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

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

Exhibit 10.4

 

OPERATING AGREEMENT

FOR

MINERAL RIDGE GOLD, LLC,

a Nevada limited liability company

 
 

 

 
 

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

 

TABLE OF CONTENTS

      Page        
EXHIBITS
 
v
       
ARTICLE I           DEFINITIONS AND CROSS-REFERENCES
 
1
1.1
Definitions
 
1
1.2
Cross References
 
1
       
ARTICLE II          NAME, PURPOSES AND TERM
 
2
2.1
Formation
 
2
2.2
Name
 
2
2.3
Purposes
 
2
2.4
Limitation
 
2
2.5
Term
 
2
2.6
Registered Agent; Offices
 
3
       
ARTICLE III         CONTRIBUTIONS BY MEMBERS
 
3
3.1
Members’ Initial Contributions
 
3
3.2
Record Title
 
3
       
ARTICLE IV         INTERESTS OF MEMBERS
 
3
4.1
Initial Ownership Interests
 
3
4.2
Changes in Ownership Interests
 
4
4.3
Admission of New Members
 
6
4.4
Documentation of Adjustments to Ownership Interests
 
6
4.5
Distributions to Members
 
6
       
ARTICLE V          RELATIONSHIP OF THE MEMBERS
 
6
5.1
Limitation on Authority of Members
 
6
5.2
Federal Tax Elections and Allocations
 
7
5.3
State Income Tax
 
7
5.4
Tax Returns
 
7
5.5
Other Business Opportunities
 
7
5.6
Waiver of Rights to Partition or Other Division of Assets
 
7
5.7
Bankruptcy of a Member
 
7
5.8
Implied Covenants
 
7
5.9
Certificate of Ownership Interest
 
7
5.10
Disposition of Production
 
8
5.11
Limitation of Liability
 
8
5.12
Indemnities
 
8
5.13
No Third Party Beneficiary Rights
 
8
       
ARTICLE VI         REPRESENTATIONS AND WARRANTIES
 
9

 
-ii-

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

 
ARTICLE VII        TRANSFER OF INTEREST; PREEMPTIVE RIGHT
 
9
7.1
General
 
9
7.2
Limitations on Free Transferability
 
9
7.3
Preemptive Right
 
11
       
ARTICLE VIII      MANAGEMENT COMMITTEE
 
12
8.1
Organization and Composition
 
12
8.2
Decisions
 
12
8.3
Meetings
 
12
8.4
Action Without Meeting in Person
 
13
8.5
Matters Requiring Approval
 
13
       
ARTICLE IX         MANAGER
 
13
9.1
Appointment
 
13
9.2
Powers and Duties of Manager
 
13
9.3
Standard of Care
 
17
9.4
Resignation; Deemed Offer to Resign
 
18
9.5
Payments To Manager
 
18
9.6
Transactions With Affiliates
 
19
9.7
Activities During Deadlock
 
19
       
ARTICLE X          PROGRAMS AND BUDGETS
 
19
10.1
Initial Program and Budget
 
19
10.2
Operations Pursuant to Programs and Budgets
 
19
10.3
Presentation of Programs and Budgets
 
19
10.4
Review and Adoption of Proposed Programs and Budgets
 
20
10.5
Election to Participate
 
20
10.6
Recalculation or Restoration of Reduced Interest Based on Actual Expenditures
 
21
10.7
Expansion or Modification Programs and Budgets
 
22
10.8
Budget Overruns; Program Changes
 
22
10.9
Supplemental Business Arrangement
 
22
10.10
Drilling Program
 
23
       
ARTICLE XI         ACCOUNTS AND SETTLEMENTS
 
23
11.1
Monthly Statements
 
23
11.2
Cash Calls
 
23
11.3
Failure to Meet Cash Calls
 
23
11.4
Cover Payment
 
23
11.5
Remedies
 
24
11.6
Audits
 
25

 
-iii-

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

 
ARTICLE XII        PROPERTIES
 
25
12.1
Royalties, Production Taxes and Other Payments Based on Production
 
25
12.2
Abandonment and Surrender
 
26
       
ARTICLE XIII      CONFIDENTIALITY, OWNERSHIP, USE AND DISCLOSURE OF INFORMATION
 
26
13.1
Business Information
 
26
13.2
Member Information
 
26
13.3
Permitted Disclosure of Confidential Business Information
 
26
13.4
Disclosure Required By Law
 
27
13.5
Public Announcements
 
27
       
ARTICLE XIV      RESIGNATION AND DISSOLUTION
 
28
14.1
Events of Dissolution
 
28
14.2
Resignation
 
28
14.3
Disposition of Properties and Assets Dissolution
 
28
14.4
Filing of Certificate of Cancellation
 
28
14.5
Right to Data After Dissolution
 
29
14.6
Continuing Authority
 
29
       
ARTICLE XV       DISPUTES
 
29
15.1
Governing Law
 
29
15.2
Forum Selection
 
29
15.3
Arbitration
 
29
15.4
Dispute Resolution
 
29
       
ARTICLE XVI      GENERAL PROVISIONS
 
30
16.1
Notices
 
30
16.2
Gender
 
31
16.3
Currency
 
31
16.4
Headings
 
31
16.5
Waiver
 
31
16.6
Modification
 
31
16.7
Force Majeure
 
31
16.8
Rule Against Perpetuities
 
32
16.9
Further Assurances
 
32
16.10
Entire Agreement; Successors and Assigns
 
32
16.11
Counterparts
 
32

 
-iv-

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

 

 
EXHIBITS
       
EXHIBIT A
PROPERTIES AND ASSETS AND AREA OF INTEREST
 
EXHIBIT B
ACCOUNTING PROCEDURES
 
EXHIBIT C
TAX MATTERS
 
EXHIBIT D
DEFINITIONS
 
EXHIBIT E
INSURANCE
 
EXHIBIT F
PREEMPTIVE RIGHTS
 
EXHIBIT G
QUITCLAIM DEED
 
EXHIBIT H
LETTER AGREEMENT BETWEEN GPXM, SCORPIO US AND CRESTVIEW
       
SCHEDULE
         
Schedule of Members

 
-v-

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

 

LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
MINERAL RIDGE GOLD, LLC
A Nevada Limited Liability Company

This Limited Liability Company Operating Agreement is made as of March 10, 2010
(“Effective Date”) between Golden Phoenix Minerals, Inc., a Nevada corporation
(“GPXM”), the address of which is 1675 East Prater Way, #102, Sparks, Nevada,
89434, and Scorpio Gold (US) Corporation, a Nevada corporation (“Scorpio US”), a
wholly owned indirect subsidiary of Scorpio Gold Corporation (“Scorpio Gold”)
the address of which is 995 Germain Street, Val d’Or, Quebec, J9P 7H7, Canada.

RECITALS

A.            GPXM owns or controls certain properties in the County of
Esmeralda, State of Nevada, which properties are described in Exhibit A and
defined in Exhibit D.

B.            Scorpio Gold, through its wholly owned subsidiary Scorpio US, also
owns or controls certain properties in the County of Esmeralda, State of Nevada
described in Exhibit A, and wishes to participate with GPXM in the exploration,
evaluation and, if justified, the development and mining of mineral resources
within their combined  Properties.

C.            Pursuant to that certain Members Agreement by and between GPXM,
Scorpio US and Scorpio Gold dated as of December 31, 2009, GPXM has sold to
Scorpio US an undivided seventy percent (70%) interest in the Properties and
Assets owned by GPXM, with GPXM maintaining an undivided thirty percent (30%)
interest in such Properties and the Assets.

D.            GPXM and Scorpio US wish to form and operate a limited liability
company under the Nevada Limited Liability Company Act, as codified in the
Nevada Revised Statutes, Chapter 86 et seq., as the same may be amended from
time to time (the “Act”), to own the Properties and the Assets and conduct the
operations thereon and therewith as contemplated by Recital B.

NOW THEREFORE, in consideration of the covenants and conditions contained
herein, GPXM, Scorpio US and Scorpio Gold agree as follows:

ARTICLE I
DEFINITIONS AND CROSS-REFERENCES

1.1           Definitions. The terms defined in Exhibit D and elsewhere herein
shall have the defined meaning wherever used in this Agreement, including in
Exhibits.

1.2           Cross References. References to “Exhibits,” “Articles,” “Sections”
and “Subsections” refer to Exhibits, Articles, Sections and Subsections of this
Agreement. References to “Paragraphs” and “Subparagraphs” refer to paragraphs
and subparagraphs of the referenced Exhibits.

 
-1-

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

 

ARTICLE II
NAME, PURPOSES AND TERM

2.1           Formation.  The Company has been duly organized pursuant to the
Act and the provisions of this Agreement as a Nevada  limited liability company
by the filing of its Articles of Organization (as defined in the Act) in the
Office of the Secretary of the State of Nevada effective as of the Effective
Date.

2.2           Name.  The name of the Company is “Mineral Ridge Gold, LLC” and
such other name or names complying with the Act as the Manager shall
determine.  The Manager shall accomplish any filings or registrations required
by jurisdictions in which the Company conducts its Business.

2.3           Purposes. The Company is formed for the following purposes and for
no others, and shall serve as the exclusive means by which each of the Members
accomplishes such purposes:

(a)           to conduct Exploration within the Area of Interest,

(b)           to acquire additional real property and other interests within the
Area of Interest,

(c)           to evaluate the possible Development and Mining of the Properties,
and, if justified, to engage in Development and Mining,

(d)           to engage in Operations on the Properties,

(e)           to engage in marketing Products,

(f)            to complete and satisfy all Environmental Compliance obligations
and Continuing Obligations affecting the Properties, and

(g)           to perform any other activity necessary, appropriate, or
incidental to any of the foregoing.

2.4           Limitation. Unless the Members otherwise agree in writing, the
Business of the Company shall be limited to the purposes described in Section
2.3, and nothing in this Agreement shall be construed to enlarge such purposes.

2.5           Term.  The term of the Company shall begin on the Effective Date
and shall continue for twenty (20) years from the Effective Date and for so long
thereafter as Products are produced from the Properties on a continuous basis,
and thereafter until all materials, supplies, equipment and infrastructure have
been salvaged and disposed of, and any required Environmental Compliance is
completed and accepted, unless the Company is earlier terminated as herein
provided.  For purposes hereof, Products shall be deemed to be produced from the
Properties on a “continuous basis” so long as production in commercial
quantities is not halted for more than one hundred eighty (180) consecutive
days.

 
-2-

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

 

2.6           Registered Agent; Offices. The name of the Company’s registered
agent in the State of Nevada is Paracorp Incorporated or such other person as
the Manager may select in compliance with the Act from time to time.  The
registered office of the Company in the State of Nevada shall be located at 318
North Carson Street, Suite 208, Carson City, Nevada 89701 or at any other place
within the State of Nevada which the Manager shall select.  The principal office
of the Company shall be at any other location which the Manager shall select.

ARTICLE III
CONTRIBUTIONS BY MEMBERS

3.1           Members’ Initial Contributions.

(a)            GPXM, as its Initial Contribution, hereby contributes its
undivided thirty percent (30%) interest in the Properties owned by it as
described in Exhibit A pursuant to a Quitclaim Deed in substantially the form
attached hereto as Exhibit G, as well as all Assets owned by it as described in
Exhibit A (collectively, the “Assets”), and the Bond related to such Properties
to the capital of the Company.  The amount of Five Million Four Hundred Eighty
Thousand Four Hundred Fifty-Four Dollars and Ninety-Five Cents ($5,480,454.95),
representing the mutually agreed upon value of Golden Phoenix’s thirty percent
(30%) retained interest in the Properties and Assets and the Bond shall be
credited to GPXM’s Equity Account on the Effective Date with respect to GPXM’s
Initial Contribution.

(b)           Scorpio US, as its Initial Contribution, hereby contributes all of
its interest in the Properties described in Exhibit A to the capital of the
Company, pursuant to a Quitclaim Deed in substantially the form attached hereto
as Exhibit G, as well as all of its interest in the Assets described in Exhibit
A and the Mary Mining Royalty.  The amount of  Twelve Million Seven Hundred
Eighty-Seven Thousand Seven Hundred Twenty-Eight Dollars and Twenty-Two Cents
($12,787,728.22), representing the mutually agreed upon value of Scorpio US’s
interest in the Properties, Assets and Mary Mining Royalty shall be credited to
Scorpio US’s Equity Account on the Effective Date with respect to Scorpio US’s
Initial Contribution.

3.2           Record Title. Title to the Properties and the Assets shall be held
by the Company.

ARTICLE IV
INTERESTS OF MEMBERS

4.1           Initial Ownership Interests. The Members shall have the following
initial Ownership Interests:

Scorpio US – 70%
GPXM –         30%

 
-3-

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

 

4.2           Changes in Ownership Interests and Scorpio US Option.

(a)            Dispositions of Ownership Interest.  The Ownership Interests
shall be eliminated as follows:

(i)           Upon resignation as provided in Article XIV;

(ii)          Upon Transfer by either Member of part or all of its Ownership
Interest in accordance with Article VII; or

(iii)         Upon acquisition by either Member of part or all of the Ownership
Interest of the other Member, however arising.

(b)           Adjustments and Recalculations of Ownership Interests.  The
Ownership Interests shall be adjusted or recalculated as follows:

(i)           In the event Scorpio US elects, at its sole and absolute
discretion, to deposit an amount equal to one hundred percent (100%) of the
estimated capital expenditures required to place the Properties into Commercial
Production as confirmed by a Feasibility Study prepared in accordance with
National Instrument 43-101 – Standards of Disclosure for Mineral Projects, plus
an amount equal to up to an additional twenty percent (20%) of such capital
expenditures, but less such amounts as have already been expended, into the
Business Account, as and when required, and subsequently brings the Properties
into Commercial Production within 30 months from the Closing Date (as defined
below), the Members’ respective Ownership Interests shall automatically adjust
such that Scorpio US’s Ownership Interest shall increase to eighty percent (80%)
and GPXM’s Ownership Interest shall decrease to twenty percent (20%). Amounts
deposited which are not required to bring the Properties into Commercial
Production will be repaid to Scorpio US.

(ii)          Upon an election by either Member pursuant to Section 10.5 to
contribute less to an adopted Program and Budget than the percentage equal to
its Ownership Interest, or to contribute nothing to an adopted Program and
Budget and subject to Subsection 10.5(b)(iii); or

(iii)         In the event of default by either Member in making its agreed-upon
contribution to an adopted Program and Budget, followed by an election by the
other Member to invoke any of the remedies in Section 11.5 subject to the
limitation set forth therein; and

(iv)        Any adjustment to the Members’ relative Ownership Interests pursuant
to the provisions noted above shall not cause or be caused by, nor result in or
be the result of, any actual or deemed transfer or other disposition of any part
of any Ownership Interest by one Member to the other Member.

 
-4-

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

 

(c)           Scorpio US Option.

(i)           If, within 30 months after the Closing of the transactions
contemplated by the Agreement (the “Closing Date”), Scorpio US brings the
Properties into Commercial Production, it shall have the vested right and
option, but not the obligation, to purchase GPXM’s remaining Ownership Interest
for a purchase price equal to the net asset value (“NAV”) of the Properties and
the Assets, determined at the time of the purchase by Scorpio US in accordance
with this Section 4.2(c)(i), multiplied by GPXM’s then existing Ownership
Interest. Upon Scorpio US bringing the Properties into Commercial Production
within 30 months of the Closing Date (the “Production Date”), this vested right
and option will exist for a period of 24 months after commencement of Commercial
Production.  For purposes of this Subsection 4.2(c), the NAV of the Properties
and the Assets shall be determined by Marshall Stevens, Inc., an independent
financial and valuation consulting firm, using no more than a 10% discount rate
and such exploration and production data derived from the Properties and
available as at a date within 30 days of the date of the NAV analysis.

(ii)         In the event that Scorpio US does not exercise its option to
increase its Ownership Interest by an additional ten percent (10%) pursuant to
Subsection 4.2(b)(i), GPXM’s Ownership Interest will increase by five percent
(5%) and Scorpio US’s Ownership Interest shall decrease by five percent (5%),
subject to Scorpio US having the vested right and option, but not the
obligation, for a further period of 12 months from the Production Date to
purchase GPXM’s then existing Ownership Interest for a purchase price as set
forth in Subsection 4.2(c)(i) above.

(iii)         In the event that Scorpio US does not bring the Properties into
Commercial Production in accordance with Subsections 4.2(c)(i) or (ii), then
Scorpio US’s Ownership Interest shall be no less than seventy percent (70%), and
GPXM’s Ownership Interest shall be no greater than thirty percent (30%), and
Scorpio US and GPXM will be required to fund approved Programs and Budgets in
proportion to its respective Ownership Interest on an ongoing basis or be
subject to Subsection 10.5(b).

(iv)        In the event that Scorpio US brings the Properties into Commercial
Production but does not purchase GPXM’s Ownership Interest under Subsections
4.2(c)(i) or (ii),  Scorpio US and GPXM will each be required to fund all
approved Programs and Budgets in proportion to its respective Ownership Interest
on an ongoing basis or be subject to Subsection 10.5(b).

(v)         Any adjustment to the Members’ relative Ownership Interests pursuant
to the provisions noted above shall not cause or be caused by, nor result in or
be the result of, any actual or deemed transfer or other disposition of any part
of any Ownership Interest by one Member to the other Member.

(vi)        Scorpio US shall give GPXM 90 days notice of its intent to purchase
GPXM’s Ownership Interest pursuant to Subsections 4.2(c)(i) or (ii).  Within 30
days of receipt of Scorpio US’ notice of intent to purchase GPXM’s Ownership
Interest, GPXM will either (i) file a proxy statement with the United States
Securities and Exchange Commission (the “SEC”) seeking shareholder approval of
the sale of GPXM’s Ownership Interest in the Company at GPXM’s cost, or (ii)
provide Scorpio US with a letter stating that based on the opinion of its legal
counsel, no shareholder approval is necessary in order for GPXM to sell its
Ownership Interest in the Company.

 
-5-

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

 

Notwithstanding GPXM’s letter to Scorpio US stating that no shareholder approval
is necessary in order for GPXM to sell its Ownership Interest in the Company,
Scorpio US can request GPXM to seek shareholder approval of the sale of GPXM’s
Ownership Interest at Scorpio US’ cost and GPXM will promptly do so.  In
addition, in the event that a GPXM shareholder files suit or threatens to file
suit to force GPXM to seek shareholder approval for the sale of its Ownership
Interest in the Company, GPXM shall then file a proxy statement with the SEC
seeking shareholder approval of the sale GPXM’s Ownership Interest in the
Company at GPXM’s cost.

In the event that GPXM’s shareholders do not approve of the sale of its
Ownership Interest in the Company at an annual or special meeting called for
such purpose as discussed above, then GPXM’s Ownership Interest shall be reduced
by 5%.

4.3           Admission of New Members. Except in the event of a transfer
permitted pursuant to Article VII, a new member may be admitted only with the
unanimous written approval of the Members.

4.4           Documentation of Adjustments to Ownership Interests. Each Member’s
Ownership Interest and related Equity Account balance shall be shown in the
accounting records of the Company, and any adjustments thereto, including any
reduction, readjustment, and restoration of Ownership Interests under Sections
10.5, 10.6 and 11.5, shall be made monthly.  The Schedule of Members attached
hereto shall be amended from time to time to reflect such changes.

4.5           Distributions to Members.  All Net Cash Flow shall be distributed
as determined by the Management Committee among the Members in accordance with
their Ownership Interests. The distribution of cash from the sale of material
assets, a material refinancing, transactions not in the ordinary course of
business, or from dissolution will be determined by the unanimous consent of the
Members.

ARTICLE V
RELATIONSHIP OF THE MEMBERS

5.1           Limitation on Authority of Members. No Member is an agent of the
Company solely by virtue of being a Member, and no Member has authority to act
for the Company solely by virtue of being a Member.  This Section 5.1 supersedes
any authority granted to the Members pursuant to the Act.  Any Member that takes
any action or binds the Company in violation of this Section 5.1 shall be solely
responsible for any loss and expense incurred by the Company as a result of the
unauthorized action and shall indemnify and hold the Company harmless with
respect to the loss or expense.

 
-6-

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

 

5.2           Federal Tax Elections and Allocations. The Company shall be
treated as a partnership for federal income tax purposes, and no Member shall
take any action to alter such treatment.

5.3           State Income Tax. To the extent permissible under applicable law,
the relationship of the Members shall be treated for state income tax purposes
in the same manner as it is for federal income tax purposes.

5.4           Tax Returns. After approval of the Management Committee, any tax
returns or other required tax forms shall be filed in accordance with Exhibit C.

5.5           Other Business Opportunities. Each Member shall have the right to
engage in and receive full benefits from any independent business activities or
operations, whether or not competitive with the Company, without consulting
with, or obligation to, the other Member or the Company. The doctrines of
“corporate opportunity” or “business opportunity” shall not be applied to the
Business nor to any other activity or operation of any Member. No Member shall
have any obligation to the Company or any other Member with respect to any
opportunity to acquire any property outside the Area of Interest at any time, or
within the Area of Interest after the termination of the Company.  Unless
otherwise agreed in writing, neither the Manager nor any Member shall have any
obligation to mill, beneficiate or otherwise treat any Products in any facility
owned or controlled by the Manager or such Member.

5.6           Waiver of Rights to Partition or Other Division of Properties and
Assets. The Members hereby waive and release all rights of partition, or of sale
in lieu thereof, or other division of the Properties and Assets, including any
such rights provided by Law.

5.7           Bankruptcy of a Member. A Member shall cease to have any power as
a Member or Manager or any voting rights or rights of approval hereunder upon
bankruptcy, insolvency, dissolution or assignment for the benefit of creditors
of such Member, and its successor upon the occurrence of any such event shall
have only the rights, powers and privileges of a transferee enumerated in
Section 7.2, and shall be liable for all obligations of the Member under this
Agreement. In no event, however, shall a personal representative or successor
become a substitute Member unless the requirements of Section 7.2 are satisfied.

5.8           Implied Covenants. There are no implied covenants contained in
this Agreement other than those of good faith and fair dealing.

5.9           Certificate of Ownership Interest.

(a)           Certificate.  The Ownership Interests shall be represented by a
certificate of membership, such certificate constituting a “security” for
purposes of Article 8 of the Uniform Commercial Code.  The exact contents of a
certificate of membership may be determined by action of the Manager but will be
issued substantially in conformity with the following requirements.  The
certificates of membership will be respectively numbered serially, as they are
issued, and will be signed by the Manager or authorized officer of the Company. 
Each certificate of membership will state the name of the Company, the fact that
the Company is organized under the laws of the State of Nevada as a limited
liability company, the name of the Member to whom issued, the date of issue and
the Ownership Interests represented thereby.   Each certificate of membership
will be otherwise in such form as may be determined by the Manager.  The initial
units representing the Ownership Interests shall consist of 1,000 units, with
700 units being issued to Scorpio US and 300 units being issued to Golden
Phoenix, respectively.

 
-7-

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

 

(b)           Cancellation of Certificate.  All certificates of membership
surrendered to the Company for transfer will be cancelled and no new
certificates of membership will be issued in lieu thereof until the former
certificates for a like number of Ownership Interests will have been surrendered
and cancelled, except as herein provided with respect to lost, stolen, or
destroyed certificates.

(c)           Replacement of Lost, Stolen, or Destroyed Certificate.  Any Member
claiming that its certificate of membership is lost, stolen, or destroyed may
make an affidavit or affirmation of that fact and request a new certificate. 
Upon the giving of a satisfactory indemnity to the Company as reasonably
required by the Manager, a new certificate may be issued of the same tenor and
representing the same Ownership Interest as was represented by the certificate
alleged to be lost, stolen, or destroyed.

5.10         Disposition of Production. Neither Member shall have any obligation
to account to the other Member for, nor have any interest or right of
participation in any profits or proceeds nor have any obligation to share in any
losses from, futures contracts, forward sales, trading in puts, calls, options
or any similar hedging, price protection or marketing mechanism employed by a
Member with respect to its proportionate share of any Products produced or to be
produced from the Properties.

5.11         Limitation of Liability. The Members shall not be required to make
any contribution to the capital of the Company except as otherwise provided in
this Agreement, nor shall the Members in their capacity as Members or Manager be
bound by, or liable for, any debt, liability or obligation of the Company
whether arising in contract, tort, or otherwise, except as expressly provided by
this Agreement. The Members shall be under no obligation to restore a deficit
Capital Account upon the dissolution of the Company or the liquidation of any of
their Ownership Interests.

5.12         Indemnities.  The Company may, and shall have the power to,
indemnify and hold harmless any Member or Manager or other person from and
against any and all claims and demands whatsoever arising from or related to the
Business, the Company or a Member’s membership in the Company.

5.13         No Third Party Beneficiary Rights. This Agreement shall be
construed to benefit the Members and their respective successors and assigns
only, and shall not be construed to create third party beneficiary rights in any
other party or in any governmental organization or agency.

 
-8-

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

 

ARTICLE VI
REPRESENTATIONS AND WARRANTIES

As of the Effective Date, each Member warrants and represents to the other that:

(a)           it is a corporation or other entity duly organized and in good
standing in its jurisdiction of formation and is qualified to do business and is
in good standing in those jurisdictions where necessary in order to carry out
the purposes of this Agreement;

(b)           it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate, board of directors,
shareholder, surface and mineral rights owner, lessor, lessee and other actions
and consents required to authorize it to enter into and perform this Agreement
have been properly taken or obtained;

(c)           it will not breach any other agreement or arrangement by entering
into or performing this Agreement;

(d)           it is not subject to any governmental order, judgment, decree,
debarment, sanction or Laws that would preclude the permitting or implementation
of Operations under this Agreement; and

(e)           this Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms.

ARTICLE VII
TRANSFER OF INTEREST; PREEMPTIVE RIGHT

7.1           General. A Member shall have the right to Transfer to a third
party its Ownership Interest, or any beneficial interest therein, solely as
provided in this Article VII.  Notwithstanding anything herein to the contrary,
the parties hereto acknowledge that GPXM’s Ownership Interest constitutes
collateral under that certain First Amended and Restated Security Agreement by
and between GPXM and Crestview Capital Master, LLC (”Crestview”), dated February
6, 2009, and hereby consent to such Encumbrance, subject to Crestview’s
confirmation, pursuant to that certain Letter Agreement dated as of even date
hereof between Crestview, GPXM and Scorpio US, in substantially the form
attached hereto as Exhibit H, confirming, among other things, that any sale of
GPXM’s Ownership Interest upon a default shall be conducted in accordance
with  Subsection 7.2(g)(ii) below.

7.2           Limitations on Free Transferability. Any Transfer by either Member
under  Section 7.1 shall be subject to the following limitations:

(a)           Neither Member shall Transfer any beneficial interest in the
Company (including, but not limited to, any royalty, profits, or other interest
in the Products) except in conjunction with the Transfer of part or all of its
Ownership Interest;

 
-9-

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

 

(b)           No transferee of all or any part of a Member’s Ownership Interest
shall have the rights of a Member unless and until the transferring Member has
provided to the other Member notice of the Transfer, and, except as provided in
Subsections 7.2(f) and 7.2(g), the transferee, as of the effective date of the
Transfer, has committed in writing to assume and be bound by this Agreement to
the same extent as the transferring Member;

(c)           Neither Member, without the consent of the other Member, shall
make a Transfer that shall violate any Law, or result in the cancellation of any
permits, licenses, or other similar authorization;

(d)           No Transfer permitted by this Article shall relieve the
transferring Member of any liability of such transferring Member under this
Agreement, whether accruing before or after such Transfer;

(e)           Any Member that makes a Transfer that shall cause termination of
the tax partnership established by Section 5.2 shall indemnify the other Member
for, from and against any and all loss, cost, expense, damage, liability or
claim therefore arising from the Transfer, including without limitation any
increase in taxes, interest and penalties or decrease in credits caused by such
termination and any tax on indemnification proceeds received by the indemnified
Member.

(f)            In the event of a Transfer of less than all of an Ownership
Interest, the transferring Member and its transferee shall act and be treated as
one Member under this Agreement; provided however, that in order for such
Transfer to be effective, the transferring Member and its transferee must first:

(i)           agree, as between themselves, that one of them is authorized to
act as the sole agent (“Agent”) on their behalf with respect to all matters
pertaining to this Agreement and the Company; and

(ii)          notify the other Member of the designation of the Agent, and in
such notice warrant and represent to the other Member that:

(A)           the Agent has the sole authority to act on behalf of, and to bind,
the transferring Member and its transferee with respect to all matters
pertaining to this Agreement and the Company;

(B)           the other Member may rely on all decisions of, notices and other
communications from, and failures to respond by, the Agent, as if given (or not
given) by the transferring Member and its transferee; and

(C)           all decisions of, notices and other communications from, and
failures to respond by, the other Member to the Agent shall be deemed to have
been given (or not given) to the transferring Member and its transferee.

 
-10-

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

 

The transferring Member and its transferee may change the Agent (but such
replacement must be one of them) by giving notice to the other Member, which
notice must conform to Subsection 7.2(f)(ii).

(g)           If the Transfer is the grant of an Encumbrance on an Ownership
Interest to secure a loan or other indebtedness of either Member in a bona fide
transaction, other than a transaction approved unanimously by the Management
Committee or Project Financing  approved by the Management Committee, such
Encumbrance shall be granted only in connection with such Member’s financing
payment or performance of that Member’s obligations under this Agreement and
shall be subject to the terms of this Agreement and the rights and interests of
the other Member hereunder. Any such Encumbrance shall be further subject to the
condition that the holder of such Encumbrance (“Chargee”) first enters into a
written agreement with the other Member in form satisfactory to the other
Member, acting reasonably, binding upon the Chargee, to the effect that:

(i)           the Chargee shall not enter into possession or institute any
proceedings for foreclosure or partition of the encumbering Member’s Ownership
Interest and that such Encumbrance shall be subject to the provisions of this
Agreement;

(ii)          the Chargee’s remedies under the Encumbrance shall be limited to
the sale of the whole (but only of the whole) of the encumbering Member’s
Ownership Interest to the other Member, or, failing such a sale, at a public
auction to be held at least fifteen (15) days after prior notice to the other
Member, such sale to be subject to the purchaser entering into a written
agreement with the other Member whereby such purchaser assumes all obligations
of the encumbering Member under the terms of this Agreement.  The price of any
preemptive sale to the other Member shall be the remaining principal amount of
the loan plus accrued interest and related expenses, and such preemptive sale
shall occur within sixty (60) days of the Chargee’s notice to the other Member
of its intent to sell the encumbering Member’s Ownership Interest. Failure of a
sale to the other Member to close by the end of such period, unless failure is
caused by the encumbering Member or by the Chargee, shall permit the Chargee to
sell the encumbering Member’s Ownership Interest at a public sale; and

(iii)         the charge shall be subordinate to any then-existing debt,
including Project Financing previously approved by the Management Committee,
encumbering the transferring Member’s Ownership Interest.

7.3           Preemptive Right. Any Transfer by either Member under Section 7.1,
excluding those Transfers in compliance with Subsection 7.2(g), and any Transfer
by an Affiliate in Control of either Member shall be subject to a preemptive
right of the other Member to the extent provided in Exhibit F.  Failure of a
Member’s Affiliate to comply with this Section and Exhibit F shall be a breach
by such Member of this Agreement.

 
-11-

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

 

ARTICLE VIII
MANAGEMENT COMMITTEE

8.1           Organization and Composition. The Members hereby establish a
Management Committee to determine overall policies, objectives, procedures,
methods and actions under this Agreement.  The Management Committee shall
consist of five (5) member(s), with three (3) members appointed by Scorpio US
and two (2) member(s) appointed by GPXM.  Each Member may appoint one or more
alternates to act in the absence of a regular member. Any alternate so acting
shall be deemed a Member.  Appointments by a Member shall be made or changed by
notice to the other Members.  Scorpio US shall designate one of its Members to
serve as the chair of the Management Committee.

8.2           Decisions. In all matters in which a vote, approval or consent of
the Management Committee is required by this Agreement, the LLC Agreement or by
law, a vote, consent or approval of a majority of the Members of the Management
Committee shall be required to authorize or approve such act.

8.3           Meetings.

(a)           The Management Committee shall hold regular meetings at least
quarterly in Nevada, or at other agreed places.  The Manager shall give five (5)
days notice to the Members of such meetings. Additionally, either Member may
call a special meeting upon seven (7) days notice to the other Member.  In case
of an emergency, reasonable notice of a special meeting shall suffice.  There
shall be a quorum if at least one member of the Management Committee
representing each Member is present; provided, however, that if a Member fails
to attend two consecutive properly called meetings, then a quorum shall exist at
the second meeting if the other Member is represented by at least one appointed
member, and a vote of such Member shall be considered the vote required for the
purposes of the conduct of all business properly noticed even if such vote would
otherwise require unanimity.

(b)           If business cannot be conducted at a regular or special meeting
due to the lack of a quorum, either Member may call the next meeting upon two
(2) days notice to the other Member.

(c)           Each notice of a meeting shall include an itemized agenda prepared
by the Manager in the case of a regular meeting or by the Member calling the
meeting in the case of a special meeting, but any matters may be considered if
either Member adds the matter to the agenda  at least two (2) days before the
meeting or with the consent of the other Member.   The Manager shall prepare
minutes of all meetings and shall distribute copies of such minutes to the other
Member within ten (10) days after the meeting.  Either Member may electronically
record the proceedings of a meeting with the consent of the other Member.  The
other Member shall sign and return or object to the minutes prepared by the
Manager within thirty (30) days after receipt, and failure to do either shall be
deemed acceptance of the minutes as prepared by the Manager.  The minutes, when
signed or deemed accepted by both Members, shall be the official record of the
decisions made by the Management Committee.  Decisions made at a Management
Committee meeting shall be implemented in accordance with adopted Programs and
Budgets.  If a Member timely objects to minutes proposed by the Manager, the
members of the Management Committee shall seek, for a period not to exceed
thirty (30) days from receipt by the Manager of notice of the objections, to
agree upon minutes acceptable to both Members.  If the Management Committee does
not reach agreement on the minutes of the meeting within such thirty (30) day
period, the minutes of the meeting as prepared by the Manager together with the
other Member’s proposed changes shall collectively constitute the record of the
meeting.  If personnel employed in Operations are required to attend a
Management Committee meeting, reasonable costs incurred in connection with such
attendance shall be charged to the Business Account.  All other costs shall be
paid by the Members individually.

 
-12-

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

 

8.4           Action Without Meeting in Person. In lieu of meetings in person,
the Management Committee may conduct meetings by telephone or video conference,
so long as minutes of such meetings are prepared in accordance with Subsection
8.3(c). The Management Committee may also take actions in writing signed by all
members of the Management Committee.

8.5           Matters Requiring Approval. Except as otherwise delegated to the
Manager in Section 9.2, the Management Committee shall have exclusive authority
to determine all matters related to overall policies, objectives, procedures,
methods and actions under this Agreement. Notwithstanding anything herein to the
contrary, the following actions shall require the prior written approval of both
Members: (i) any merger or acquisition whereby the Company acquires or merges
with or into an independent third party; (ii) any debt or royalty financing
encumbering the Properties or Assets other than  encumbrances on Assets in the
ordinary course of business and not exceeding $100,000 in aggregate; (iii) any
determination to enter into a Supplemental Business Arrangement pursuant to
Section 10.9; (iv) any dissolution pursuant to Subsection 14.1(b); (v) if the
subsequent year’s cost of Programs and Budgets exceed by more than thirty-five
percent (35%) the current year’s cost of Programs and Budgets; or (vi) any
modification to this Agreement pursuant to Section 16.6.

ARTICLE IX
MANAGER

9.1           Appointment. The Members hereby appoint Scorpio US as the Manager
with overall management responsibility for Operations.  Scorpio US hereby agrees
to serve until it resigns as provided in Section 9.4.

9.2           Powers and Duties of Manager. Subject to the terms and provisions
of this Agreement, the Manager shall have the following powers and duties, which
shall be discharged in accordance with adopted Programs and Budgets.

(a)           The Manager shall manage, direct and control Operations, and shall
prepare and present to the Management Committee proposed Programs and Budgets as
provided in Article X.

(b)           The Manager shall implement the decisions of the Management
Committee, shall make all expenditures necessary to carry out adopted Programs,
and shall promptly advise the Management Committee if it lacks sufficient funds
to carry out its responsibilities under this Agreement.

 
-13-

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

 

(c)           The Manager shall use reasonable efforts to: (i) purchase or
otherwise acquire all material, supplies, equipment, water, utility and
transportation services required for Operations, such purchases and acquisitions
to be made to the extent reasonably possible on the best terms available, taking
into account all of the circumstances; (ii) obtain such customary warranties and
guarantees as are available in connection with such purchases and acquisitions;
and (iii) keep the Properties and Assets free and clear of all Encumbrances,
except any such Encumbrances listed in Paragraph 1.1 of Exhibit A and those
existing at the time of, or created concurrent with, the acquisition of such
Properties and Assets, or mechanic’s or materialmen’s liens (which shall be
contested, released or discharged in a diligent matter) or Encumbrances
specifically approved by the Management Committee.

(d)           The Manager shall conduct such title examinations of the
Properties and cure such title defects pertaining to the Properties as may be
advisable in its reasonable judgment.

(e)           The Manager shall: (i) make or arrange for all payments required
by leases, licenses, permits, contracts and other agreements related to the
Properties and Assets; (ii) pay all taxes, assessments and like charges on
Operations, Properties and Assets except taxes determined or measured by a
Member’s sales revenue or net income and taxes, including production taxes,
attributable to a Member’s share of Products, and shall otherwise promptly pay
and discharge expenses incurred in Operations; provided, however, that if
authorized by the Management Committee, the Manager shall have the right to
contest (in the courts or otherwise) the validity or amount of any taxes,
assessments or charges if the Manager deems them to be unlawful, unjust, unequal
or excessive, or to undertake such other steps or proceedings as the Manager may
deem reasonably necessary to secure a cancellation, reduction, readjustment or
equalization thereof before the Manager shall be required to pay them, but in no
event shall the Manager permit or allow title to the Properties and Assets to be
lost as the result of the nonpayment of any taxes, assessments or like charges;
and (iii) do all other acts reasonably necessary to maintain the Properties and
Assets.

(f)           The Manager shall: (i) apply for all necessary permits, licenses
and approvals; (ii) comply with all Laws; (iii) notify promptly the Management
Committee of any allegations of substantial violation thereof; and (iv) prepare
and file all reports or notices required for or as a result of Operations. The
Manager shall not be in breach of this provision if a violation has occurred in
spite of the Manager’s good faith efforts to comply consistent with its standard
of care under Section 9.3.  In the event of any such violation, the Manager
shall timely cure or dispose of such violation on behalf of both Members through
performance, payment of fines and penalties, or both, and the cost thereof shall
be charged to the Business Account.

(g)           The Manager shall prosecute and defend, but shall not initiate
without consent of the Management Committee, all litigation or administrative
proceedings arising out of Operations. The non-managing Member shall have the
right to participate, at its own expense, in such litigation or administrative
proceedings.  The non-managing Member shall approve in advance any settlement
involving payments, commitments or obliga­tions in excess of One Hundred
Thousand Dollars ($100,000) in cash or value, such approval not to be
unreasonably withheld.

 
-14-

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

 

(h)           The Manager shall obtain insurance for the benefit of the Company
as provided in Exhibit E or as may otherwise be determined from time to time by
the Management Committee.

(i)            The Manager may dispose of the Properties and Assets, whether by
abandonment, surrender, or Transfer in the ordinary course of business, except
that Properties may be abandoned or surrendered only as provided in
Section 12.2.  Without prior authorization from the Management Committee,
however, the Manager shall not: (i) dispose of Assets in any one transaction (or
in any series of related transactions) having a value in excess of One Hundred
Thousand Dollars ($100,000); (ii) enter into any sales contracts or commitments
for Product, except as permitted in Section 5.10; (iii) begin a liquidation of
the Company; or (iv) dispose of all or a substantial part of the Properties and
Assets necessary to achieve the purposes of the Company.

(j)            The Manager shall have the right to carry out its
responsibilities hereunder through agents, Affiliates or independent
contractors.

(k)           The Manager shall perform or cause to be performed all assessment
and other work, and shall pay all Governmental Fees, required by Law in order to
maintain the unpatented mining claims, mill sites and tunnel sites included
within the Properties.  The Manager shall have the right to perform the
assessment work required hereunder pursuant to a common plan of exploration and
continued actual occupancy of such claims and sites shall not be required.  The
Manager shall not be liable on account of any determination by any court or
governmental agency that the work performed by the Manager does not constitute
the required annual assessment work or occupancy for the purposes of preserving
or maintaining ownership of the claims, provided that the work done is pursuant
to an adopted Program and Budget and is performed in accordance with the
Manager’s standard of care under Section 9.3.  The Manager shall timely record
with the appropriate county and file with the appropriate United States agency
any required affidavits, notices of intent to hold and other documents in proper
form attesting to the payment of Governmental Fees, the performance of
assessment work or intent to hold the claims and sites, in each case in
sufficient detail to reflect compliance with the requirements applicable to each
claim and site.  The Manager shall not be liable on account of any determination
by any court or governmental agency that any such document submitted by the
Manager does not comply with applicable requirements, provided that such
document is prepared and recorded or filed in accordance with the Manager’s
standard of care under Section 9.3.

(l)            If authorized by the Management Committee, the Manager may:
(i) locate, amend or relocate any unpatented mining claim or mill site or tunnel
site, (ii) locate any fractions resulting from such amendment or relocation,
(iii) apply for patents or mining leases or other forms of mineral tenure for
any such unpatented claims or sites, (iv) abandon any unpatented mining claims
for the purpose of locating mill sites or otherwise acquiring from the United
States rights to the ground covered thereby, (v) abandon any unpatented mill
sites for the purpose of locating mining claims or otherwise acquiring from the
United States rights to the ground covered thereby, (vi) exchange with or convey
to the United States any of the Properties for the purpose of acquiring rights
to the ground covered thereby or other adjacent ground, and (vii) convert any
unpatented claims or mill sites into one or more leases or other forms of
mineral tenure pursuant to any Law hereafter enacted.

 
-15-

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

 

(m)           The Manager shall keep and maintain all required accounting and
financial records pursuant to the procedures described in Exhibit B and in
accordance with customary cost accounting practices in the mining industry, and
shall ensure appropriate separation of accounts unless otherwise agreed by the
Members.

(n)           The Manager shall keep and maintain all required records, make
elections, and prepare and file all federal and state tax returns or other
required tax forms, and perform the other duties described in Exhibit C.

(o)           The Manager shall maintain Equity Accounts for each Member. Each
Member’s Equity Account shall be credited with the value of such Member’s
contributions under Subsections 3.1(a) and 3.1(b) and shall be credited with any
additional amounts contributed by such Member to the Company.  Each Member’s
Equity Account shall be charged with the cash and the fair market value of
property distributed to such Member (net of liabilities assumed by such Member
and liabilities to which such distributed property is subject).  Contributions
and distributions shall include all cash contributions or distributions plus the
agreed value (expressed in dollars) of all in-kind contributions or
distributions.  Solely for purposes of determining the Equity Account balances
of the Members, the Manager shall reasonably estimate the fair market value of
all Products distributed to the Members, and such estimated value shall be used
regardless of the actual amount received by each Member upon disposition of such
Products.

(p)           The Manager shall keep the Management Committee advised of all
Operations by submitting in writing to the members of the Management Committee:
(i) monthly progress reports that include statements of expenditures and
comparisons of such expenditures to the adopted Budget; (ii) periodic summaries
of data acquired; (iii) copies of reports concerning Operations; (iv) a detailed
final report within five (5) days after completion of each Program and Budget,
which shall include comparisons between actual and budgeted expenditures and
comparisons between the objectives and results of Programs; and (v) such other
reports as any member of the Management Committee may reasonably
request.  Subject to Article XIII, at all reasonable times the Manager shall
provide the Management Committee, or other representative of a Member upon the
request of such Member’s member of the Management Committee, access to, and the
right to inspect and, at such Member’s cost and expense, copy the Existing Data
and all maps, drill logs and other drilling data, core, pulps, reports, surveys,
assays, analyses, production reports, operations, technical, accounting and
financial records, and other Business Information, to the extent preserved or
kept by the Manager.  In addition, the Manager shall allow the non-managing
Member, at the latter’s sole risk, cost and expense, and subject to reasonable
safety regulations, to inspect the Properties, Assets and Operations at all
reasonable times, so long as the non-managing Member does not unreasonably
interfere with Operations.

(q)           The Manager shall prepare an Environmental Compliance plan for all
Operations consistent with the requirements of any applicable Laws or
contractual obligations and shall include in each Program and Budget sufficient
funding to implement the Environmental Compliance plan and to satisfy the
financial assurance requirements of any applicable Law or contractual obligation
pertaining to Environmental Compliance. To the extent practical, the
Environmental Compliance plan shall incorporate concurrent reclamation of
Properties disturbed by Operations.

 
-16-

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

 

(r)            The Manager shall undertake to perform Continuing Obligations
when and as economic and appropriate, whether before or after termination of the
Company. The Manager shall have the right to delegate performance of Continuing
Obligations to persons having demonstrated skill and experience in relevant
disciplines. As part of each Program and Budget submittal, the Manager shall
specify in such Program and Budget the measures to be taken for performance of
Continuing Obligations and the cost of such measures. The Manager shall keep the
other Member reasonably informed about the Manager’s efforts to discharge
Continuing Obligations.  Authorized representatives of each Member shall have
the right from time to time to enter the Properties to inspect work directed
toward satisfaction of Continuing Obligations and audit books, records, and
accounts related thereto.

(s)           The funds that are to be deposited into the Environmental
Compliance Fund shall be maintained by the Manager in a separate, interest
bearing cash management account, which may include, but is not limited to, money
market investments and money market funds, and/or in longer term investments if
approved by the Management Committee.  Such funds shall be used solely for
Environmental Compliance and Continuing Obligations, including the committing of
such funds, interests in property, insurance or bond policies, or other security
to satisfy Laws regarding financial assurance for the reclamation or restoration
of the Properties, and for other Environmental Compliance requirements.

(t)            If Ownership Interests are adjusted in accordance with this
Agreement the Manager shall modify the Schedule of Members to properly reflect
such adjustment and shall propose from time to time one or more methods for
fairly allocating costs for Continuing Obligations.

(u)           The Manager shall undertake all other activities reasonably
necessary to fulfill the foregoing, and to implement the policies, objectives,
procedures, methods and actions determined by the Management Committee pursuant
to Section 8.1.

9.3           Standard of Care. The Manager shall discharge its duties under
Section 9.2 and conduct all Operations in a good, workmanlike and efficient
manner, in accordance with sound mining and other applicable industry standards
and practices, and in accordance with Laws and with the terms and provisions of
leases, licenses, permits, contracts and other agreements pertaining to the
Properties and Assets.  The Manager shall not be liable to the other Member for
any act or omission resulting in damage or loss except to the extent caused by
or attributable to the Manager’s willful misconduct or gross negligence.  The
Manager shall not be in default of any of its duties under Section 9.2 if its
inability or failure to perform results from the failure of the other Member to
perform acts or to contribute amounts required of it by this Agreement.

9.4           Resignation; Deemed Offer to Resign. The Manager may resign upon
not less than three (3) months’ prior notice to the other Member, in which case
the other Member may elect to become the new Manager by notice to the resigning
Member within fifteen (15) days after the notice of resignation. If any of the
following shall occur, the Manager shall be deemed to have resigned upon the
occurrence of the event described in each of the following Subsections, with the
successor Manager to be appointed by the other Member at a subsequently called
meeting of the Management Committee, at which the Manager shall not be entitled
to vote.  The other Member may appoint itself or a third party as the Manager.

 
-17-

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

 

(a)           The aggregate Ownership Interest of the Manager and its Affiliates
becomes less than fifty percent (50%);

(b)           The Manager fails to perform a material obligation imposed upon it
under this Agreement and such failure continues for a period of sixty (60) days
after notice from the other Member demanding performance;

(c)           The Manager fails to pay or contest in good faith Company bills
and Company debts as such obligations become due and such failure continues for
a period of sixty (60) days after notice from the other Member demanding
performance;

(d)           A receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for a substantial part of its assets is appointed and such
appointment is neither made ineffective nor discharged within sixty (60) days
after the making thereof, or such appointment is consented to, requested by, or
acquiesced to by the Manager;

(e)           The Manager commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or consents to
the entry of an order for relief in an involuntary case under any such law or to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official of any substantial
part of its assets; or makes a general assignment for the benefit of creditors;
or takes corporate or other action in furtherance of any of the foregoing; or

(f)            Entry is made against the Manager of a judgment, decree or order
for relief affecting its ability to serve as Manager or a substantial part of
its Ownership Interest or its other assets by a court of competent jurisdiction
in an involuntary case commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect.

Under Subsections (d), (e) or (f) above, the appointment of a successor Manager
shall be deemed to pre-date the event causing a deemed resignation.

9.5           Payments To Manager. The Manager shall be compensated for its
services and reimbursed for its costs hereunder in accordance with Exhibit B.

9.6           Transactions With Affiliates. If the Manager engages Affiliates to
provide services hereunder, it shall do so on terms no less favorable than would
be the case in arm’s-length transactions with unrelated parties.

9.7           Activities During Deadlock. If the Management Committee for any
reason fails to adopt an Exploration, Pre-Feasibility Study, Feasibility Study
or Development Program and Budget, the Manager shall continue Operations at
levels sufficient to maintain the Properties.  If the Management Committee for
any reason fails to adopt an initial Mining Program and Budget or any Expansion
or Modification Programs and Budgets, the Manager shall continue Operations at
levels sufficient to maintain the then current Operations and Properties. If the
Management Committee for any reason fails to adopt Mining Programs and Budgets
subsequent to the initial Mining Program and Budget, subject to the contrary
direction of the Management Committee and receipt of necessary funds, the
Manager shall continue Operations at levels comparable with the last adopted
Mining Program and Budget. All of the foregoing shall be subject to the contrary
direction of the Management Committee and the receipt of necessary funds.

 
-18-

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

 

ARTICLE X
PROGRAMS AND BUDGETS

10.1         Initial Program and Budget. The Initial Program and Budget will be
prepared by the Manager with reference to the Feasibility Study to be prepared
by Micon International Limited, and will be submitted to the Members in
accordance with Section 10.4.

10.2         Operations Pursuant to Programs and Budgets. Except as otherwise
provided in Section 10.8, Operations shall be conducted, expenses shall be
incurred, and Properties and Assets shall be acquired only pursuant to adopted
Programs and Budgets.  Every Program and Budget adopted pursuant to this
Agreement shall provide for accrual of reasonably anticipated Environmental
Compliance expenses for all Operations contemplated under the Program and
Budget.

10.3         Presentation of Programs and Budgets. Proposed Programs and Budgets
shall be prepared by the Manager (except that in the event the Manager makes an
election under Subsection 10.5(a)(ii) or (iii), in which case the other Member
shall have the right to prepare a Proposed Program and Budget) for a period of
one (1) year or any other period as approved by the Management Committee, which
shall be submitted to the Management Committee for review and
consideration.  All proposed Programs and Budgets may include Exploration,
Pre-Feasibility Studies, Feasibility Study, Development, Mining and Expansion or
Modification Operations components, or any combination thereof, and shall be
reviewed and adopted upon a vote of the Management Committee in accordance with
Sections 8.2 and 10.4.  Each Program and Budget adopted by the Management
Committee, regardless of length, shall be reviewed at least once a year at a
meeting of the Management Committee.  During the period encompassed by any
Program and Budget, and at least three (3) months prior to its expiration, a
proposed Program and Budget for the succeeding period shall be prepared by the
Manager and submitted to the Management Committee for review and consideration.

10.4         Review and Adoption of Proposed Programs and Budgets. Within
fifteen (15) days after submission of a proposed Program and Budget, each Member
shall submit in writing to the Management Committee:

(a)           Notice that the Member approves any or all of the components of
the proposed Program and Budget; or

 
-19-

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

 

(b)           Modifications proposed by the Member to the components of the
proposed Program and Budget; or

(c)           Notice that the Member rejects any or all of the components of the
proposed Program and Budget.

If a Member fails to give any of the foregoing responses within the allotted
time, the failure shall be deemed to be a vote by the Member for adoption of the
Manager’s proposed Program and Budget.  If a Member makes a timely submission to
the Management Committee pursuant to Subsections 10.4(a), (b) or (c), then the
Manager working with the other Member shall seek for a period of time not to
exceed twenty (20) days to develop a complete Program and Budget acceptable to
both Members. The Manager shall then call a Management Committee meeting in
accordance with Section 8.3 for purposes of reviewing and voting upon the
proposed Program and Budget.

10.5         Election to Participate.

(a)           By notice to the Management Committee within twenty (20) days
after the final vote adopting a Program and Budget, and notwithstanding its vote
concerning adoption of a Program and Budget, a Member may elect to participate
in the approved Program and Budget: (i) in proportion to its respective
Ownership Interest, (ii) in some lesser amount than its respective Ownership
Interest, or (iii) not at all. In case of an election under
Subsection 10.5(a)(ii) or (iii), its Ownership Interest shall be recalculated as
provided in Subsection 10.5(b) below, with dilution effective as of the first
day of the Program Period for the adopted Program and Budget.  If a Member fails
to so notify the Management Committee of the extent to which it elects to
participate, the Member shall be deemed to have elected to contribute to such
Program and Budget in proportion to its respective Ownership Interest as of the
beginning of the Program Period.

(b)           If a Member elects to contribute to an adopted Program and Budget
some lesser amount than in proportion to its respective Ownership Interest, or
not at all, and the other Member elects to fund all or any portion of the
deficiency, the Ownership Interest of the Reduced Member shall be provisionally
recalculated as follows:

(i)           for an election made before Payout, by dividing: (A) the sum of
(1) the amount credited to the Reduced Member’s Equity Account with respect to
its Initial Contribution under Section 3.1, (2) the total of all of the Reduced
Member’s contributions to the Company under Subsection 10.5(a) or otherwise
pursuant to this Agreement, and (3) the amount, if any, the Reduced Member
elects to contribute to the adopted current Program and Budget; by (B) the sum
of (1), (2) and (3) above for both Members; and then multiplying the result by
one hundred; or

(ii)          for an election made after Payout, by reducing its Ownership
Interest in an amount equal to one times the amount by which it would have been
reduced under Subsection 10.5(b)(i) if such election were made before Payout;
and

(iii)         subject to Subsection 4.2(c)(iii), in no event shall GPXM’s
Ownership Interest be reduced to less than twenty percent (20%) at any time
prior to commencement of Commercial Production (except in the event of an
adjustment under Subsection 4.2(c)(ii), in which case, in no event shall GPXM’s
Ownership Interest be reduced to less than its then existing Ownership Interest
prior to commencement of Commercial Production during the 12 month extension
period referenced therein), with no further dilution under this Subsection
10.5(b) until Commercial Production is achieved, despite its election not to
contribute to a Program and Budget.

 
-20-

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

 

The Ownership Interest of the other Member shall be increased by the amount of
the reduction in the Ownership Interest of the Reduced Member, and if the other
Member elects not to fund the entire deficiency, the Manager shall adjust the
Program and Budget to reflect the funds available.

(c)           Whenever the Ownership Interests are recalculated pursuant to this
Section, (i) the Equity Accounts of both Members shall be revised to bear the
same ratio to each other as their recalculated Ownership Interests; (ii) the
Schedule of Members shall be amended to reflect the recalculated Ownership
Interests; and (iii) the portion of Capital Account attributable to the reduced
Ownership Interest of the Reduced Member shall be transferred to the other
Member.

 Recalculation or Restoration of Reduced Interest Based on Actual Expenditures.

(a)           If a Member makes an election under Subsection 10.5(a)(ii)
or (iii), then within ninety (90) days after the conclusion of such Program and
Budget, the Manager shall report the total amount of money expended plus the
total obligations incurred by the Manager for such Budget.

(b)           If the Manager expended or incurred obligations that were more or
less than the adopted Budget, the Ownership Interests shall be recalculated
pursuant to Subsection 10.5(b) by substituting each Member’s actual contribution
to the adopted Budget for that Member’s estimated contribution at the time of
the Reduced Member’s election under Subsection 10.5(a).

(c)           If the Manager expended or incurred obligations of less than
eighty percent (80%) of the adopted Budget, within sixty (60) days of receiving
the Manager’s report on expenditures, the Reduced Member may notify the other
Member of its election to reimburse the other Member for the difference between
any amount contributed by the Reduced Member to such adopted Program and Budget
and the Reduced Member’s proportionate share (at the Reduced Member’s former
Ownership Interest) of the actual amount expended or incurred for the Program,
plus interest on the difference accruing at the rate described in Section
11.3.  The Reduced Member shall deliver the appropriate amount (including
interest) to the other Member with such notice.  Failure of the Reduced Member
to so notify and tender such amount shall result in dilution occurring in
accordance with this Article X and shall bar the Reduced Member from its rights
under this Subsection 10.6(c) concerning the relevant adopted Program and
Budget.

(d)           All recalculations under this Section shall be effective as of the
first day of the Program Period for the Program and Budget.  The Manager, on
behalf of both Members, shall make such reimbursements, reallocations of
Products, contributions and other adjustments as are necessary so that, to the
extent possible, each Member will be placed in the position it would have been
in had its Ownership Interests as recalculated under this Section been in effect
throughout the Program Period for such Program and Budget.

 
-21-

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

 

(e)           Whenever the Ownership Interests are recalculated pursuant to this
Section, (i) the Members’ Equity Accounts shall be revised to bear the same
ratio to each other as their Recalculated Ownership Interests; (ii) the Schedule
of Members shall be amended to reflect the recalculated Ownership Interests; and
(iii) the Capital Accounts of the Members shall be determined without regard to
Subsection 10.5(c), provided, that the portion of Capital Account attributable
to the reduced Ownership Interest of the Reduced Member, if any, after taking
into account the adjustments required by this Section 10.6 shall be transferred
to the other Member.

10.7         Expansion or Modification Programs and Budgets. Any Program and
Budget proposed by the Manager involving Expansion or Modification shall be
based on a Feasibility Study prepared by the Manager, Feasibility Contractors,
or both, or prepared by the Manager and audited by Feasibility Contractors, as
the Management Committee determines.  The Program and Budget, which include
Expansion or Modification, shall be submitted for review and approval by the
Management Committee within thirty (30) days following receipt by the Manager of
such Feasibility Study.

10.8         Budget Overruns; Program Changes. The Manager shall immediately
notify the Management Committee of any material departure from an adopted
Program and Budget. If the Manager exceeds an adopted Budget by more than
fifteen percent (15%) in the aggregate, then the excess over fifteen percent
(15%), unless authorized or ratified by the Management Committee, shall be for
the sole account of the Manager and such excess shall not be included in the
calculations of the Ownership Interests nor deemed a contribution under this
Agreement.  Budget overruns of fifteen  percent (15%) or less in the aggregate
shall be borne by the Members in proportion to their respec­tive Ownership
Interests.

10.9         Supplemental Business Arrangement. At any time during the term of
this Agreement, the Management Committee may determine by unanimous vote of both
Members that it is appropriate to segregate the Area of Interest into areas
subject to separate Programs and Budgets for purposes of conducting further
Exploration, Pre-Feasibility or Feasibility Studies, Development, or Mining.  At
such time, the Management Committee shall designate which portion of the
Properties will comprise an area of interest under a separate business
arrangement (“Supplemental Business Arrangement”) for the purpose of further
exploring, analyzing, developing, and mining such portion of the
Properties.  The Supplemental Business Arrangement shall substantially reflect
the same terms as this Agreement, with rights and interests of the Members in
the Supplemental Business Arrangement identical to the rights and interests of
the Members in the Company at the time of the designation, unless otherwise
agreed to by the Members, and with the Members agreeing to new Capital and
Equity Accounts and other terms necessary for the Supplemental Business
Arrangement to comply with the nature and purpose of the designation. Following
the effectuation of the Supplemental Business Arrangement, this Agreement shall
terminate insofar as it affects the Properties covered by the Supplemental
Business Arrangement.

 
-22-

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

 

10.10       Drilling Program. Scorpio US covenants and agrees with GPXM to cause
the Company to complete drilling programs of a minimum of 35,000 feet of
drilling per year for two years from the date of this Agreement, at the sole
expense of Scorpio US.

ARTICLE XI
ACCOUNTS AND SETTLEMENTS

11.1         Monthly Statements. The Manager shall promptly submit to the
Management Committee monthly statements of account reflecting in reasonable
detail the charges and credits to the Business Account during the preceding
month.

11.2         Cash Calls. On the basis of each adopted Program and Budget and
subject to each Member’s agreed upon contribution to the Program and Budget
based on Section 10.5 elections, the Manager shall submit to each Member prior
to the last day of each month a billing for estimated cash requirements for the
next month.  Within ten (10) days after receipt of each billing, each Member
shall advance its proportionate share of such cash requirements.  The Manager
shall record all funds received in the Business Account. The Manager shall at
all times maintain a cash balance approximately equal to the rate of
disbursement for up to ninety (90) days.  All funds in excess of immediate cash
requirements shall be invested by the Manager for the benefit of the Company in
cash management accounts and investments selected at the discretion of the
Manager, which accounts may include, but are not limited to, money market
investments and money market funds.

11.3         Failure to Meet Cash Calls. A Member that fails to meet cash calls
in the amount and at the times specified in Section 11.2 shall be in default,
and the amounts of the defaulted cash call shall bear interest from the date due
at an annual rate equal to two (2) percentage points over the Prime Rate, but in
no event shall the rate of interest exceed the maximum permitted by Law. Such
interest shall accrue to the benefit of and be payable to the non-defaulting
Member.  In addition to any other rights and remedies available to it by Law,
the non-defaulting Member shall have those other rights, remedies, and elections
specified in Sections 11.4 and 11.5.

11.4         Cover Payment. If a Member defaults in making a contribution or
cash call required by an adopted Program and Budget, the non-defaulting Member
may, but shall not be obligated to, advance some portion or all of the amount in
default on behalf of the defaulting Member (a “Cover Payment”). Each and every
Cover Payment shall constitute a demand loan bearing interest from the date of
the advance at the rate provided in Section 11.3. If more than one Cover Payment
is made, the Cover Payments shall be aggregated and the rights and remedies
described herein pertaining to an individual Cover Payment shall apply to the
aggregated Cover Payments. The failure to repay such loan upon demand shall be a
default.

11.5         Remedies. The Members acknowledge that if either Member defaults in
making a cash call or in repaying a Cover Payment, as required under Sections
11.2, 11.3 or 11.4, it will be difficult to measure the damages resulting from
such default (it being hereby understood and agreed that the Members have
attempted to determine such damages in advance and determined that the
calculation of such damages cannot be ascertained with reasonable certainty).
Both Members acknowledge and recognize that the damage to the non-defaulting
Member could be significant. In the event of such default, as reasonable
liquidated damages, the non-defaulting Member may, with respect to any such
default not cured within thirty (30) days after notice to the defaulting Member
of such default, elect any of the following remedies by giving notice to the
defaulting Member. Such election may be made with respect to each failure to
meet a cash call relating to a Program and Budget, regardless of the frequency
of such cash calls, provided such cash calls are made in accordance with
Section 11.2.

 
-23-

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

 

(a)           [RESERVED]

(b)           The non-defaulting Member may elect to have the defaulting
Member’s Ownership Interest diluted as follows:

(i)           The Reduced Member’s Ownership Interest shall be recalculated by
dividing: (X) the sum of (1) the value of the Reduced Member’s Initial
Contribution under Section 3.1, (2) the total of all of the Reduced Member’s
contributions to the Company under Subsection 10.5(a) or otherwise pursuant to
this Agreement and (3) the amount, if any, the Reduced Member contributed to the
adopted current Program and Budget with respect to which the default occurred;
by (Y) the sum of (1), (2) and (3) above for both Members; and then multiplying
the result by one hundred.  For such a default occurring after Payout, the
Reduced Member’s Ownership Interest shall be reduced in an amount equal to one
times the amount by which it would have been reduced if such default had
occurred before Payout.  For such a default, whether occurring before or after
Payout, the Recalculated Ownership Interest shall then be further reduced:

(A)           for a default relating exclusively to an Exploration Program and
Budget, by multiplying the Recalculated Ownership Interest by the following
percentage: 80%; or

(B)           for a default relating to a Program and Budget covering in whole
or in part Pre-Feasibility Study and/or Feasibility Study Operations, by
multiplying Recalculated Ownership Interest by the following percentage: 80%

(C)           for a default relating to a Program and Budget covering in whole
or in part Development or Mining, by multiplying the Recalculated Ownership
Interest by the following percentage:  80%

The Ownership Interest of the other Member shall be increased by the amount of
the reduction in the Ownership Interest of the Reduced Member, including the
further reduction under Subsections 10.5(b)(i)(A) or (B), provided however that
all such dilution shall be subject to the limitation set forth in Subsection
10.5(b)(iii).

(ii)          Dilution under this Subsection 11.5(b) shall be effective as of
the date of the original default, and Section 10.6 shall not apply. The amount
of any Cover Payment under Section 11.4 and interest thereon, or any interest
accrued in accordance with Section 11.3, shall be deemed to be amounts
contributed by the non-defaulting Member, and not as amounts contributed by the
defaulting Member.

 
-24-

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

 

(iii)         Whenever the Ownership Interests are recalculated pursuant to this
Subsection 11.5(b), (A) the Equity Accounts of both Members shall be adjusted to
bear the same ratio to each other as their recalculated Ownership Interests; and
(B) the portion of Capital Account attributable to the reduced Ownership
Interest of the Reduced Member shall be transferred to the other Member.

11.6         Audits.

(a)           Within ninety (90) days after the end of each calendar year, an
audit shall be completed by a PCAOB certified public accountants selected by,
and independent of, the Manager. The audit shall be conducted in accordance with
United States generally accepted auditing standards and shall cover all books
and records maintained by the Manager in accordance with United States generally
accepted accounting principles.  The cost of all audits under this Subsection
shall be charged to the Business Account.

(b)           Notwithstanding the annual audit conducted by certified public
accountants selected by the Manager, each Member shall have the right to have an
independent audit of all Company books, records and accounts, including all
charges to the Business Account.  This audit shall review all issues raised by
the requesting Member, with all costs borne by the requesting Member.  The
requesting Member shall give the other Member thirty (30) days prior notice of
such audit.  Any audit conducted on behalf of either Member shall be made during
the Manager’s normal business hours and shall not interfere with
Operations.  Neither Member shall have the right to audit records and accounts
of the Company relating to transactions or Operations more than twenty-four (24)
months after the calendar year during which such transactions, or transactions
related to such Operations, were charged to the Business Account.  All written
exceptions to and claims upon the Manager for discrepancies disclosed by such
audit shall be made not more than three (3) months after completion and delivery
of such audit, or they shall be deemed waived.

ARTICLE XII
PROPERTIES

12.1         Royalties, Production Taxes and Other Payments Based on Production.
All required payments of production royalties, taxes based on production of
Products, and other payments out of production to private parties and
governmental entities, shall be determined and made by the Company in a timely
manner and otherwise in accordance with applicable laws and agreements.   The
Manager shall furnish to the Members evidence of timely payment for all such
required payments.  In the event the Company fails to make any such required
payment, any Member shall have the right to make such payment and shall thereby
become subrogated to the rights of such third party; provided, however, that the
making of any such payment on behalf of the Company shall not constitute
acceptance by the paying Member of any liability to such third party for the
underlying obligation.

12.2         Abandonment and Surrender. Either Member may request the Management
Committee to authorize the Manager to surrender or abandon part or all of the
Properties.  At the option of the other Member, the Company shall assign to the
objecting Member or such other Person as the objecting Member specifies, by
special warranty deed and without cost to the objecting Member, all of the
Company’s interest in the Properties sought to be abandoned or surrendered, free
and clear of all Encumbrances created by, through or under the Company other
than those to which both Members have agreed.  Upon the assignment, such
properties shall cease to be part of the Properties.

 
-25-

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

 

ARTICLE XIII
CONFIDENTIALITY, OWNERSHIP, USE
AND DISCLOSURE OF INFORMATION

13.1         Business Information. All Business Information shall be owned
jointly by the Members as their Ownership Interests are determined pursuant to
this Agreement.  Both before and after the termination of the Company, all
Business Information may be used by either Member for any purpose, whether or
not competitive with the Business, without consulting with, or obligation to,
the other Member.  Except as provided in Sections 13.3 and 13.4, or with the
prior written consent of the other Member, each Member shall keep confidential
and not disclose to any third party or the public any portion of the Business
Information that constitutes Confidential Information.

13.2         Member Information. In performing its obligations under this
Agreement, neither Member shall be obligated to disclose any Member
Information.  If a Member elects to disclose Member Information in performing
its obligations under this Agreement, such Member Information, together with all
improvements, enhancements, refinements and incremental additions to such Member
Information that are developed, conceived, originated or obtained by either
Member in performing its obligation under this Agreement (“Enhancements”), shall
be owned exclusively by the Member that originally developed, conceived,
originated or obtained such Member Information.  Each Member may use and enjoy
the benefits of such Member Information and Enhancements in the conduct of the
Business hereunder, but the Member that did not originally develop, conceive,
originate or obtain such Member Information may not use such Member Information
and Enhancements for any other purpose.  Except as provided in Section 13.4, or
with the prior written consent of the other Member, which consent may be
withheld in such Member’s sole discretion, each Member shall keep confidential
and not disclose to any third party or the public any portion of Member
Information and Enhancements owned by the other Member that constitutes
Confidential Information.

13.3         Permitted Disclosure of Confidential Business Information. Either
Member may disclose Business Information that is Confidential Information:
(a) to a Member’s officers, directors, partners, members, employees, Affiliates,
shareholders, agents, attorneys, accountants, consultants, contractors,
subcontractors or advisors, for the sole purpose of such Member’s performance of
its obligations under this Agreement; (b) to any party to whom the disclosing
Member contemplates a Transfer of all or any part of its Ownership Interest, for
the sole purpose of evaluating the proposed Transfer; (c) to any actual or
potential lender, underwriter or investor for the sole purpose of evaluating
whether to make a loan to or investment in the disclosing Member; or (d) to a
third party with whom the disclosing Member contemplates any independent
business activity or operation.

The Member disclosing Confidential Information pursuant to this Section 13.3,
shall disclose such Confidential Information to only those parties that have a
bona fide need to have access to such Confidential Information for the purpose
for which disclosure to such parties is permitted under this Section 13.3 and
that have agreed in writing supplied to, and enforceable by, the other Member to
protect the Confidential Information from further disclosure, to use such
Confidential Information solely for such purpose and to otherwise be bound by
the provisions of this Article XIII.  Such writing shall not preclude parties
described in Subsection 13.3(b) from discussing and completing a Transfer with
the other Member. The Member disclosing Confidential Information shall be
responsible and liable for any use or disclosure of the Confidential Information
by such parties in violation of this Agreement and such other writing.

 
-26-

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

 

13.4         Disclosure Required By Law. Notwithstanding anything contained in
this Article, a Member may disclose any Confidential Information if, in the
opinion of the disclosing Member’s legal counsel: (a) such disclosure is legally
required to be made in a judicial, administrative or governmental proceeding
pursuant to a valid subpoena or other applicable order; or (b) such disclosure
is legally required to be made pursuant to the rules or regulations of a stock
exchange or similar trading market applicable to the disclosing Member.

Prior to any disclosure of Confidential Information under this Section 13.4, the
disclosing Member shall give the other Member at least ten (10) days prior
written notice (unless less time is permitted by such rules, regulations or
proceeding) and, in making such disclosure, the disclosing Member shall disclose
only that portion of Confidential Information required to be disclosed and shall
take all reasonable efforts to preserve the confidentiality thereof, including,
without limitation, obtaining protective orders and supporting the other Member
in intervention in any such proceeding.

13.5         Public Announcements. Prior to making or issuing any press release
or other public announcement or disclosure of Business Information that is not
Confidential Information, a Member shall first consult with the other Member as
to the content and timing of such announcement or disclosure, unless in the good
faith judgment of such Member, there is not sufficient time to consult with the
other Member before such announcement or disclosure must be made under
applicable Laws; but in such event, the disclosing Member shall notify the other
Member, as soon as possible, of the pendency of such announcement or disclosure,
and it shall notify the other Member before such announcement or disclosure is
made if at all reasonably possible.  Any press release or other public
announcement or disclosure to be issued by either Member relating to this
Business shall also identify the other Member.

ARTICLE XIV
RESIGNATION AND DISSOLUTION

14.1         Events of Dissolution. The Company shall be dissolved upon the
occurrence of any of the following:

(a)           Upon expiration of term of this Agreement in accordance with
Section 2.5;

(b)           Upon the unanimous written agreement of the Members;

(c)           At the election of either Member upon ninety (90) days notice of
termination to the other Member, if the Management Committee fails to adopt a
Program and Budget for six (6) months after the expiration of the latest adopted
Program and Budget;

 
-27-

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

 

(d)           Upon the resignation of a Member pursuant to Section 14.2 or upon
the bankruptcy, insolvency, dissolution or assignment for the benefit of
creditors of a Member; or

(e)           as otherwise provided by the Act.

14.2         Resignation. A Member may elect to resign from the Company by
giving notice to the other Member of the effective date of resignation, which
shall be the later of the end of the then current Program Period or thirty
(30) days after the date of the notice.  Upon resignation by a Member, the
resigning Member shall be deemed to have transferred to the remaining Member all
of its Ownership Interest, including all of its interest in the Properties and
Assets and its Capital Account, without cost and free and clear of all
Encumbrances arising by, through or under such resigning Member, except those
described in Paragraph 1.1 of Exhibit A and those to which both Members have
agreed.  The resigning Member shall execute and deliver all instruments as may
be necessary in the reasonable judgment of the other Member to effect the
transfer of its interests in the Company and the Properties and Assets to the
other Member.  A resigning Member shall have no right to receive the fair value
of his Ownership Interest pursuant to § 86.331 of the Act. If within a sixty
(60) day period both Members elect to withdraw, then the Company shall instead
be deemed to have been terminated by the written agreement of the Members
pursuant to Section 14.1(b).

14.3         Disposition of Properties and Assets on Dissolution. Promptly after
dissolution under Section 14.1, the Manager shall take all action necessary to
wind up the activities of the Company, in accordance with Exhibit C.  All costs
and expenses incurred in connection with the dissolution of the Company shall be
expenses chargeable to the Business Account.

14.4         Filing of Certificate of Cancellation. Upon completion of the
winding up of the affairs of the Company, the Manager shall promptly file a
Certificate of Cancellation with the Office of the Secretary of State of the
State of Nevada. If the Manager has caused the dissolution of the Company,
whether voluntarily or involuntarily, then a person selected by a majority vote
of the Members to wind up the affairs of the Company shall file the Certificate
of Cancellation.

14.5         Right to Data After Dissolution. After dissolution of the Company
pursuant to Subsections 14.1(a), (b), (c) or (e), each Member shall be entitled
to make copies of all applicable information acquired hereunder before the
effective date of termination not previously furnished to it, but a bankrupt or
resigning Member causing a dissolution of the Company pursuant to
Subsection 14.1(d) shall not be entitled to any such copies.

14.6         Continuing Authority. On dissolution of the Company under
Section 14.1, the Member that was the Manager prior to such dissolution (or the
other Member in the event of a resignation by the Manager) shall have the power
and authority to do all things on behalf of both Members that are reasonably
necessary or convenient to: (a) wind up Operations and (b) complete any
transaction and satisfy any obligation, unfinished or unsatisfied, at the time
of such termination or resignation, if the transaction or obligation arises out
of Operations prior to such termination or resignation. The Manager shall have
the power and authority to grant or receive extensions of time or change the
method of payment of an already existing liability or obligation, prosecute and
defend actions on behalf of the Company and either or both Members, encumber
Properties and Assets, and take any other reasonable action in any matter with
respect to which the former Members continue to have, or appear or are alleged
to have, a common interest or a common liability.

 
-28-

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

 

ARTICLE XV
DISPUTES

15.1         Governing Law. Except for matters of title to the Properties or
their Transfer, which shall be governed by the law of their situs, this
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Nevada, without regard for any conflict of laws or choice of laws
principles that would permit or require the application of the laws of any other
jurisdiction.

15.2         Forum Selection.  The Parties hereby agree to the exclusive
jurisdiction of the courts of the State of Nevada, County of Washoe, in respect
of any disagreement relating to this Agreement or the LLC Agreement.

15.3         Arbitration.  All claims, disputes and other matters in question
arising out of or relating to this Agreement or the breach or interpretation
thereof, will be resolved by binding arbitration before a sole arbitrator,
selected by the mutual agreement of the parties, to be conducted in Reno,
Nevada.  The arbitration will be administered by the American Arbitration
Association (“AAA”) under its Commercial Arbitration Rules.  Any award or
decision obtained from any such arbitration proceeding will be final and binding
on the parties, and judgment upon any award thus obtained may be entered in any
court having jurisdiction thereof.  Nothing herein contained will bar the right
of a party to seek to obtain judicial injunctive relief or other judicial
provisional remedies against threatened or actual conduct that will cause loss
or damages under the usual equity rules including the applicable rules for
obtaining preliminary injunctions and other provisional remedies.

15.4         Dispute Resolution. All disputes arising under or in connection
with this Agreement which cannot be resolved by agreement between the Members
shall be resolved in accordance with applicable Law. If any legal action or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Agreement, the successful or substantially prevailing
Member shall be entitled to recover reasonable attorneys’ fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.

ARTICLE XVI
GENERAL PROVISIONS

16.1           Notices. All notices, payments and other required or permitted
communications (“Notices”) to either Member shall be in writing, and shall be
addressed respectively as follows:

 
If to GPXM:
Golden Phoenix Minerals, Inc.
   
1675 E. Prater Way, Suite 102
   
Sparks, Nevada 89434, USA
   
Attention:
Thomas Klein, CEO
   
Telephone:
(775) 853-4919
   
Facsimile:
(775) 853-4919

 
-29-

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

 

 
With a Copy to:
Bullivant Houser Bailey PC
   
1415 L Street, Suite 1000
   
Sacramento, CA 95814
   
Attention:
Scott Bartel, Esq.
   
Facsimile:
(916) 930-2501
         
If to Scorpio Gold or to Scorpio US
       
Scorpio Gold Corporation/Scorpio Gold (US) Corporation
   
995 Germain Street
   
Val d’Or, Quebec J9P 7H7
   
Canada
   
Attention:
Peter Hawley, President & CEO
   
Telephone:
(819) 825-7618
   
Facsimile:
(819) 825-0977
         
With a Copy to:
Axium Law Corporation
   
Suite 3350, Four Bentall Centre
   
1055 Dunsmuir Street
   
PO Box 49222
   
Vancouver, British Columbia
   
V7X 1L2
   
Attention:
Rod C. McKeen
   
Facsimile:
(604) 692-4900

All Notices shall be given (a) by personal delivery to the Member, (b) by
electronic communication, capable of producing a printed transmission, (c) by
registered or certified mail return receipt requested, or (d) by overnight or
other express courier service.  All Notices shall be effective and shall be
deemed given on the date of receipt at the principal address if received during
normal business hours, and, if not received during normal business hours, on the
next business day following receipt, or if by electronic communication, on the
date of such communication.  Either Member may change its address by Notice to
the other Member.

16.2         Gender. The singular shall include the plural, and the plural the
singular wherever the context so requires, and the masculine, the feminine, and
the neuter genders shall be mutually inclusive.

16.3         Currency. All references to “dollars” or “$” herein shall mean
lawful currency of the United States of America.

16.4         Headings. The subject headings of the Sections and Subsections of
this Agreement and the Paragraphs and Subparagraphs of the Exhibits to this
Agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.

 
-30-

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

 

16.5         Waiver. The failure of either Member to insist on the strict
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit such Member’s right thereafter to enforce any provision
or exercise any right.

16.6         Modification. No modification of this Agreement shall be valid
unless made in writing and duly executed by both Members.

16.7         Force Majeure. Except for the obligation to make payments when due
hereunder, the obligations of a Member shall be suspended to the extent and for
the period that performance is prevented by any cause, whether foreseeable or
unforeseeable, beyond its reasonable control, including, without limitation,
labor disputes (however arising and whether or not employee demands are
reasonable or within the power of the Member to grant); acts of God; Laws,
instructions or requests of any government or governmental entity; judgments or
orders of any court; inability to obtain on reasonably acceptable terms any
public or private license, permit or other authorization; curtailment or
suspension of activities to remedy or avoid an actual or alleged, present or
prospective violation of Environmental Laws; action or inaction by any federal,
state or local agency that delays or prevents the issuance or granting of any
approval or authorization required to conduct Operations beyond the reasonable
expectations of the Member seeking the approval or authorization (including,
without limitation, a failure to complete any review and analysis required by
the National Environ­mental Policy Act or any similar state law within three (3)
months of initiation of that process); acts of war or conditions arising out of
or attributable to war, whether declared or undeclared; riot, civil strife,
insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink
holes, drought or other adverse weather condition; delay or failure by suppliers
or transporters of materials, parts, supplies, services or equipment or by
contractors’ or subcontractors’ shortage of, or inability to obtain, labor,
transportation, materials, machinery, equipment, supplies, utilities or
services; accidents; breakdown of equipment, machinery or facilities; actions by
native rights groups, environmental groups, or other similar special interest
groups; or any other cause whether similar or dissimilar to the foregoing. The
affected Member shall promptly give notice to the other Member of the suspension
of performance, stating therein the nature of the suspension, the reasons
therefor, and the expected duration thereof. The affected Member shall resume
performance as soon as reasonably possible. During the period of suspension the
obligations of both Members to advance funds pursuant to Section 11.2 shall be
reduced to levels consistent with then current Operations.

16.8         Rule Against Perpetuities. The Members do not intend that there
shall be any violation of the Rule Against Perpetuities, the Rule Against
Unreasonable Restraints on the Alienation of Property, or any similar rule.
Accordingly, if any right or option to acquire any interest in the Properties,
in an Ownership Interest, in the Properties and Assets, or in any real property
exists under this Agreement, such right or option must be exercised, if at all,
so as to vest such interest within time periods permitted by applicable
rules.  If, however, any such violation should inadvertently occur, the Members
hereby agree that a court shall reform that provision in such a way as to
approximate most closely the intent of the Members within the limits permissible
under such rules.

16.9         Further Assurances. Each of the Members shall take, from time to
time and without additional consideration, such further actions and execute such
additional instruments as may be reasonably necessary or convenient to implement
and carry out the intent and purpose of this Agreement or as may be reasonably
required by lenders in connection with Project Financing.

 
-31-

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

 

16.10       Entire Agreement; Successors and Assigns. This Agreement contains
the entire understanding of the Members and supersedes all prior agreements and
understandings between the Members relating to the subject matter hereof.  This
Agreement shall be binding upon and inure to the benefit of the respective
successors and permitted assigns of the Members.

16.11       Counterparts. This Agreement may be executed in any number of
counterparts, and it shall not be necessary that the signatures of both Members
be contained on any counterpart. Each counterpart shall be deemed an original,
but all counterparts together shall constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank.  Signature Page Follows]
 
 

 
-32-

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

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.

 
Golden Phoenix Minerals, Inc.
       
By:
/s/ Robert P. Martin    
Name: Robert P. Martin
   
Title:    President
             
Scorpio Gold (US) Corporation
       
By:
/s/ Peter J. Hawley    
Name: Peter J. Hawley
   
Title:   President

 
-33-

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

 

EXHIBIT A
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

PROPERTIES AND ASSETS AND AREA OF INTEREST

1.1
GPXM PROPERTIES AND TITLE EXCEPTIONS

All lands, mineral tenures
(include list of all leases and contracts)

(Attached)

1.2           GPXM ASSETS

All facilities, equipment, permits, licenses, technical data and rights and
interests related thereto comprising the Mineral Ridge Mine property and any and
all environmental reclamation bonds and any other assets whatsoever related to
the Mineral Ridge Mine property, and all Products, Business Information, Bond,
all technical data relating to the Mineral Ridge Mine property and all other
real and personal property, and equipment, tangible and intangible, including
existing or after-acquired properties and all contract rights held for the
benefit of the Members hereunder.
 
 

EXHIBIT A 
Page 1 of 2

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

 

1.3           SCORPIO US PROPERTIES
(Include list)
 
 
 

1.4           SCORPIO US ASSETS

Mary Mining Royalty

1.5           LIABILITIES

All unpaid liabilities associated with the Properties or operations at the
Properties accrued on or after the date that the Parties entered into the LOI
(as defined in the Members Agreement).

1.6           AREA OF INTEREST

(Attached)

EXHIBIT A   
Page 2 of 2

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

 

EXHIBIT B
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

ACCOUNTING PROCEDURES

The financing and accounting procedures to be followed by the Manager and the
Members under the Agreement are set forth below.  All capitalized terms in these
Accounting Procedures shall have the definition attributed to them in the
Agreement, unless defined otherwise herein.

The purpose of these Accounting Procedures is to establish equitable methods for
determining charges and credits applicable to Operations.  It is the intent of
the Members that neither of them shall lose or profit by reason of the
designation of one of them to exercise the duties and responsibilities of the
Manager.  The Members shall meet and in good faith endeavor to agree upon
changes deemed necessary to correct any unfairness or inequity.  For the
avoidance of doubt, notwithstanding the Agreement and this Exhibit B regarding
Account Procedures, all Accounting Procedures, including maintenance of
accounting records, shall follow United States Generally Accepted Accounting
Principles (US GAAP). Further, the Manager shall ensure that the Company
establishes and maintains such disclosure controls and procedures and internal
controls over financial reporting as may be reasonably requested by GPXM to
comply with the Sarbanes-Oxley Act of 2002 in its capacity as a U.S. public
reporting company.

 
EXHIBIT B
Page 1 of 9

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

 

ARTICLE I
GENERAL PROVISIONS

1.1           General Accounting Records.  The Manager shall maintain detailed
and comprehensive cost accounting records in accordance with these Accounting
Procedures, including general ledgers, supporting and subsidiary journals,
invoices, checks and other customary documentation, sufficient to provide a
record of revenues and expenditures and periodic statements of financial
position and the results of Operations for managerial, tax, regulatory or other
financial, regulatory, or legal reporting purposes related to the Company.  Such
records shall be retained for the duration of the period allowed the Members for
audit or the period necessary to comply with tax or other regulatory
requirements. The records shall reflect all obligations, advances and credits of
the Members.

1.2           Cash Management Accounts. The Manager shall maintain one or more
separate cash management accounts for the payment of all expenses and the
deposit of all cash receipts for the Company.

1.3           Statements and Billings. The Manager shall prepare statements and
bill the Members as provided in Article XI of the Agreement. Payment of any such
billings by either Member, including the Manager, shall not prejudice such
Member’s right to protest or question the correctness thereof for a period not
to exceed twenty-four (24) months following the calendar year during which such
billings were received by such Member.  All written exceptions to and claims
upon the Manager for incorrect charges, billings or statements shall be made
upon the Manager within such twenty-four (24) month period.  The time period
permitted for adjustments hereunder shall not apply to adjustments resulting
from periodic inventories as provided in Paragraphs 5.1 and 5.2.

ARTICLE II
CHARGES TO BUSINESS ACCOUNT

Subject to the limitations hereinafter set forth, the Manager shall charge the
Business Account with the following:

2.1           Property Acquisition Costs, Rentals, Royalties and Other Payments.
All property acquisition and holding costs, including Governmental Fees, filing
fees, license fees, costs of permits and assessment work, delay rentals,
production royalties, including any required advances, and all other payments
made by the Manager which are necessary to acquire or maintain title to the
Properties and Assets.

2.2           Labor and Employee Benefits.

(a)           Salaries and wages of the Manager’s employees directly engaged in
Operations, including salaries or wages of employees who are temporarily
assigned to and directly employed by same.
 
 

EXHIBIT B 
Page 2 of 9

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

 

(b)           The Manager’s cost of holiday, vacation, sickness and disability
benefits, and other customary allowances applicable to the salaries and wages
chargeable under Subparagraph 2.2(a) and Paragraph 2.12. Such costs may be
charged on a “when and as paid basis” or by “percentage assessment” on the
amount of salaries and wages.  If percentage assessment is used, the rate shall
be applied to wages or salaries excluding overtime and bonuses.  Such rate shall
be based on the Manager’s cost experience and it shall be periodically adjusted
at least annually to ensure that the total of such charges does not exceed the
actual cost thereof to the Manager.

(c)           The Manager’s actual cost of established plans for employees’
group life insurance, hospitalization, pension, retirement, stock purchase,
thrift, bonus (except production or incentive bonus plans under a union contract
based on actual rates of production, cost savings and other production factors,
and similar non-union bonus plans customary in the industry or necessary to
attract competent employees, which bonus payments shall be considered salaries
and wages under Subparagraph 2.2(a) or Paragraph 2.12 rather than employees’
benefit plans) and other benefit plans of a like nature applicable to salaries
and wages chargeable under Subparagraphs 2.2(a) or Paragraph 2.12, provided that
the plans are limited to the extent feasible to those customary in the industry.

(d)           Cost of assessments imposed by governmental authority that are
applicable to salaries and wages chargeable under Subparagraph 2.2(a) and
Paragraph 2.12, including all penalties except those resulting from the willful
misconduct or gross negligence of the Manager.

2.3           Materials, Equipment and Supplies. The cost of materials,
equipment and supplies (herein called “Material”) purchased from unaffiliated
third parties or furnished by either Member as provided in Paragraph 3.2.  The
Manager shall purchase or furnish only so much Material as may be required for
immediate use in efficient and economical Operations.  The Manager shall also
maintain inventory levels of Material at reasonable levels to avoid unnecessary
accumulation of surplus stock.

2.4           Equipment and Facilities Furnished by Manager. The cost of
machinery, equipment and facilities owned by the Manager and used in Operations
or used to provide support or utility services to Operations charged at rates
commensurate with the actual costs of ownership and operation of such machinery,
equipment and facilities.  Such rates shall include costs of maintenance,
repairs, other operating expenses, insurance, taxes, depreciation and interest
at a rate not to exceed Prime Rate plus three percent (3%) per annum. Such rates
shall not exceed the average commercial rates currently prevailing in the
vicinity of the Operations.

2.5           Transportation. Reasonable transportation costs incurred in
connection with the transportation of employees and material necessary for
Operations.

2.6           Contract Services and Utilities. The cost of contract services and
utilities procured from outside sources, other than services described in
Paragraphs 2.9 and 2.13.  If contract services are performed by the Manager or
an Affiliate thereof, the cost charged to the Business Account shall not be
greater than that for which comparable services and utilities are available in
the open market within the vicinity of Operations.  The cost of professional
consultant services procured from outside sources in excess of Twenty-Five
Thousand Dollars ($25,000.00) per annum per contract shall not be charged to the
Business Account unless approved by the Management Committee.

 
EXHIBIT B 
Page 3 of 9

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

 

2.7           Insurance Premiums. Net premiums paid for insurance required to be
carried for Operations for the protection of the Members. When Operations are
conducted in an area where the Manager may self-insure for Workers’ Compensation
and/or Employer’s Liability under state law, the Manager may elect to include
such risks in its self-insurance program and shall charge its costs of
self-insuring such risks to the Business Account provided that such charges
shall not exceed published manual rates.

2.8           Damages and Losses. All costs in excess of insurance proceeds
necessary to repair or replace damage or losses to any Properties and Assets
resulting from any cause other than the willful misconduct or gross negligence
of the Manager. The Manager shall furnish the Management Committee with written
notice of damages or losses as soon as practicable after a report thereof has
been received by the Manager.

2.9           Legal and Regulatory Expense.  Except as otherwise provided in
Paragraph 2.13, all legal and regulatory costs and expenses incurred in or
resulting from Operations or necessary to protect or recover the Properties and
Assets of the Company, including costs of title investigation and title curative
services.  All attorneys’ fees and other legal costs to handle, investigate and
settle litigation or claims, and amounts paid in settlement of such litigation
or claims in excess of Twenty-Five Thousand Dollars ($25,000.00) per annum shall
not be charged to the Business Account unless approved by the Management
Committee.

2.10         Audit.  Cost of annual audits under Subsection 11.6(a) of the
Agreement.

2.11         Taxes.  All taxes, assessments and like charges on Operations,
Properties and Assets which have been paid by the Manager for the benefit of the
Members.  Each Member is separately responsible for taxes determined or measured
by a Member’s sales revenue or net income.

2.12         District and Camp Expense (Field Supervision and Camp Expenses).  A
pro rata portion of: (i) the salaries and expenses of the Manager’s
superintendent and other employees serving Operations whose time is not
allocated directly to such Operations, and (ii) the costs of maintaining and
operating an office and any necessary suboffice and (iii) all necessary camps,
including housing facilities for employees, used for Operations.  The expense of
those facilities, less any revenue therefrom, shall include depreciation or a
fair monthly rental in lieu of depreciation of the investment.  The total of
such charges for all Properties served by the Manager’s employees and facilities
shall be apportioned to the Business Account on the basis of a ratio to be
approved by the Management Committee.
 
 
EXHIBIT B 
Page 4 of 9

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

 

2.13         Administrative Charge.

(a)           Each month, the Manager shall charge the Business Account a sum
for each phase of Operations as provided below, which shall be a liquidated
amount to reimburse the Manager for its home office overhead and general and
administrative expenses to conduct each  phase of Operations, and which shall be
in lieu of any management fee:

(i)             Exploration Expenses – three percent (3%) of Allowable Costs.

(ii)            Development and Construction Expenses – three percent (3%) of
Allowable Costs.

(iii)           Major Construction Phase – three percent (3%) of Allowable
Costs.

(iv)           Mining Phase – three percent (3%) of Allowable Costs.

(b)           The term “Allowable Costs” as used in this Paragraph for a
particular phase of Operations shall mean all charges to the Business Account
excluding: (i) the administrative charge referred to herein; and
(ii) depreciation, depletion or amortization of tangible or intangible Assets.
The Manager shall attribute such Allowable Costs to a particular phase of
Operations by applying the following guidelines:

(A)           The Exploration Phase shall cover those Operations conducted to
ascertain the existence, location, extent or quantity of any deposit of ore or
mineral.

(B)           The Development Phase shall cover those Operations, including
Pre-Feasibility and Feasibility Study Operations, conducted to assess a
commercially feasible ore body or to extend production of an existing ore body,
and to construct or install related fixed Assets.

(C)           The Major Construction Phase shall include all Operations involved
in the construction of a mill, smelter or other ore processing facilities.

(D)           The Mining Phase shall include all other Operations activities not
otherwise covered above, including activities conducted after Mining Operations
have ceased.

(c)           Various phases of Operations may be conducted concurrently, in
which event the administrative charge shall be calculated separately for
Allowable Costs attributable to each phase.

(d)           The monthly administration charge determined for each phase of
Operations shall be a liquidated amount to reimburse the Manager for its home
office overhead and general and administrative expenses for its conduct of
Operations, and shall be equitably apportioned among all of the properties
served during such monthly period on the basis of a ratio approved by the
Management Committee.

 
EXHIBIT B 
Page 5 of 9

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

 

(e)           The following is a representative list of items that constitute
the Manager’s principal business office expenses that are expressly covered by
the administrative charge provided in this Paragraph, except to the extent that
such items are directly chargeable to the Business Account under other
provisions of this Article II:

(i)           Administrative supervision, which includes all services rendered
by managers, department supervisors, officers and directors of the Manager for
Operations.

(ii)           Accounting, data processing, personnel administration, billing
and record keeping in accordance with governmental regulations and the
provisions of the Agreement, and preparation of reports;

(iii)           The services of tax counsel and tax administration employees for
all tax matters, including any protests, except any outside professional fees
which the Management Committee may approve as a direct charge to the Business
Account;

(iv)           Routine legal services rendered by outside sources and the
Manager’s legal staff not otherwise charged to the Business Account under
Paragraph 2.9, including property acquisition, attorney management and
oversight, and support services provided by Manager’s legal staff concerning any
litigation; and

(v)           Rentals and other charges for office and records storage space,
telephone service, office equipment and supplies.

(f)           The Management Committee shall annually review the administrative
charges and shall amend the methodology or rates used to determine such charges
if they are found to be insufficient or excessive based on the principles that
the Manager shall not make a profit or suffer a loss and that it should be
fairly and adequately compensated for its costs and expenses.

2.14        Environmental Compliance Fund.  Costs of reasonably anticipated
Environmental Compliance which, on a Program basis, shall be determined by the
Management Committee and shall be based on proportionate contributions in an
amount sufficient to establish a fund, which through successive proportionate
contributions during the life of the Company, will pay for ongoing Environmental
Compliance conducted during Operations and which will aggregate the reasonably
anticipated costs of mine closure, post-Operations Environmental Compliance and
Continuing Obligations.  The Manager shall invest such amounts on behalf of the
Members as provided in Subsection 9.2(s) of the Agreement.

2.15        Other Expenditures. Any reasonable direct expendi­ture, other than
expenditures which are covered by the foregoing provisions, incurred by the
Manager for the necessary and proper conduct of Operations.

 
EXHIBIT B 
Page 6 of 9

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

 

ARTICLE III
BASIS OF CHARGES TO BUSINESS ACCOUNT

3.1           Purchases. Material purchased and services procured from third
parties shall be charged to the Business Account by the Manager at invoiced
cost, including applicable transfer taxes, less all discounts taken.  If any
Material is determined to be defective or is returned to a vendor for any other
reason, the Manager shall credit the Business Account when an adjustment is
received from the vendor.

3.2           Material Furnished by a Member for Use in the Business.  Any
Material furnished by either Member for use in the Business or distributed to
either Member by the Manager shall be priced on the following basis:

(a)           New Material: New Material furnished by either Member shall be
priced F.O.B. the nearest reputable supply store or railway receiving point,
where like Material is available, at the current replacement cost of the same
kind of Material, exclusive of any available cash discounts, at the time it is
furnished (the “New Price”).

(b)           Used Material.

(i)             Used Material in sound and serviceable condition and suitable
for reuse without reconditioning shall be priced as follows:

(A)          Used Material furnished by either Member shall be priced at
seventy-five percent (75%) of the New Price;

(B)           Used Material distributed to either Member shall be priced (i) at
seventy-five percent (75%) of the New Price if such Material was originally
charged to the Business Account as new Material, or (ii) at sixty-five percent
(65%) of the New Price if such Material was originally charged to the Business
Account as good used Material at seventy-five percent (75%) of the New Price.

(ii)           Other used Material that, after reconditioning, will be further
serviceable for original function as good secondhand Material, or that is
serviceable for original function but not substantially suitable for
reconditioning, shall be priced at fifty percent (50%) of New Price. The cost of
any reconditioning shall be borne by the transferee.

(iii)           Bad-Order Material which is no longer usable for its original
purpose without excessive repair cost but further usable for some other purpose
shall be priced on a basis comparable with items normally used for that purpose.

(iv)           All other Material, including junk, shall be priced at a value
commensurate with its use or at prevailing prices.

 
EXHIBIT B 
Page 7 of 9

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

 

(c)           Obsolete Material. Any Material that is serviceable and usable for
its original function, but its condition is not equivalent to that which would
justify a price as provided above, shall be priced by the Management
Committee.  Such price shall be set at a level that will result in a charge to
the Business Account equal to the value of the service to be rendered by such
Material.

3.3           Premium Prices. Whenever Material is not readily obtainable at
published or listed prices because of national emergencies, strikes or other
unusual circumstances over which the Manager has no control, the Manager may
charge the Business Account for the required Material on the basis of the
Manager’s direct cost and expenses incurred in procuring such Material and
making it suitable for use.  The Manager shall give written notice of the
proposed charge to the Members prior to the time when such charge is to be
billed, whereupon either Member shall have the right, by notifying the Manager
within ten days of the delivery of the notice from the Manager, to furnish at
the usual receiving point all or part of its share of Material suitable for use
and acceptable to the Manager.

3.4           Warranty of Material Furnished by the Manager or Members. Neither
Member warrants any Material furnished beyond any dealer’s or manufacturer’s
warranty and no credits shall be made to the Business Account for defective
Material until adjustments are received by the Manager from the dealer,
manufacturer or their respective agents.

ARTICLE IV
DISPOSAL OF MATERIAL

4.1           Disposition Generally. The Manager shall have no obligation to
purchase either Member’s interest in Material.  The Management Committee shall
determine the disposition of major items of surplus Material, provided the
Manager shall have the right to dispose of normal accumulations of junk and
scrap Material either by sale or by transfer to the Members as provided in
Paragraph 4.2.

4.2           Distribution to Members. Any Material to be distributed to the
Members shall be made in proportion to their respective Participating Interests,
and corresponding credits shall be made to the Business Account on the basis
provided in Paragraph 3.2.

4.3           Sales. Sales of Material to third parties shall be credited to the
Business Account at the net amount received.  Any damages or claims by the
Purchaser shall be charged back to the Business Account if and when paid.

ARTICLE V
INVENTORIES

5.1           Periodic Inventories, Notice and Representations. At reasonable
intervals, inventories shall be taken by the Manager, which shall include all
such Material as is ordinarily considered controllable by operators of mining
properties and the expense of conducting such periodic inventories shall be
charged to the Business Account.  The Manager shall give written notice to the
Members of its intent to take any inventory at least thirty (30) days before
such inventory is scheduled to take place. A Member shall be deemed to have
accepted the results of any inventory taken by the Manager if the Member fails
to be represented at such inventory.
 
 
EXHIBIT B 
Page 8 of 9

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

 

5.2           Reconciliation and Adjustment of Inventories. Reconciliation of
inventory with charges to the Business Account shall be made, and a list of
overages and shortages shall be furnished to the Management Committee within six
(6) months after the inventory is taken.  Inventory adjustments shall be made by
the Manager to the Business Account for overages and shortages, but the Manager
shall be held accountable to the Company only for shortages due to lack of
reasonable diligence.
 
 
 

EXHIBIT B 
Page 9 of 9

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

 

EXHIBIT C
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.
 

 

EXHIBIT C 
Page 1 of 11

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

 

TAX MATTERS

ARTICLE I
EFFECT OF THIS EXHIBIT

This Exhibit shall govern the relationship of the Members and the Company with
respect to tax matters and the other matters addressed herein.  Except as
otherwise indicated, capitalized terms used in this Exhibit shall have the
meanings given to them in the Agreement. In the event of a conflict between this
Exhibit and the other provisions of the Agreement, the terms of this Exhibit
shall control.

ARTICLE II
TAX MATTERS PARTNER

2.1           Designation of Tax Matters Partner. The Manager is hereby
designated the tax matters partner (the “TMP”) as defined in Section 6231(a)(7)
of the Internal Revenue Code of 1986 (“the Code”) and shall be responsible for,
make elections for, and prepare and file any federal and state tax returns or
other required tax forms following approval of the Management Committee.  In the
event of any change in Manager, the Member serving as Manager at the end of a
taxable year shall continue as TMP with respect to all matters concerning such
year unless the TMP for that year is required to be changed pursuant to
applicable Treasury Regulations. The TMP and the other Member shall use
reasonable best efforts to comply with the responsibilities outlined in this
Article II and in Sections 6221 through 6233 of the Code (including any Treasury
regulations promulgated thereunder) and in doing so shall incur no liability to
any other party.

2.2           Notice. Each Member shall furnish the TMP with such information
(including information specified in Section 6230(e) of the Code) as it may
reasonably request to permit it to provide the Internal Revenue Service with
sufficient information to allow proper notice to the Members in accordance with
Section 6223 of the Code.  The TMP shall keep each Member informed of all
administrative and judicial proceedings for the adjustment at the partnership
level of partnership items in accordance with Section 6223(g) of the Code.

2.3           Inconsistent Treatment of Tax Item. If an administrative
proceeding contemplated under Section 6223 of the Code has begun, and the TMP so
requests, each Member shall notify the TMP of its treatment of any partnership
item on its federal income tax return that is inconsistent with the treatment of
that item on the partnership return.

2.4           Extensions of Limitation Periods. The TMP shall not enter into any
extension of the period of limitations as provided under Section 6229 of the
Code without first giving reasonable advance notice to the other Member of such
intended action.

2.5           Requests for Administrative Adjustments. Neither Member shall
file, pursuant to Section 6227 of the Code, a request for an administrative
adjustment of partnership items for any taxable year of the Company without
first notifying the other Member.  If the other Member agrees with the requested
adjustment, the TMP shall file the request for administrative adjustment on
behalf of the Company.  If consent is not obtained within thirty (30) days after
notice from the proposing Member, or within the period required to timely file
the request for administrative adjustment, if shorter, either Member, including
the TMP, may file that request for administrative adjustment on its own behalf.
 
 

EXHIBIT C 
Page 2 of 11

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

 

2.6           Judicial Proceedings. Either Member intending to file a petition
under Section 6226, 6228 or other sections of the Code with respect to any
partnership item, or other tax matters involving the Company, shall notify the
other Member of such intention and the nature of the contemplated
proceeding.  If the TMP is the Member intending to file such petition, such
notice shall be given within a reasonable time to allow the other Member to
participate in the choosing of the forum in which such petition will be
filed.  If both Members do not agree on the appropriate forum, then the
appropriate forum shall be decided in accordance with Section 8.2 of the
Agreement.  If a deadlock results, the TMP shall choose the forum.  If either
Member intends to seek review of any court decision rendered as a result of a
proceeding instituted under the preceding part of this Paragraph, such Member
shall notify the other Member of such intended action.

2.7           Settlements. The TMP shall not bind the other Member to a
settlement agreement without first obtaining the written consent of any such
Member.  Either Member who enters into a settlement agreement for its own
account with respect to any partnership items, as defined by Section 6231(a)(3)
of the Code, shall notify the other Member of such settlement agreement and its
terms within ninety (90) days from the date of settlement.

2.8           Fees and Expenses. The TMP shall not engage legal counsel,
certified public accountants, or others without the prior consent of the
Management Committee.  Either Member may engage legal counsel, certified public
accountants, or others in its own behalf and at its sole cost and expense. Any
reasonable item of expense, including but not limited to fees and expenses for
legal counsel, certified public accountants, and others which the TMP incurs
(after proper consent by the Management Committee as provided above) in
connection with any audit, assessment, litigation, or other proceeding regarding
any partnership item, shall constitute proper charges to the Business Account
and shall be borne by the Members as any other item which constitutes a direct
charge to the Business Account pursuant to the Agreement.

2.9           Survival.  The provisions of the foregoing paragraphs, including
but not limited to the obligation to pay fees and expenses contained in
Paragraph 2.8, shall survive the termination of the Company or the termination
of either Member’s interest in the Company and shall remain binding on the
Members for a period of time necessary to resolve with the Internal Revenue
Service or the Department of the Treasury any and all matters regarding the
federal income taxation of the Company for the applicable tax year(s).

ARTICLE III
TAX ELECTIONS AND ALLOCATIONS

3.1           Company Election. It is understood and agreed that the Members
intend to create a partnership for United States federal and state income tax
purposes, and, unless otherwise agreed to hereafter by both Members, no Member
shall take any action to change the status of the Company as a partnership under
Treas. Reg. § 1.7701-3 or similar provision of state law.  It is understood and
agreed that the Members intend to create a partnership for federal and state
income tax purposes only.  The Manager shall file with the appropriate office of
the Internal Revenue Service a partnership income tax return covering the
Operations.  The Members recognize that the Agreement may be subject to state
income tax statutes.  The Manager shall file with the appropriate offices of the
state agencies any required partnership state income tax returns.  Each Member
agrees to furnish to the Manager any information it may have relating to
Operations as shall be required for proper preparation of such returns.  The
Manager shall furnish to the other Member for its review a copy of each proposed
income tax return at least two weeks prior to the date the return is filed.
 
 

EXHIBIT C 
Page 3 of 11

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

 

3.2           Tax Elections. The Company shall make the following elections for
purposes of all partnership income tax returns:

(a)           To use the accrual method of accounting.

(b)           Pursuant to the provisions at Section 706(b)(1) of the Code, to
use as its taxable year the year ended December 31st.  In this connection, GPXM
represents that its taxable year is the year ending December 31st and Scorpio US
represents that its taxable year is the year ending December 31.

(c)           To deduct currently all development expenses to the extent
possible under Section 616 of the Code.

(d)           Unless the Members unanimously agree otherwise, to compute the
allowance for depreciation in respect of all depreciable Assets using the
maximum accelerated tax depreciation method and the shortest life permissible
or, at the election of the Manager, using the units of production method of
depreciation.

(e)           To treat advance royalties as deductions from gross income for the
year paid or accrued to the extent permitted by law.

(f)            To adjust the basis of property of the Company under Section 754
of the Code at the request of either Member;

(g)           To amortize over the shortest permissible period all
organizational expenditures and business start-up expenses under Sections 195
and 709 of the Code;

Any other election required or permitted to be made by the Company under the
Code or any state tax law shall be made as determined by the Management
Committee.

Each Member shall elect under Section 617(a) of the Code to deduct currently all
exploration expenses.  Each Member reserves the right to capitalize its share of
development and/or exploration expenses of the Company in accordance with
Section 59(e) of the Code, provided that a Member’s election to capitalize all
or any portion of such expenses shall not affect the Member’s Capital Account.
 
 
EXHIBIT C 
Page 4 of 11

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

 

3.3           Allocations to Members. Allocations for Capital Account purposes
shall be in accordance with the following:

(a)           Exploration expenses and development cost deductions shall be
allocated among the Members in accordance with their respective contributions to
such expenses and costs.

(b)           Depreciation and amortization deductions with respect to a
depreciable Asset shall be allocated among the Members in accordance with their
respective contributions to the adjusted basis of the Asset which gives rise to
the depreciation, amortization or loss deduction.

(c)           Production and operating cost deductions shall be allocated among
the Members in accordance with their respective contributions to such costs.

(d)           Deductions for depletion (to the extent of the amount of such
deductions that would have been determined for Capital Account purposes if only
cost depletion were allowable for federal income tax purposes) shall be
allocated to the Members in accordance with their respective contributions to
the adjusted basis of the depletable property. Any remaining depletion
deductions shall be allocated to the Members so that, to the extent possible,
the Members receive the same total amounts of percentage depletion as they would
have received if percentage depletion were allocated to the Members in
proportion to their respective shares of the gross income used as the basis for
calculating the federal income tax deduction for percentage depletion.

(e)           Subject to Subparagraph 3.3(g) below, gross income on the sale of
production shall be allocated in accordance with the Members’ rights to share in
the proceeds of such sale.

(f)           Except as provided in Subparagraph 3.3(g), below, gain or loss on
the sale of a depreciable or depletable asset shall be allocated so that, to the
extent possible, the net amount reflected in the Members’ Capital Account with
respect to such property (taking into account the cost of such property,
depreciation, amortization, depletion or other cost recovery deductions and gain
or loss) most closely reflects the Members’ Ownership Interests.

(g)           Gains and losses on the sale of all or substantially all the
Properties and  Assets of the Company shall be allocated so that, to the extent
possible, the Members’ resulting Capital Account balances are in the same ratio
as their Ownership Interests at the time of such sale.

(h)           The Members acknowledge that expenses and deductions allocable
under the preceding provisions of this Paragraph may be required to be
capitalized into production under Section 263A of the Code.  With respect to
such capitalized expenses or deductions, the allocation of gross income on the
sale of production shall be adjusted, in any reasonable manner consistently
applied by the Manager, so that the same net amount (subject possibly to timing
differences) is reflected in the Capital Accounts as if such expenses or
deductions were instead deductible and allocated pursuant to the preceding
provisions of this Paragraph.
 
 
EXHIBIT C 
Page 5 of 11

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

 

(i)            All deductions and losses that are not otherwise allocated in
this Paragraph shall be allocated among the Members in accordance with their
respective contributions to the costs producing each such deduction or to the
adjusted basis of the Asset producing each such loss.

(j)            Any recapture of exploration expenses under Section 617(b)(1)(A)
of the Code, and any disallowance of depletion under Section 617(b)(1)(B) of the
Code, shall be borne by the Members in the same manner as the related
exploration expenses were allocated to, or claimed by, them.

(k)           All other items of income and gain shall be allocated to the
Members in accordance with their Ownership Interests.

(l)            If a reduced Ownership Interest is restored pursuant to
Section 10.6 of the Agreement, the Manager shall endeavor to allocate items of
income, gain, loss, and deduction (in the same year as the restoration of such
Ownership Interest or, if necessary, in subsequent years) so as to cause the
Capital Account balances of the Members to be the same as they would have been
if the restored Ownership Interest had never been reduced.

(m)           If the Members’ Ownership Interests change during any taxable year
of the Company, the distributive share of items of income, gain, loss and
deduction of each Member shall be determined in any manner (1) permitted by
Section 706 of the Code, and (2) agreed by both Members.  If the Members cannot
agree on a method, the method shall be determined by the Manager in consultation
with the Company’s tax advisers, with preference given to the interim
closing-of-the-books method except where application of that method would result
in undue administrative expense in relationship to the amount of the items to be
allocated.

(n)           For purposes of this Paragraph 3.3, items financed through
indebtedness of, or from revenues of, the Company shall be treated as funded
from contributions made by the Members to the Company in accordance with their
Ownership Interests.  “Nonrecourse deductions,” as defined by Treas. Reg.
§ 1.704-2(b)(1) shall be allocated between the Members in proportion to their
Ownership Interests.

3.4           Regulatory Allocations. Notwithstanding the provisions of
Paragraph 3.3 to the contrary, the following special allocations shall be given
effect for purposes of maintaining the Members’ Capital Accounts.

(a)           If either Member unexpectedly receives any adjustments,
allocations, or distributions described in Treas. Reg.
§ 1.704-1(b)(2)(ii)(d)(4), § 1.704-1(b)(2)(ii)(d)(5) or
§ 1.704-1(b)(2)(ii)(d)(6), which result in a deficit Capital Account balance,
items of income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Capital Account deficit of such Member as quickly as
possible.  For the purposes of this Subparagraph 3.4(a), each Member’s Capital
Account balance shall be increased by the sum of (i) the amount such Member is
obligated to restore pursuant to any provision of the Agreement, and (ii) the
amount such Member is deemed to be obligated to restore pursuant to the
penultimate sentences of Treas. Reg. §§ 1.704-2(g)(1) and 1.704-2(i)(5).
 
 
EXHIBIT C 
Page 6 of 11

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

 

(b)           If there is a net decrease in partnership minimum gain for a
taxable year of the Company, each Member shall be allocated items of income and
gain for that year equal to that Member’s share of the net decrease in
partnership minimum gain, all in accordance with Treas. Reg. § 1.704-2(f).  If,
during a taxable year of the Company, there is a net decrease in partner
nonrecourse debt minimum gain, any Member with a share of that partner
nonrecourse debt minimum gain as of the beginning of the year shall be allocated
items of income and gain for the year (and, if necessary, for succeeding years)
equal to that partner’s share of the net decrease in partner nonrecourse debt
minimum gain, all in accordance with Treas. Reg. § 1.704-2(i)(4). Pursuant to
Treas. Reg. § 1.704-2(i)(1), deductions attributable to “partner nonrecourse
liability” shall be allocated to the Member that bears the economic risk of loss
for such liability (or is treated as bearing such risk).

(c)           If the allocation of deductions to either Member would cause such
Member to have a deficit Capital Account balance at the end of any taxable year
of the Company (after all other allocations provided for in this Article III
have been made and after giving effect to the adjustments described in
Subparagraph 3.4(a)), such deductions shall instead be allocated to the other
Member.

3.5           Curative Allocations. The allocations set forth in Paragraph 3.4
(the “Regulatory Allocations”) are intended to comply with certain requirements
of the Treasury Regulations.  It is the intent of the Members that, to the
extent possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of income,
gain, loss or deduction pursuant to this Paragraph. Therefore, notwithstanding
any other provisions of this Article III (other than the Regulatory
Allocations), the Manager shall make such offsetting special allocations of
income, gain, loss or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Member’s Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all items were allocated pursuant to Paragraph 3.3 without regard
to Paragraph 3.4.

3.6           Tax Allocations. Except as otherwise provided in this
Paragraph 3.6, items of taxable income, deduction, gain and loss shall be
allocated in the same manner as the corresponding item is allocated for book
purposes under Paragraphs 3.3, 3.4 and 3.5 of the corresponding item determined
for Capital Account purposes.

(a)           Recapture of tax deductions arising out of a disposition of
property shall, to the extent consistent with the allocations for tax purposes
of the gain or amount realized giving rise to such recapture, be allocated to
the Members in the same proportions as the recaptured deductions were originally
allocated or claimed.

(b)           To the extent required by Section 704(c) of the Code, income,
gain, loss, and deduction with respect to property contributed to the Company by
a Member shall be shared among both Members so as to take account of the
variation between the basis of the property to the Company and its fair market
value at the time of contribution. The Members intend that Section 704(c) shall
effect no allocations of tax items that are different from the allocations under
Paragraphs 3.3, 3.4 and 3.5 of the corresponding items for Capital Account
purposes; provided that gain or loss on the sale of property contributed to the
Company shall be allocated to the contributing member to the extent of built-in
gain or loss, respectively, as determined under Treas. Reg. § 1.704-3(a).
However, to the extent that allocations of other tax items are required pursuant
to Section 704(c) of the Code to be made other than in accordance with the
allocations under Paragraphs 3.3, 3.4 and 3.5 of the corresponding items for
Capital Account purposes, Section 704(c) shall be applied in accordance with the
method available under Treas. Reg. § 1.704-3 which most closely approximates the
allocations set forth in Paragraphs 3.3, 3.4 and 3.5.
 
 

EXHIBIT C 
Page 7 of 11

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

 

(c)           Depletion deductions with respect to contributed property shall be
determined without regard to any portion of the property’s basis that is
attributable to precontribution expendi­tures by GPXM that were capitalized
under Code Sections 616(b), 59(e) and 291(b).  Deductions attributable to
precontribution expenditures by GPXM shall be calculated under such Code
Sections as if GPXM continued to own the depletable property to which such
deductions are attributable, and such deductions shall be reported by the
Company and shall be allocated solely to GPXM.

(d)           The Members understand the allocations of tax items set forth in
this Paragraph 3.6, and agree to report consistently with such allocations for
federal and state tax purposes.

ARTICLE IV
CAPITAL ACCOUNTS; LIQUIDATION

4.1           Capital Accounts.

(a)           A separate Capital Account shall be established and maintained by
the TMP for each Member.  Such Capital Account shall be increased by (i) the
amount of money contributed by the Member to the Company, (ii) the fair market
value of property contributed by the Member to the Company (net of liabilities
secured by such contributed property that the Company is considered to assume or
take subject to under Code Section 752) and (iii) allocations to the Member
under Paragraphs 3.3, 3.4 and 3.5 of Company income and gain (or items thereof),
including income and gain exempt from tax; and shall be decreased by (iv) the
amount of money distributed to the Member by the Company, (v) the fair market
value of property distributed to the Member by the Company (net of liabilities
secured by such distributed property and that the Member is considered to assume
or take subject to under Code Section 752), (vi) allocations to the Member under
Paragraphs 3.3, 3.4 and 3.5 of expenditures of the Company not deductible in
computing its taxable income and not properly chargeable to a Capital Account,
and (vii) allocations of Company loss and deduction (or items thereof),
excluding items described in (vi) above and percentage depletion to the extent
it exceeds the adjusted tax basis of the depletable property to which it is
attributable.  The Members agree that the net fair market value of the property
and Assets contributed by GPXM to the Company pursuant to Section 3.1(a) of the
Agreement is Five Million Four Thousand Ninety-Nine Dollars (US $5,004,099) and
that the net fair market value of the property and Assets contributed by Scorpio
US is Ten Million Six Hundred and Thirty Six Thousand One Hundred Fifty-Eight
Dollars ($10,636,158).

 
EXHIBIT C 
Page 8 of 11

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

 

(b)           In the event that the Capital Accounts of the Members are computed
with reference to the book value of any Asset which differs from the adjusted
tax basis of such Asset, then the Capital Accounts shall be adjusted for
depreciation, depletion, amortization and gain or loss as computed for book
purposes with respect to such Asset in accordance with Treas. Reg. § 1.704-1(b)
(2)(iv)(g).

(c)           In the event any interest in the Company is transferred in
accordance with the terms of the Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest, except as provided in Treas. Reg. § 1.704-1(b)(2)(iv)(1).

(d)           In the event property, other than money, is distributed to a
Member, the Capital Accounts of the Members shall be adjusted to reflect the
manner in which the unrealized income, gain, loss and deduction inherent in such
property (that has not been reflected in the Capital Accounts previously) would
be allocated among the Members if there was a taxable disposition of such
property for the fair market value of such property (taking Section 7701(g) of
the Code into account) on the date of distribution. For this purpose the fair
market value of the property shall be determined as set forth in Paragraph
4.2(a) below.

(e)           In the event the Management Committee designates a Supplemental
Business Arrangement area within the Area of Interest as described in Section
10.13 of the Agreement, the Management Committee shall appropriately segregate
Capital Accounts to reflect that designation and shall make such other
modifications to the Agreement as are appropriate to reflect the manner of
administering Capital Accounts in accordance with the terms of this Exhibit C.

(f)            GPXM is contributing to the Agreement certain depletable
properties with respect to which GPXM currently has an adjusted tax basis which
may consist in part of depletable expenditures and in part of expenditures
capitalized under Code Sections 616(b), 291(b) and/or 59(e).  For purposes of
maintaining the Capital Accounts, the Company’s deductions with respect to
contributed property in each year for (i) depletion, (ii) deferred development
expenditures under Section 616(b) attributable to pre-contribution expenditures,
(iii) amortization under Section 291(b) attributable to pre-contribution
expenditures, and (iv) amortization under Section 59(e) attributable to
pre-contribution expenditures shall be the amount of the corresponding item
determined for tax purposes pursuant to Subparagraph 3.6(c) multiplied by the
ratio of (A) the book value at which the contributed property is recorded in the
Capital Accounts to (B) the adjusted tax basis of the contributed property
(including basis resulting from capitalization of pre-contribution development
expenditures under Sections 616(b), 291(b), and 59(e)).

(g)           The foregoing provisions, and the other provisions of the
Agreement relating to the maintenance of Capital Accounts and the allocations of
income, gain, loss, deduction and credit, are intended to comply with Treasury
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations.  In the event the Management Committee shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto, are computed in order to comply with such
Regulations, the Management Com­mittee may make such modification, provided that
it is not likely to have a material effect on the amount distributable to either
Member upon liquidation of the Company pursuant to Paragraph 4.2.
 
 
EXHIBIT C 
Page 9 of 11

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

 

(h)           If the Members so agree, upon the occurrence of an event described
in Treas. Reg. § 1.704-1(b)(2)(iv)(5), the Capital Accounts shall be restated in
accordance with Treas. Reg. § 1.704-1(b)(2)(iv)(f) to reflect the manner in
which unrealized income, gain, loss or deduction inherent in the assets of the
Company (that has not been reflected in the Capital Accounts previously) would
be allocated among the Members if there were a taxable disposition of such
assets for their fair market values, as determined in accordance with
Subparagraph 4.2(a).  For purposes of Paragraph 3.3, a Member shall be treated
as contributing the portion of the book value of any property that is credited
to the Member’s Capital Account pursuant to the preceding sentence. Following a
revaluation pursuant to this Subparagraph 4.1(h), the Members’ shares of
depreciation, depletion, amortization and gain or loss, as computed for tax
purposes, with respect to property that has been revalued pursuant to this
Subparagraph 4.1(h) shall be determined in accordance with the principles of
Code Section 704(c) as applied pursuant to the final sentence of Subparagraph
3.6(b).

4.2           Liquidation. In the event the Company is dissolved pursuant to
Section 14.1 of the Agreement then, notwithstanding any other provision of the
Agreement to the contrary, the following steps shall be taken (after taking into
account any transfers of Capital Accounts pursuant to Sections 3.2(a), 4.4(a) or
14.2 of the Agreement):

(a)           The Capital Accounts of the Members shall be adjusted to reflect
any gain or loss which would be realized by the Company and allocated to the
Members pursuant to the provisions of Article III of this Exhibit C if the
Properties and Assets had been sold at their fair market value at the time of
liquidation.  The fair market value of the Properties and Assets shall be
determined by agreement of both Members provided, however, that in the event
that the Members fail to agree on the fair market value of any Asset, its fair
market value shall be determined by a nationally recognized independent
engineering firm or other qualified independent party approved by both Members.

(b)           After making the foregoing adjustments and/or contributions, all
remaining Properties and Assets shall be distributed to the Members in
accordance with the balances in their Capital Accounts (after taking into
account all allocations under Article III, including Subparagraph
3.3(g)).  Unless otherwise expressly agreed by both Members, each Member shall
receive an undivided interest in each and every Asset determined by the ratio of
the amount in each Member’s Capital Account to the total of both of the Members’
Capital Accounts. Assets distributed to the Members shall be deemed to have a
fair market value equal to the value assigned to them pursuant to Subparagraph
4.2(a) above.

(c)           All distributions to the Members in respect of their Capital
Accounts shall be made in accordance with the time requirements of Treas. Reg.
§§ 1.704-1(b)(2)(ii)(b)(2) and (3).

4.3           Deemed Terminations. Notwithstanding the provisions of Paragraph
4.2, if the “liquidation” of the Company results from a deemed termination under
Section 708(b)(1)(B) of the Code, then (i) Subparagraphs 4.2(a) and (b) shall
not apply, (ii) the Company shall be deemed to have contributed its assets to a
new partnership in exchange for an interest therein, and immediately thereafter,
distributing interests therein to the purchasing party and the non-transferring
Members in proportion to their interests in the Company in liquidation thereof,
(iii) the new partnership shall continue pursuant to the terms of the Agreement
and this Exhibit.
 
 
EXHIBIT C 
Page 10 of 11

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

 

ARTICLE V
SALE OR ASSIGNMENT

The Members agree that if either one of them makes a sale or assignment of its
Ownership Interest under the Agreement, and such sale or assignment causes a
termination under Section 708(b)(1)(B) of the Code, the terminating Member shall
indemnify the non-terminating Member and save it harmless on an after-tax basis
for any increase in taxes to the non-terminating Member caused by the
termination of the Company.
 
 

EXHIBIT C 
Page 11 of 11

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

 

EXHIBIT D
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

DEFINITIONS

“Act” means the Nevada Limited Liability Company Act, codified in the Nevada
Revised Statutes, Chapter 86, et seq., as the same may be amended from time to
time.

“Affiliate” means any person, partnership, limited liability company, joint
venture, corporation, or other form of enterprise which Controls, is Controlled
by, or is under common Control with a Member.

“Agreement” means this Exploration, Development and Mining Limited Liability
Company Operating Agreement, including all amendments and modifications, and all
schedules and exhibits, all of which are incorporated by this reference.

“Approved Alternative” means a Development and Mining alternative selected by
the Management Committee from various Development and Mining alternatives
analyzed in the Pre-Feasibility Studies.

“Area of Interest” means the area encompassing a two (2) mile boundary from the
original claim perimeter as described in Paragraph 1.6 of Exhibit A.

“Assets” means the Products, Business Information, Bond, all technical data
relating to the Properties  and all other real and personal property, and
equipment, tangible and intangible, including existing or after-acquired
properties and all contract rights held for the benefit of the Members
hereunder.
 
 
EXHIBIT D 
Page 1 of 6

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

 

“Bond” those certain environmental and reclamation bonds in the amount of
US$3,000,000 with respect to the Properties filed with the Bureau of Land
Management and all rights and obligations relating thereto.

“Budget” means a detailed estimate of all costs to be incurred and a schedule of
cash advances to be made by the Members with respect to a Program.

“Business” means the conduct of the business of the Company in furtherance of
the purposes set forth in Section 2.3 and in accordance with this Agreement.

“Business Account” means the account maintained by the Manager for the Business
in accordance with Exhibit B.

“Business Information” means the terms of this Agreement, and any other
agreement relating to the Business, the Existing Data, and all information,
data, knowledge and know-how, in whatever form and however communicated
(including, without limitation, Confidential Information), developed, conceived,
originated or obtained by either Member in performing its obligations under this
Agreement. The term “Business Information” shall not include any improvements,
enhance­ments, refinements or incremental additions to Member Information that
are developed, conceived, originated or obtained by either Member in performing
its obligations under this Agreement.

“Capital Account” means the account maintained for each Member in accordance
with Exhibit C.

“Company” means Mineral Ridge Gold, LLC, a Nevada limited liability company
formed in accordance with, and governed by, this Agreement.

“Commercial Production” means throughput of Products from Mining Operations
averaging greater than 70% of the average life of mine projected capacity, as
estimated by the Feasibility Study to be prepared by Micon International
Limited, for a period of at least two consecutive financial quarters.

“Confidential Information” means all information, data, knowledge and know-how
(including, but not limited to, formulas, patterns, compilations, programs,
devices, methods, techniques and processes) that derives independent economic
value, actual or potential, as a result of not being generally known to, or
readily ascertainable by, third parties and which is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy, including
without limitation all analyses, interpretations, compilations, studies and
evaluations of such information, data, knowledge and know-how generated or
prepared by or on behalf of either Member.
 
 

EXHIBIT D 
Page 2 of 6

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

 

“Continuing Obligations” mean obligations or responsibilities that are
reasonably expected to continue or arise after Operations on a particular area
of the Properties have ceased or are suspended, such as future monitoring,
stabilization, or Environmental Compliance.

“Control” used as a verb means, when used with respect to an entity, the
ability, directly or indirectly through one or more intermediaries, to direct or
cause the direction of the management and policies of such entity through
(i) the legal or beneficial ownership of voting securities or membership
interests; (ii) the right to appoint managers, directors or corporate
management; (iii) contract; (iv) operating agreement; (v) voting trust; or
otherwise; and, when used with respect to a person, means the actual or legal
ability to control the actions of another, through family relationship, agency,
contract or otherwise; and “Control” used as a noun means an interest which
gives the holder the ability to exercise any of the foregoing powers.

“Cover Payment” shall have the meaning as set forth in Section 11.4 of the
Agreement.

“Development” means all preparation (other than Exploration) for the removal and
recovery of Products, including construction and installation of a mill or any
other improvements to be used for the mining, handling, milling, processing, or
other beneficiation of Products, and all related Environmental Compliance.

“Effective Date” means the date set forth in the preamble to this Agreement.

“Encumbrance” or “Encumbrances” means mortgages, deeds of trust, security
interests, pledges, liens, net profits interests, royalties or overriding
royalty interests, other payments out of production, or other burdens of any
nature.

“Environmental Compliance” means actions performed during or after Operations to
comply with the requirements of all Environmental Laws or contractual
commitments related to reclamation of the Properties or other compliance with
Environmental Laws.

“Environmental Compliance Fund” means the account established pursuant to
Paragraph 2.14 of Exhibit B.

“Environmental Laws” means Laws aimed at reclamation or restoration of the
Properties; abatement of pollution; protection of the environment; protection of
wildlife, including endangered species; ensuring public safety from
environmental hazards; protection of cultural or historic resources; management,
storage or control of hazardous materials and substances; releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances as wastes into the environment, including without
limitation, ambient air, surface water and groundwater; and all other Laws
relating to the manufacturing, processing, distribution, use, treatment,
storage, disposal, handling or transport of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.

“Environmental Liabilities” means any and all claims, actions, causes of action,
damages, losses, liabilities, obligations, penalties, judgments, amounts paid in
settlement, assessments, costs, disbursements, or expenses (including, without
limitation, attorneys’ fees and costs, experts’ fees and costs, and consultants’
fees and costs) of any kind or of any nature whatsoever that are asserted
against either Member, by any person or entity other than the other Member,
alleging liability (including, without limitation, liability for studies,
testing or investigatory costs, cleanup costs, response costs, removal costs,
remediation costs, containment costs, restoration costs, corrective action
costs, closure costs, reclamation costs, natural resource damages, property
damages, business losses, personal injuries, penalties or fines) arising out of,
based on or resulting from (i) the presence, release, threatened release,
discharge or emission into the environment of any hazardous materials or
substances existing or arising on, beneath or above the Properties and/or
emanating or migrating and/or threatening to emanate or migrate from the
Properties to off-site properties; (ii) physical disturbance of the environment;
or (iii) the violation or alleged violation of any Environmental Laws.
 
 

EXHIBIT D 
Page 3 of 6

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

 

“Equity Account” means the account maintained for each Member by the Manager in
accordance with Subsection 9.2(o) of the Agreement.

“Existing Data” means maps, drill logs and other drilling data, core, pulps,
reports, surveys, assays, analyses, production reports, operations, technical,
accounting and financial records, and other material information developed in
operations on the Properties prior to the Effective Date.

“Expansion” or “Modification” means (i) a material increase in mining or
production capacity; (ii) a material change in the recovery process; or (iii) a
material change in waste or tailings disposal methods.  An increase or change
shall be deemed “material” if it is anticipated to cost more than 35% of
original capital costs attributable to the Development of the mining or
production capacity, recovery process or waste or tailings disposal facility to
be expanded or modified.

“Exploration” means all activities directed toward ascertaining the existence,
location, quantity, quality or commercial value of deposits of Products,
including but not limited to additional drilling required after discovery of
potential commercial mineralization, and including related Environmental
Compliance.

“Feasibility Contractors” means one or more engineering firms approved by the
Management Committee for purposes of preparing or auditing any Pre-Feasibility
Study or Feasibility Study.

“Feasibility Study” means a report to be prepared following selection by the
Management Committee of one or more Approved Alternatives. The Feasibility Study
shall be in a form and of a scope generally acceptable to reputable financial
institutions that provide financing to the mining industry.

“Governmental Fees” means all location fees, mining claim rental fees, mining
claim maintenance payments and similar payments required by Law to locate and
hold unpatented mining claims.
 
 

EXHIBIT D 
Page 4 of 6

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

 

“Initial Contribution” means that contribution each Member has made or agrees to
make pursuant to Section 3.1 of the Agreement.

“Law” or “Laws” means all applicable federal, state and local laws (statutory or
common), rules, ordinances, regulations, grants, concessions, franchises,
licenses, orders, directives, judgments, decrees, and other governmental
restrictions, including permits and other similar requirements, whether
legislative, municipal, administrative or judicial in nature.

“Management Committee” means the committee established under Article VIII of the
Agreement.

“Manager” means the Member appointed under Article IX of the Agreement to manage
Operations, or any successor Manager.

“Member” means GPXM or Scorpio US, any permitted successor or assign of GPXM or
Scorpio US, or any other person admitted as a Member of the Company under this
Agreement.

“Member Information” means all information, data, knowledge and know-how, in
whatever form and however communicated (including, without limitation,
Confidential Information but excluding the Existing Data), which, as shown by
written records, was developed, conceived, originated or obtained by a Member:
(a) prior to entering into this Agreement, or (b) independent of its performance
under the terms of this Agreement.

“Mining” means the mining, extracting, producing, beneficiating, handling,
milling or other processing of Products.

“Net Cash Flow” means the difference between gross proceeds from the sale of
Products and Assets and the costs of producing Products as determined by charges
to the Business Account in Exhibit B, less three months working capital, and any
other amounts determined reasonable and necessary by the Management Committee
for the ongoing operations of the Company.

“Operations” means the activities carried out by the Company under this
Agreement.

“Ownership Interest” means the percentage interest representing the ownership
interest of a Member in the Company, and all other rights and obligations
arising under this Agreement, as such interest may from time to time be adjusted
hereunder.  Ownership Interests shall be calculated to three decimal places and
rounded to two decimal places as follows:  Decimals of .005 or more shall be
rounded up (e.g., 1.519% rounded to 1.52%); decimals of less than .005 shall be
rounded down (e.g., 1.514% rounded to 1.51%).  The initial Ownership Interests
of the Members are set forth in Section 4.1 of the Agreement.

“Payout” means the date on which the Equity Account balance of each of the
Members has become zero or a negative number, regardless of whether the Equity
Account balance of either or both Members subsequently becomes a positive
number.  If one Member’s Equity Account balance becomes zero or a negative
number before the other Member’s, “Payout” shall not occur until the date that
the other Member’s Equity Account balance first becomes zero or a negative
number.
 
 
EXHIBIT D 
Page 5 of 6

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

 

“Pre-Feasibility Studies” means one or more studies prepared to analyze whether
economically viable Mining Operations may be possible on the Properties, as
described in Sections 10.7 and 10.8 of the Agreement.

“Prime Rate” means the interest rate quoted and published as “Prime” as
published in The Wall Street Journal, under the heading “Money Rate,” as the
rate may change from day to day.

“Products” means all ores, minerals and mineral resources produced from the
Properties.

“Program” means a description in reasonable detail of Operations to be conducted
and objectives to be accomplished by the Manager for a period determined by the
Management Committee.

“Program Period” means the time period covered by an adopted Program and Budget.

“Project Financing” means any financing approved by the Management Committee and
obtained by the Members for the purpose of placing a mineral deposit situated on
the Properties into commercial production, but shall not include any such
financing obtained individually by either Member to finance payment or
performance of its obligations under the Agreement.

“Properties” means those interests in real property described in Paragraph 1.1
of Exhibit A and all other interests in real property within the Area of
Interest that are acquired and held subject to this Agreement.

“Recalculated Ownership Interest” means the reduced Ownership Interest of a
Member as recalculated under Section 10.5, 10.6 or 11.5 of the Agreement.

“Reduced Member” means a Member whose Ownership Interest is reduced under
Section 10.5, 10.6 or 11.5 of the Agreement.

“Transfer” means, when used as a verb, to sell, grant, assign or create an
Encumbrance, pledge or otherwise convey, or dispose of or commit to do any of
the foregoing, or to arrange for substitute performance by an Affiliate or third
party (except as permitted under Subsection 9.2(j) and Section 9.6 of the
Agreement), either directly or indirectly; and, when used as a noun, means such
a sale, grant, assignment, Encumbrance, pledge or other conveyance or
disposition, or such an arrangement.
 
 

EXHIBIT D 
Page 6 of 6

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

 

EXHIBIT E
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

INSURANCE

The Manager shall, at all times while conducting Operations, comply fully with
the applicable workers’ compensation laws and purchase, or provide protection
for the Company comparable to that provided under standard form insurance
policies for the following risk categories: (i) comprehensive public liability
and property damage (including umbrella coverage) with combined limits of not
less than Ten Million Dollars ($10,000,000) for bodily injury and property
damage; (ii) automobile insurance with combined limits of not less than Two
Million Dollars ($2,000,000); and (iii) adequate and reasonable insurance
against risk of fire and other risks ordi­narily insured against in similar
operations. If the Manager elects to self-insure, it shall charge to the
Business Account an amount equal to the premium it would have paid had it
secured and maintained a policy or policies of insurance on a competitive bid
basis in the amount of such coverage. Each Member shall self-insure or purchase
for its own account such additional insurance as it deems necessary.
 
 
 

EXHIBIT E 
Page 1 of 1

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

 

EXHIBIT F
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

PREEMPTIVE RIGHTS

1.1           Preemptive Rights. If either Member intends to Transfer all or any
part of its Ownership Interest, or an Affiliate of either Member intends to
Transfer Control of such Member (“Transferring Entity”), such Member shall
promptly notify the other Member of such intentions. The notice shall state the
price and all other pertinent terms and conditions of the intended Transfer, and
shall be accompanied by a copy of the offer or the contract for sale. If the
consideration for the intended transfer is, in whole or in part, other than
monetary, the notice shall describe such consideration and its monetary
equivalent (based upon the fair market value of the nonmonetary consideration
and stated in terms of cash or currency).  The other Member shall have fifteen
(15) days from the date such notice is delivered to notify the Transferring
Entity (and the Member if its Affiliate is the Transferring Entity) whether it
elects to acquire the offered interest at the same price (or its monetary
equivalent in cash or currency) and on the same terms and conditions as set
forth in the notice. If it does so elect, the acquisition by the other Member
shall be consummated promptly after notice of such election is delivered.

(a)           If the other Member fails to so elect within the period provided
for above, the Transferring Entity shall have ninety (90) days following the
expiration of such period to consummate the Transfer to a third party at a price
and on terms no less favorable to the Transferring Entity than those offered by
the Transferring Entity to the other Member in the aforementioned notice.
 
 

EXHIBIT F 
Page 1 of 2

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

 

(b)           If the Transferring Entity fails to consummate the Transfer to a
third party within the period set forth above, the preemptive right of the other
Member in such offered interest shall be deemed to be revived. Any subsequent
proposal to Transfer such interest shall be conducted in accordance with all of
the procedures set forth in this Paragraph.

1.2           Exceptions to Preemptive Right. Paragraph 1.1 above shall not
apply to the following:

(a)           Transfer by either Member of all or any part of its Ownership
Interest to an Affiliate;

(b)           Incorporation of either Member, or corporate consolidation or
reorganization of either Member by which the surviving entity shall possess
substantially all of the stock or all of the property rights and interests, and
be subject to substantially all of the liabilities and obligations of that
Member;

(c)           Corporate merger or amalgamation involving either Member by which
the surviving entity or amalgamated company shall possess all of the stock or
all of the property rights and interests, and be subject to substantially all of
the liabilities and obligations of that Member;

(d)           the transfer of Control of either Member by an Affiliate to such
Member or to another Affiliate;

(e)           subject to Subsection 7.2(g) of the Agreement, the grant by either
Member of a security interest in its Ownership Interest by Encumbrance; or

(f)           the creation by any Affiliate of either Member of an Encumbrance
affecting its Control of such Member.
 

EXHIBIT F 
Page 2 of 2

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

 

EXHIBIT G
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

QUITCLAIM DEED
 
 
 

 
EXHIBIT G 
Page 1 of 5

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

 

APN:

WHEN RECORDED MAIL TO and:
MAIL PROPERTY TAX STATEMENTS TO:

Mineral Ridge Gold, LLC
815 Murray Way
Suite 201
Elko, Nevada 89801

The undersigned affirms that this document
contains no Social Security Numbers
 

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

 
QUITCLAIM DEED
 
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, GOLDEN PHOENIX MINERALS, INC., a Nevada corporation, with an
address of 1675 E. Prater Way, Suite 102, Sparks, Nevada  89434, does hereby
remise, release and forever quitclaim to MINERAL RIDGE GOLD, LLC, a Nevada
limited liability company, with an address of 815 Murray Way, Suite 201, Elko,
Nevada 89801, all of its right, title and interest in and to that real property
situated in the County of Esmeralda, State of Nevada, described as follows:

See Exhibit “A”

together with all and singular tenements, hereditaments and appurtenances
thereunto belonging or in anywise appertaining.

WITNESS my hand this ____ day of ________________, 2010.

   
Golden Phoenix Minerals, Inc.,
   
a Nevada corporation
           
By:
 
   
Name:
Thomas Klein
   
Its:
Chief Executive Officer
CANADA
)
     
)
   
PROVINCE OF ONTARIO
)
     
)ss.
   

This instrument was acknowledged before me on ____________________, 2010 by
Thomas Klein, Chief Executive Officer of Golden Phoenix Minerals, Inc., a Nevada
corporation.

 
 
   
Signature of Notarial Officer
 

EXHIBIT G 
Page 2 of 5

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

 

EXHIBIT “A”
LEGAL DESCRIPTION
 
 

 

EXHIBIT G 
Page 3 of 5

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

 

APN:

WHEN RECORDED MAIL TO and:
MAIL PROPERTY TAX STATEMENTS TO:

Mineral Ridge Gold, LLC
815 Murray Way
Suite 201
Elko, Nevada 89801

Attention:

The undersigned affirms that this document
contains no Social Security Numbers
 

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

QUITCLAIM DEED
 
For valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, SCORPIO GOLD (US) CORPORATION, a Nevada corporation, with an
address of 815 Murray Way, Suite 201, Elko, Nevada 89801, does hereby remise,
release and forever quitclaim to MINERAL RIDGE GOLD, LLC, a Nevada limited
liability company, with an address of 815 Murray Way, Suite 201, Elko, Nevada
89801, all of its right, title and interest in and to that real property
situated in the County of Esmeralda, State of Nevada, described as follows:

See Exhibit “A”

together with all and singular tenements, hereditaments and appurtenances
thereunto belonging or in anywise appertaining.

WITNESS my hand this ____ day of ________________, 2010.

               
 
 
SCORPIO GOLD (US) CORPORATION,
   
a Nevada corporation
           
By:
     
Name:
Peter J. Hawley
   
Its:
President
       
CANADA
)
     
)
   
PROVINCE OF QUEBEC
)
     
)ss.
   

This instrument was acknowledged before me on ____________________, 2010 by
Peter J. Hawley, President of Scorpio Gold (US) Corporation, a Nevada
corporation.

 
 
   
Signature of Notarial Officer
 

EXHIBIT G 
Page 4 of 5

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

 

EXHIBIT “A”
LEGAL DESCRIPTION

 
 

EXHIBIT G 
Page 5 of 5

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

 

EXHIBIT H

TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

LETTER AGREEMENT BETWEEN GPXM, SCORPIO US AND CRESTVIEW
 

 
EXHIBIT H 
Page 1 of 3

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

 

Crestview Capital Master, LLC
95 Revere Drive, Suite A
Northbrook, IL 60062

March 10, 2010

Golden Phoenix Minerals, Inc.
1675 East Prater Way, Suite 102
Sparks, Nevada 89434

Scorpio Gold (US) Corporation
995 Germain Street
Val d’Or, PQ J9P 7H7

Re:           Security Interest in Golden Phoenix Membership Interest in Mineral
Ridge Gold, LLC

Gentlemen:

This will confirm our mutual understandings and agreements with respect to the
Membership Interest (the “Interest”) Golden Phoenix Minerals, Inc. (“GP”) will
hold in Mineral Ridge Gold, LLC (the “LLC”), as well as confirm the contractual
right of Crestview Capital Master, LLC (“Crestview”) to the assignment of 50% of
all distributions in cash or kind to be made to GP by the LLC, to be applied as
a prepayment on that certain Amended and Restated Debt Restructuring Secured
Promissory Note dated February 6, 2009 (the “Note”), all as provided for in the
First Amended and Restated Security Agreement between GP and Crestview dated
February 6, 2009 (the “Agreement”) and the Bridge Loan and Debt Restructuring
Agreement between GP and Crestview dated January 30, 2009 (the “Restructuring
Agreement”).  You have requested that we accept as not violating any requirement
of the Agreement (including those regarding GP keeping collateral free from
“Liens”), the application of Section 7.2 of the LLC’s Operating Agreement (the
“Operating Agreement”) between GP and Scorpio Gold (US) Corporation
(“Scorpio”).  The undersigned mutually understand and agree that under such
Section 7.2, in the event of a proposed sale of GP’s Membership Interest upon a
default by GP of the Agreement, the Membership Interest must first be offered to
Scorpio as the other member of the LLC, and Scorpio will have the right, for up
to sixty (60) days, to elect to purchase the same for an amount no less than the
accrued unpaid principal and accrued interest and related expenses owing on the
Note.  We hereby agree to the foregoing and GP in turn agrees that if we
exercise our right to sell the Membership Interest, a sale pursuant to Section
7.2(g) will be considered “commercially reasonable” under the provisions of the
Nevada Commercial Code.

This will further confirm that GP has notified the undersigned that pursuant to
the Restructuring Agreement it has assigned to Crestview 50% of all
distributions in cash or kind made in respect of the Interest for so long as the
Note is outstanding, and the undersigned, Scorpio, confirms in its capacity as
Manager of the LLC, that the LLC shall direct all such portions of distributions
to Crestview until such time as Crestview and GP jointly confirm that the Note
has been repaid in full, at which time Crestview shall release its security
interest in the Interest and will release the assignment of 50% of GP’s portion
of distributions described herein.

[Signature Page Immediately Follows]
 

 
EXHIBIT H 
Page 2 of 3

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

 

Please indicate your agreement by signing a copy hereof where indicated below
and delivering the same us.

 
Very truly yours,
     
CRESTVIEW CAPITAL MASTER, LLC
     
By:  Crestview Capital Partners, LLC
         
By:    /s/ Daniel Warsh       
 
Name:  Daniel Warsh
 
Title:    Manager

Accepted and Agreed:

GOLDEN PHOENIX MINERALS, INC.

By:             /s/ Thomas Klein                
Name:           Thomas Klein                  
Its:           Chief Executive Officer        
Date:           March 10, 2010                  

SCORPIO GOLD (US) CORPORATION

By:             /s/ Peter Hawley                  
Name:           Peter Hawley                    
Its:           Chief Executive Officer        
Date:           March 10, 2010                  

EXHIBIT H 
Page 3 of 3

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

 

SCHEDULE
TO
EXPLORATION, DEVELOPMENT AND MINING
JOINT VENTURE
MEMBERS’ AGREEMENT
AND
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT

By And Between

Scorpio Gold (US) Corporation

And

Scorpio Gold Corporation

And

Golden Phoenix Minerals, Inc.

SCHEDULE OF MEMBERS

Member
Ownership Interest
Scorpio Gold (US) Corporation
70%
Golden Phoenix Minerals, Inc.
30%

 
 

 
SCHEDULE
Page 1 of 1

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