Comstock Mining is unwilling or
unable to purchase either Leased Property in connection with the right of first
refusal, or a default by Comstock Mining shall have occurred and be continuing
under Section 6.11 of this Agreement, the Company shall have the right to do so
as if the right of first refusal had never been assigned.
 
(c)  In the event the Company proposes to sell the DWC Property or any patents
or lots therein to a bona fide third party, it shall give Comstock Mining
written notice of its intention to sell, describing the property, the parcel
number(s), the price and the general terms upon which the Company proposes to
sell the same. Comstock Mining shall then have ten (10) days from receipt of
notice sent by registered mail to Comstock Mining to agree to purchase same
under substantially the same terms and conditions.  If Comstock Mining does not
exercise its rights within such ten (10) day period then Comstock Mining shall
be deemed to have waived its right of first refusal with respect to the offer
which was the subject of the Company’s notice; provided, that Comstock Mining’s
right of first refusal shall not be deemed waived in connection with any
subsequent offer to purchase the DWC Property received by the Company or any
successor-in-interest to the Company.  Notwithstanding the foregoing if,
following Comstock Mining’s waiver of its right of first refusal hereunder, the
terms of the underlying transaction change in any material respect, the Company
shall, again, send a notice to Comstock Mining describing the modified terms and
conditions of the offer and Comstock Mining shall have a right of first refusal
with respect to such modified offer.
 
(d)  The Company hereby assigns to Comstock Mining, subject to the condition of
limitation and termination that no default by Comstock Mining shall have
occurred and be continuing under Section 6.11 of this Agreement, all of its
rights to purchase the VCV Property subject to the terms and conditions set
forth in Section 14 of the lease with Virginia City Ventures, Inc. set forth in
Exhibit C.
 
6.13         Company Covenants.
 
(a)   Promptly following the execution and delivery of this Agreement by the
parties, Winfield and/or the Company shall furnish to Comstock Mining copies of
any and all records, reports, studies, analyses, permits, approvals, licenses,
notices sent to and from Sutro Tunnel Company, Virginia City Ventures, Inc. and
all other documents in Winfield’s or the Company’s possession which relate to
the Leased Property including, without limitation, all title abstracts under
Section 4 of the leases for each Leased Property, all current exploration data
described in Sections 20 and 22 of the leases for the Sutro Property and the VCV
Property, respectively, and all maps, reports and other data described in
Sections 22 and 24 of the lease for the Sutro Property and the VCV Property,
respectively.

 
 

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(b)    As long as no default by Comstock Mining shall have occurred and be
continuing under Section 6.11 of this Agreement, the Company shall not enter
into any amendment or otherwise modify or amend the lease set forth in Exhibit B
without the prior written consent of Comstock Mining in its sole discretion;
provided, however, that the foregoing shall not preclude the Company from
extending the term of or reducing its payment obligations under such lease.
 
(c)   As long as no default by Comstock Mining shall have occurred and be
continuing under Section 6.11 of this Agreement, the Company shall not terminate
the lease set forth in Exhibit B in accordance with Sections 17 or 18(a) of such
lease, or otherwise, without the prior written consent of Comstock Mining in its
sole discretion.
 
(d)  The Company shall furnish to Comstock Mining copies of any notices issued
to or received from Sutro Tunnel Company or Virginia City Ventures, Inc.
immediately upon issuing or receiving such notices.  Comstock Mining shall have
the right, but not the obligation, to cure any default by the Company under the
leases set forth in Exhibit B or Exhibit C, and the Company shall promptly
reimburse Comstock Mining for all costs and expenses (including, without
limitation, reasonable attorneys’ fees) incurred by Comstock Mining in
connection with such cure.
 
(e)  As long as no default by Comstock Mining shall have occurred and be
continuing under this Agreement, the Company shall not alienate its interest or
encumber its interests in the leases set forth in Exhibit B or Exhibit C, the
Leased Property or this Agreement or otherwise deal or attempt to deal with its
right, title and interest in the leases set forth in Exhibit B or Exhibit C, the
Leased Property, or this Agreement in any way that is adverse to Comstock
Mining’s rights under this Agreement.
 
(f)  As long as no default by Comstock Mining shall have occurred and be
continuing under Section 6.11 of this Agreement, the Company shall not do
anything or suffer or permit anything to be done that would result in a default
under the leases set forth in Exhibit B or Exhibit C, or permit such leases to
be canceled or terminated.
 
ARTICLE 7

 
MEMBERS
 
7.1           Initial Members; Limited Liability.
 
(a)  The Initial Members shall be those Persons set forth on Schedule A  on the
date hereof.
 
(b)  The Members as such will not have any responsibility or obligation in any
way or of any kind for any Liabilities or Losses of the Company or to make
contributions to the Company in excess of their respective Capital
Contributions.
 
 
 

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7.2           Assignment of Ownership Interests; Substituted Members.  A Member
may Assign all or any part of its Ownership Interest with, but only with, the
approval of each Member.  An Assignee will become a Member when, but only when,
the Members shall have approved substitution of such Assignee for the Assigning
Member and the Assignee shall have executed and delivered a joinder agreement to
become a party to this Agreement in form and substance reasonably satisfactory
to the Manager.  Any Substituted Member admitted to the Company will succeed to
all rights and be subject to all obligations, including with respect to Comstock
Mining the rights and obligations set forth in Section 6.10 hereof, of the
Assigning Member with respect to the Ownership Interest Assigned.
Notwithstanding anything contained herein (other than the next sentence) to the
contrary, the Members shall promptly give approval to: (a) the Assignment of an
Ownership Interest to the estates, heirs, legal representatives and Affiliates
of Members to whom such Ownership Interests are Assigned in connection with the
transfer of all or a majority of, or the restructuring or reorganization of,
their businesses or ownership interests or in connection with tax and estate
planning, or by reason of disability or death; and (b) the admission of any such
Assignee as a Substituted Member.  Notwithstanding anything contained herein to
the contrary, no Person shall be admitted as a Substituted Member unless such
admission would not result in (i) a violation of any applicable Law, including
applicable securities Laws, or this Agreement or (ii) a change in the Members’
limited liability.
 
7.3           Admission of Additional Members.  One or more Persons may be
admitted as Members with, but only with, the consent of each Member.  The terms
of any such admission, including such Person’s Capital Contributions, shall be
determined by the Members.  Notwithstanding anything contained herein to the
contrary, no Person shall be admitted as an Additional Member unless such
Additional Member shall have executed and delivered a joinder agreement to
become a party to this Agreement in form and substance reasonably satisfactory
to each Member and such admission would not result in (i) a violation of any
applicable Law, including applicable securities Laws, or this Agreement or (ii)
a change in the Members’ limited liability.
 
7.4           No Acquisition of Ownership Interests by the Company.  The Company
shall not acquire, by purchase, redemption or otherwise, all or any part of the
Ownership Interest of any Member, without the consent of each
Member.  Notwithstanding anything contained herein to the contrary, no Ownership
Interest shall be acquired unless such acquisition would not result in (i) a
violation of any applicable Law, including applicable securities laws, or this
Agreement or (ii) a change in the Members’ limited liability.
 
7.5           Action by the Members.
 
(a)  Meetings of the Members may be held at any time.  Meetings of the Members
may be called by, but only by, (i) the Manager, (ii) Members holding a Majority
Interest or (iii) an Initial Member.  Written notice of the day, hour and place
of each special meeting shall be given to all Members at least 2 days before
such meeting by the Person or Persons calling such meeting.  To the extent
deemed necessary or appropriate by the Manager, the Manager may fix a record
date for the determination of Members entitled to receive such notice and to act
at such meeting and their respective Ownership Interests at the time of such
meeting.  The Manager may change the day and time of such meeting to the extent
necessary or appropriate to fix such record date and give written notice thereof
to all Members.  No business shall be transacted at any meeting except business
which Members are expressly permitted to take hereunder and which is described
in the notice thereof.
 
 
 

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(b)  The presence of Members holding a Majority Interest at any duly called
meeting of the Members shall be required in order to constitute a quorum for the
transaction of business thereat.  If at any meeting of the Members there shall
be less than a quorum present, a majority of those Members present may adjourn
such meeting to a different time and place.  Any business which could have been
transacted at such meeting may be transacted at the adjourned meeting so long as
written notice of the adjourned meeting shall have been given to all Members at
least 1 day prior to the adjourned meeting.
 
(c)  No proposed or purported act at any meeting of the Members shall have been
duly authorized unless authorized (i) at a duly called meeting at which a quorum
is present at either the commencement of such meeting or the time such
authorization is given at such meeting and (ii) by Members holding a Majority
Interest (or such other interest as may be set forth herein).
 
(d)  Members may participate in a meeting of the Members by means of conference
telephone or similar communications equipment by means of which all Persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
 
(e)  Any action required or permitted to be taken at any meeting of the Members
may be taken without a meeting if Members holding the requisite number of
Ownership Interests necessary to take such action consent thereto in
writing.  Notice of such action shall be given by the Company to the other
Members, but no failure to give or delay in giving such notice, and no defect in
such notice, shall impair or limit the validity of such action.
 
7.6           Independent Conduct.
 
(a)  Except as provided in Section 6.6 or 7.6(b), each Member and its Affiliates
shall have the right to (i) engage in any and all businesses and activities of
any kind (irrespective of whether such businesses and activities compete with
the businesses and activities of the Company, the other Members or any of their
respective Affiliates), (ii) use, lease and own any and all rights and
properties of any kind, however used, leased or owned and wherever used, leased
or owned, and (iii) receive compensation or profit therefrom for its or their
own account and without in any manner being obligated to disclose or offer such
businesses, activities, rights, properties, compensation or profit to the
Company, the other Members or any of their respective Affiliates.

 
 

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(b)  So long as a Member or any of its Affiliates is a member of the Company or
a Manager or Managing Director (the “Membership Period”) and for 2 years
thereafter, unless otherwise approved by the Manager, such Member shall not and
shall not permit its Affiliates to, directly or indirectly, either individually
or on behalf of or through any other Person (other than the Company), (i)
solicit or induce, or in any manner attempt to solicit or induce, any customer
of the Company or any Person who during the Membership Period had been
specifically identified as a prospective customer of the Company to become a
customer or client of another Person in respect of any business, transaction or
opportunity within the scope of the Company Business, (ii) solicit or induce, or
in any manner attempt to solicit or induce, any Person who is employed by, a
material agent or representative of or a material service provider to the
Company to terminate such Person’s relationship with the Company, (iii) divert,
or in any manner attempt to divert, any Person from doing business with the
Company or pursuing any business opportunity within the scope of the Company
Business with the Company, (iv) induce, or in any manner attempt to induce, any
Person to reduce the business such Person does with the Company or to cease
being a customer of, or maintaining such Person’s other business relationships
with, the Company or (v) compete with or take or divert to itself the Company
Business, any material part thereof or any material opportunity within the scope
thereof.
 
7.7           Confidentiality.
 
(a)  During the Membership Period in relation to a Member and for 2 years
thereafter, such Member will keep, and with cause its Affiliates and its and
their Representatives to keep, all Information of the Company, each other Member
and each Affiliate of each other Member confidential and will not disclose or
use, or permit any of its Affiliates or its or their Representatives to disclose
or use, any of such Information in any manner; provided, however, that such
Information may be disclosed to Representatives of such Member who (i) need to
know such Information for the conduct of the affairs of the Company in
accordance with this Agreement (or for the purpose of assisting such Member to
meet or comply with legal requirements (e.g., the preparation and filing of tax
returns)), (ii) are informed in writing by such Member of the confidential
nature and restricted use of such Information and (iii) agree in writing to
observe the terms of this Section 7.7 as if they were such Member.  Such Member
will and will cause its Representatives to only make that number of copies
of such Information (whether in written, electronic or other form) that is
necessary for the purpose set forth in clause (i) of the preceding sentence.
 
(b)  The Company will keep, and will cause its Subsidiaries and its and their
Representatives (including the Managers and the Managing Directors) to keep, all
Information of the Members confidential and will not, and will not permit its
Subsidiaries or its or their Representatives (including the Managers and the
Managing Directors) to, disclose or use such Information in any manner;
provided, however, that such Information may be used by the Company and
disclosed to and used by its Subsidiaries and its and their Representatives who
(i) need to know such Information for the conduct of the Company Business and
the affairs of the Company in accordance with this Agreement and (ii) are
informed by the Company of the confidential nature and restricted use of such
Information.
 
(c)  At any time after such Membership Period, upon written of the Person to
whom Information belongs, such Member will, at its election, either (i) promptly
cause to be destroyed at its expense all of such Information (in any form other
than oral) in the possession of it, its Affiliates or its or their
Representatives (including all copies) and confirm such destruction to such
Person in writing or (ii) promptly cause to be delivered to such Person at such
Member’s expense all of such Information (in any form other than oral) in the
possession of it, its Affiliates or its or their Representatives (including all
copies).  All of such Information in oral form will continue to be subject to
this Section 7.7; provided, that such Member may retain and use any such
Information as needed by such Member to meet or comply with legal requirements
(e.g., the preparation and filing of tax returns).

 
 

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(d)  If a Person subject to this Section 7.7 becomes required by Law to disclose
any Information of another Person which such Person is required to keep
confidential and not disclose under this Section 7.7, such Person will as
promptly as possible give written notice to that effect to such other
Person.  Such other Person, in its sole discretion, shall be entitled to seek a
protective order or other appropriate remedy.  If such other Person seeks such
an order or remedy, such Person will, upon request, use all reasonable efforts
to fully cooperate with such other Person.  Regardless of whether such
protective order or other remedy is obtained, such Person will furnish only that
portion of such Information which it is legally required to furnish.  If such a
protective order or remedy is not obtained, such Person will exercise best
efforts to obtain reliable assurance that confidential treatment will be
accorded such Information.  If such a protective order or other remedy is
obtained, such Person will exercise best efforts to obtain reliable assurance
that such Information is furnished in accordance with and subject to such
protective order or remedy.  To the extent that such Person is an Affiliate of a
Member or a Representative of a Member or its Affiliates, such Member will cause
them to comply with this Section 7.7(e).  To the extent that such Person or its
Representatives furnish Information in accordance with this Section 7.7(d), such
furnishing will not constitute a breach of this Section 7.7.  The Company shall
provide such assistance as may be reasonably feasible and necessary to carry out
the purposes of this Section 7.7(d).
 
7.8           Certain Remedies.  Each of the parties hereto agrees, on behalf of
itself, its Affiliates and its and their Representatives, that money damages for
a breach of Section 7.6 or 7.7 by it or them is unlikely to be calculable, that
such a breach is likely to cause irreparable harm to the aggrieved Person and
that remedies at law are likely to be inadequate to protect the aggrieved Person
against any actual or threatened breach of Section 7.6 or 7.7.  Accordingly,
each of the parties hereto agree, on behalf of itself, its Affiliates and its
and their Representatives, to the granting of injunctive relief in favor of the
aggrieved Person in the event of any such breach or threatened breach, without
proof of actual damages and without the requirement of posting bond or other
security.  Such relief shall not be the exclusive remedy for a breach or
threatened breach of Section 7.6 or 7.7, but shall be in addition to all other
rights and remedies available at law, in equity or otherwise to the aggrieved
Person.  In the event of litigation relating to Section 7.6 or 7.7 wherein a
court of competent jurisdiction determines in a final, non-appealable order that
Section 7.6 or 7.7 has been breached, then each of the parties hereto agrees, on
behalf of itself, its Affiliate and its and their Representatives, that the
breaching Person will also be liable to the aggrieved Person for all costs and
expenses (including reasonable legal fees and expenses) incurred in connection
with such litigation and all other litigation related to such breach.
 
7.9           Obligations and Material Developments.  The Members intend to act
in good faith and in close cooperation on all matters relating to this Agreement
and the Company Business.  Each Member shall use reasonable and good faith
efforts to promptly inform the Manager of material developments relating
thereto, consult with the Manager as to such developments and act by consensus
with respect to such developments.

 
 

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7.10         Member Books and Records.  Each Member shall maintain (and shall
cause its respective Affiliates to maintain) accurate and complete books and
records, in accordance with generally accepted accounting principles and
practices and otherwise, to the extent necessary to demonstrate compliance with
this Agreement.
 
7.11         Further Assurances.  Each of the parties hereto will (and will
cause its Affiliates and Representatives to) use its respective commercially
reasonable efforts to take or cause to be taken all appropriate actions, do or
cause to be done all things necessary, proper or advisable, and execute such
applications, filings, certificates and other documents to carry out and give
effect to this Agreement.
 
ARTICLE 8

 
ACCOUNTS; RETURNS
 
8.1           Books.  The Manager shall use reasonable efforts to cause the
Company to maintain complete and accurate books and records, in accordance with
general accepted accounting principles and practice and otherwise, of all
transactions, operations and activities of the Company and its
Subsidiaries.  Each Member shall have the right to inspect the Company’s books
and records at any reasonable time.
 
8.2           Reports and Returns.  The Manager shall use reasonable efforts to
cause to be furnished to each Member:
 
(a)  within 90 days after the end of each Fiscal Year, an Internal Revenue
Service Schedule K-1 with respect to such Member (and, within the applicable
period under applicable foreign Law, any similar information statement with
respect to such Member); and
 
(b)  within 120 days after the end of each Fiscal Year, a balance sheet of the
Company as at the end of such Fiscal Year and statements of income and cash flow
of the Company for such Fiscal Year.
 
8.3           Fiscal Year.  The fiscal year of the Company for both financial
reporting and tax purposes shall be the calendar year (the “Fiscal Year”).
 
8.4           Method of Accounting and Reporting.  The books and accounts of the
Company shall be maintained using the cash method of accounting for both
financial reporting and tax purposes.  The Company shall elect to be treated as
a partnership for federal income tax purposes.
 
8.5           Tax Returns.  The Manager shall use reasonable efforts to cause to
be prepared and filed on a timely basis all foreign, federal, state and local
tax returns and tax information returns required on the part of the Company.
 
8.6           Bank Accounts.  The Manager shall use reasonable efforts to cause
all funds of the Company to be deposited in the name of the Company in an
account or accounts maintained with a bank or banks selected by the
Manager.  Checks shall be drawn upon the Company account or accounts only for
the purposes of the Company and must be signed by at least one Managing Director
or, if they exceed $1,000, at least two Managing Directors.
 
 
 

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ARTICLE 9
 
VALUATION OF ASSETS
 
For purposes of this Agreement, the Fair Market Value of any asset of the
Company, of a Member’s Ownership Interest or of the Company Business shall be
determined by agreement of all Members affected thereby or, at the option of any
such Member or if such Members are unable to agree on such value within a
reasonable time, by an independent expert selected by the Manager.  If required
to make such a selection, the Manager shall make any such selection promptly.
 
ARTICLE 10

 
DISSOLUTION OF THE COMPANY
 
10.1         Dissolution.  Subject to the LLC Act, the Company shall be
dissolved upon the earliest to occur of:
 
(a)  the determination, at a duly called and convened meeting of the Members, of
Members holding a Majority Interest to dissolve the Company; or
 
(b)  the sale or distribution by the Company of all or substantially all of its
assets.
 
Except as otherwise expressly provided under the LLC Act, the withdrawal,
removal, death or incompetency of a Member, the Bankruptcy of a Member, the
reorganization, termination, dissolution or liquidation of a Member, the
distribution or sale by a Member of its Ownership Interest, or the occurrence of
a similar event or transaction will not effect a dissolution of the Company.
 
10.2         Liquidation.
 
(a)  Upon dissolution and liquidation of the Company pursuant to Section 10.1,
the assets, liabilities, business and affairs of the Company will be liquidated
and wound up in an orderly manner. The Manager shall select a Person or Persons,
any or all of whom may be a Member or a Manager, to serve as liquidator
(individually and collectively, the “Liquidator”).  The Liquidator shall have
the same duties, power and authority, and shall be entitled to the same rights
and protections, as those afforded to the Manager and a Managing Director.  Upon
appointment of the Liquidator, the Manager shall cease to have any duties, power
or authority and the Manager shall be discharged as such.
 
(b)  Upon dissolution and liquidation of the Company, a final allocation of all
items of income, gain, loss and deduction shall be made in accordance with
Article 5 and all of the Company’s assets, or the proceeds therefrom, shall be
distributed or used as follows and in the following order of priority (which
order shall be without prejudice to the liability of the Company to its
creditors):
 
 
 

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(i)  for the payment of the Company’s debts, liabilities and obligations
(including liabilities and obligations to the Manager and Managing Directors)
and the expenses of its liquidation;
 
(ii)  to the setting up of any reserves that the Liquidator may deem necessary
or appropriate for any contingent or unforeseen debts, liabilities or
obligations (including debts, liabilities and obligations to the Manager and
Managing Directors) of the Company; and
 
(iii)  to the Members in accordance with the positive balances in their
respective Capital Accounts (after adjustments under Articles 3 and 5 have been
made to such Capital Accounts, until such balances have been reduced to zero).
 
10.3         Liability for Return of Capital Contributions.  Each Member shall
look solely to the assets of the Company for all distributions by the Company,
including distributions in connection with the dissolution of the Company.  No
Member shall have any recourse therefor against any of the other Members, any
Manager, any Managing Director or any of the Representatives of the Company
(other than by reason of a breach of this Agreement or another Contract between
or among any of them and the Company).
 
ARTICLE 11

 
AMENDMENTS; WAIVERS
 
11.1         Amendments.  No addition to, and no cancellation, renewal,
extension, modification or amendment of, this Agreement shall be binding upon
any party hereto unless such addition, cancellation, renewal, extension,
modification or amendment is set forth in a written instrument which states that
it adds to, amends, cancels, renews, extends or modifies this Agreement and
which is executed and delivered by each party hereto.
 
11.2         Waivers.  No waiver of any provision of this Agreement shall be
binding upon a party hereto unless such waiver is expressly set forth in a
written instrument which is executed and delivered by such party.  Such waiver
shall be effective only to the extent specifically set forth in such written
instrument.  Neither the exercise (from time to time and at any time) by a party
hereto of, nor the delay or failure (at any time or for any period of time) to
exercise, any right, power or remedy shall constitute a waiver of the right to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter.  No waiver of any right, power or remedy or a party hereto shall be
deemed to be a waiver of any other right, power or remedy of such party or
shall, except to the extent so waived, impair, limit or restrict the exercise of
such right, power or remedy.
 
ARTICLE 12

 
NOTICES
 
All notices, requests, demands and other communications required or permitted to
be given pursuant to this Agreement shall be given in writing, shall be
transmitted by personal delivery, by a nationally recognized courier service, by
registered or certified mail, return receipt requested, postage prepaid, by
facsimile, or by email, receipt requested, and shall be addressed as follows:
 
 
 

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(a)  when the Company is the intended recipient, to the address of its principal
office set forth in Section 2.5; and
 
(b)  when any Member, Manager or Managing Director is the intended recipient, to
its address set forth on Schedule A or B.
 
The Company, a Member, a Manager or a Managing Director, or any other party
hereto, may designate a new address to which notices, requests, demands and
other communications required or permitted to be given pursuant to this
Agreement shall thereafter be transmitted by giving written notice to that
effect to the Manager.  The Manager shall use reasonable efforts to advise all
affected Persons of such change.  Each notice, request, demand or other
communication transmitted in the manner described in this Article 12 shall be
deemed to have been given, received and become effective for all purposes at the
time it shall have been (a) delivered to the addressee as indicated by the
receipt (if transmitted by mail or email), the affidavit of the messenger (if
transmitted by personal delivery), the receipt of the courier service (if
transmitted by courier service), or the e-mail receipt, answer back or call back
(if transmitted by e-mail or facsimile) or (b) presented for delivery to the
addressee as so indicated during normal business hours, if such delivery shall
have been refused for any reason.
 
ARTICLE 13

 
MISCELLANEOUS
 
13.1         Publicity.  Each party hereto agrees that it shall not and shall
not permit its Affiliates or its or their Representatives to issue any
publicity, release or announcement concerning the execution, delivery,
performance or termination of this Agreement, the provisions hereof or the
transactions contemplated hereby without the prior written consent of the form
and content of such publicity, release or announcement by the Manager; provided,
however, that no such consent shall be required when such publicity, release or
announcement is required by any applicable Law and, provided further, that,
prior to issuing any such required publicity, release or announcement without
such prior written consent, the party hereto issuing or whose Affiliates or
Representatives is issuing such publicity, release or announcement shall have
given reasonable prior notice to the Manager of such intended issuance and shall
have used good faith efforts to take or cause to be taken into account any
comments thereon that it may have.
 
13.2         Expenses of Members.  Except as otherwise provided in this
Agreement, each party hereto agrees to pay or cause its Affiliates to pay all
expenses, fees and costs (including legal, accounting and consulting expenses)
incurred by it or its Affiliates in connection with the transactions
contemplated by this Agreement.
 
13.3         Entire Agreement.  This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and cancels
and supersedes all of the previous or contemporaneous agreements,
representations, warranties and understandings (whether oral or written) by,
between or among the parties hereto with respect to the subject matter hereof
(including the Letter of Intent dated August 13, 2008, between GoldSpring, Inc.
and DWC Resources, Inc. and the Letter of Intent dated August 13, 2008, between
GoldSpring, Inc. and John V. Winfield).
 
 
 

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13.4         Governing Law; Forum; Jury Trial.  THE VALIDITY, INTERPRETATION,
PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEVADA (WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW RULE
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
INTERNAL LAWS OF THE STATE OF NEVADA).  EACH PARTY HERETO, ON BEHALF OF ITSELF,
ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, AGREES THAT ANY CLAIM OR
PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE BREACH OR THREATENED BREACH OF
THIS AGREEMENT SHALL BE COMMENCED AND PROSECUTED IN A COURT IN THE STATE OF
NEVADA.  EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND
THEIR REPRESENTATIVES, CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE PERSONAL
JURISDICTION OF ANY COURT IN THE STATE OF NEVADA IN RESPECT OF ANY SUCH CLAIM OR
PROCEEDING.  EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND
THEIR REPRESENTATIVES, CONSENTS TO SERVICE OF PROCESS UPON IT OR THEM WITH
RESPECT TO ANY SUCH CLAIM OR PROCEEDING BY REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AND BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAWS.  EACH PARTY
HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES,
WAIVES ANY OBJECTION THAT IT OR THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE OF ANY SUCH CLAIM OR PROCEEDING IN ANY COURT IN THE STATE OF NEVADA AND
ANY CLAIM THAT IT OR THEY MAY NOW OR HEREAFTER HAVE THAT ANY SUCH CLAIM OR
PROCEEDING IN ANY COURT IN THE STATE OF NEVADA HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.  EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND
ITS AND THEIR REPRESENTATIVES, WAIVES TRIAL BY JURY IN ANY SUCH CLAIM OR
PROCEEDING.
 
13.5         Binding Effect; Assignment; Third Party Beneficiaries.  This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.  Except as expressly provided
in Section 7.2, no party hereto shall assign any of its rights or delegate any
of its duties under this Agreement (by operation of Law or otherwise) without
the prior written consent of each Member, and any purported assignment of rights
or delegation of duties under this Agreement without such prior written consent,
if such consent is required hereby, shall be void.  No such assignment or
delegation shall relieve the assignor or delegator of its obligations
hereunder.  No Person (including any employee), other than Indemnified Parties
as provided in the next sentence, shall be, or be deemed to be, a third party
beneficiary of this Agreement.  Each Indemnified Party is intended to be a third
party beneficiary of Section 6.6.
 
 
 

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13.6          Headings; Counterparts.
 
(a)  The headings set forth herein have been inserted for convenience of
reference only, shall not be considered a part of this Agreement and shall not
limit, modify or affect in any way the meaning or interpretation of this
Agreement.
 
(b)  This Agreement may be signed in any number of counterparts, each of which
(when executed and delivered) shall constitute an original instrument, but all
of which together shall constitute one and the same instrument.  It shall not be
necessary when making proof of this Agreement to account for any counterparts
other than a sufficient number of counterparts which, when taken together,
contain signatures of all of the parties hereto.  Delivery of a counterpart by
facsimile, PDF or similar means shall be as effective as delivery of an
original.
 
13.7          Severability.  If any provision of this Agreement shall hereafter
be held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (a) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the parties hereto as
expressed in, and the benefits and burdens provided by, this Agreement or (b) if
such provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement (including
addition of necessary further provisions to this Agreement) so as to give effect
to the intent so expressed and the benefits and burdens so provided.  Such
holding shall not affect or impair the validity, enforceability or legality of
such provision in any other jurisdiction or under any other
circumstances.  Neither such holding nor such reformation nor severance shall
affect or impair the legality, validity or enforceability of any other provision
of this Agreement.
 
13.8          Interpretation.  All parties hereto have participated
substantially in the negotiation and drafting of this Agreement and no ambiguity
herein shall be construed against the draftsman.
 
13.9          No Consequential Damages.  Except for the indemnification
provisions specifically set forth in this Agreement, no party hereto shall be
liable for any special, indirect, incidental, consequential or punitive damages
arising out of any breach of this Agreement, even if informed of the possibility
of such damages in advance.
 
 
 

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