Document:

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                                                                  Exhibit 10.1.7
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                              Operating Agreement

                                      FOR

                             Mine Reclamation, LLC

                    a California Limited Liability Company

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THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NEITHER BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED
AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND
REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND
REGISTRATION IS NOT REQUIRED.
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                              OPERATING AGREEMENT
                                      FOR
                             MINE RECLAMATION, LLC
                    a California Limited Liability Company

     This Operating Agreement is made as of June 1, 2000, by and among the
entities and persons listed on Exhibit "A" attached hereto, with reference to
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the following facts:

     A.   On May 19, 2000, Articles of Organization for Mine Reclamation, LLC
(the "Company"), a limited liability company under the laws of the State of
California, were filed with the California Secretary of State.  The initial
Member of the Company was Mine Reclamation Corporation, a California corporation
("MRC"), and as of June 1, 2000, Richard A. Daniels became a Member of the
Company.

     B.   The parties desire to adopt and approve an operating agreement for the
Company to establish their rights and responsibilities and to govern their
relationships.

     NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, the Members (capitalized terms are generally defined in
Schedule 0) by this Agreement set forth the operating agreement for the Company
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under the laws of the State of California.

1.   Organizational Matters

     1.1  Formation.  Pursuant to the Act, the Members have formed a California
limited liability company under the laws of the State of California by filing
the Articles with the California Secretary of State and entering into this
Agreement.  The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement.  To the extent that the rights or
obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement
shall, to the extent permitted by the Act, control.

     1.2  Name.  The name of the Company shall be "Mine Reclamation, LLC."  The
business of the Company may be conducted under that name or, upon compliance
with applicable laws, any other name that the Managers deem appropriate or
advisable.  The President shall file any fictitious name certificates and
similar filings, and any amendments thereto, that the Managers consider
appropriate or advisable.

     1.3  Term.  The term of the Company shall expire on December 31, 2099,
unless extended or sooner terminated as hereinafter provided

     1.4  Office and Agent.  The Company shall continuously maintain an office
and registered agent in the State of California as required by the Act.  The
principal office of the Company shall be as determined by the Managers.  The
Company also may have such offices, anywhere within and without the State of
California, as the Managers from time to time may determine or the business of
the Company may require.  The registered agent shall be as stated in the
Articles or as otherwise determined by the Managers.

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     1.5  Addresses of the Members.  The respective names and addresses of and
numbers and classes of Units held by the Members are set forth on Exhibit "A".
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The Company shall revise Exhibit "A" from time to time as changes in the
                         -----------
information on that Exhibit occur.

     1.6  Purpose of Company.  The purpose of the Company is to engage in any
lawful activity for which a limited liability company may be organized under the
Act.

2.   Units

     2.1  Units.  The Membership Interest of each of the Members in the Company
shall consist of a number of "Units."  Units shall be divided into two classes,
Class A and Class B.

     2.2  Issuance of Units.  Subject to compliance with all of the terms of
this Agreement and applicable law, the Company may issue Units of any class at
any time and from time to time for such consideration as may be approved by the
Managers.

3.   Capital Contributions

     3.1  Initial Capital Contributions.  MRC has contributed $100 to the
Company and shall also contribute all of the assets and liabilities of MRC to
the Company in exchange for the issuance of that number of Class B Units and
Class A Units specified in Exhibit "A".  Richard A. Daniels has contributed 100
                           -----------
shares of the common stock of MRC for the issuance of that number of Class B
Units as specified in Exhibit "A".
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     3.2  Additional Capital Contributions.  Except as may be explicitly agreed
in writing by the Member and the Company, no Member shall be required to make
any additional Capital Contributions.  The Class B Members (or other persons
acquiring Class B Units) may be permitted from time to time to make additional
Capital Contributions if the Managers determine that such additional Capital
Contributions are necessary or appropriate for the conduct of the Company's
business.  The Managers shall approve all material aspects of any such capital
contribution, such as the amount and nature of the consideration to be paid for
the additional Class B Units, the resulting dilution of interest to be incurred
by other Members, and the extent to which such additional Members will
participate in the management, Net Profits, Net Losses and distributions of the
Company.  Immediately following such additional Capital Contributions, the
Capital Account of the existing Members shall be adjusted (for book but not tax
purposes) to reflect the value ascribed to the newly issued Class B Units.

     3.3  Capital Accounts.  The Company shall establish an individual Capital
Account for each Member.  The Company shall determine and maintain each Capital
Account in accordance with Regulations Section 1.704-1(b)(2)(iv).  If a Member
transfers all or a part of such Member's Membership Interest in accordance with
this Agreement, such Member's Capital Account attributable to the transferred
Membership Interest shall carry over to the new owner of such Membership
Interest pursuant to Regulations Section 1.704-1(b)(2)(iv)(1).  Each Capital
Account shall consist of a Member's paid-in Capital Contribution(s) (whether in
cash, property, services or otherwise) (a) increased by such Member's allocated
share of Net Profits in accordance with Article 4 hereof, (b) decreased by such
Member's allocated share of Net Losses and distributions in accordance with
Article 4 hereof, and (c) adjusted as otherwise required in accordance with the
Code, Regulations and generally accepted accounting principles (to the extent
consistent with the Code and Regulations).

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     3.4  No Interest.  No Member shall be entitled to receive any interest on
such Member's Capital Contributions.

4.   Allocations of Net Profits and Net Losses

     All allocations under this Section 4 shall be subject to the Regulatory
Allocations in Schedule I.
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     4.1  Allocations of Net Profits.  Net Profits shall be allocated to the
Members in the following order:

          4.1.1     Chargeback to the Extent of Net Losses.  First, Net Profits
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shall be allocated to each Member to the extent of and in the reverse order of
the Net Losses previously allocated to such Member with respect to which Net
Profits have not previously been allocated pursuant to this Section 4.1.1;

          4.1.2     Preferred Return.  Second, Net Profits shall be allocated to
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the until each Class A Member has received a net allocation of Net Profits under
this Section 4.1.2 equal to his or her cumulative Preferred Distributions
through the end of the period; and

          4.1.3     Residual.  Third, any additional Net Profits shall be
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allocated to Class A and Class B Members according to their Percentage
Interests.

     4.2  Allocations of Net Losses.  Net Losses shall be allocated to the
Members in the following order:

          4.2.1     Chargeback to the Extent of Net Profits.  First, Net Losses
                    ---------------------------------------
shall be allocated to each Member to the extent, and in the reverse order, of
the aggregate amount of those Net Profits previously allocated to such Member
pursuant to Section 4.1 with respect to which Net Losses have not been
previously allocated pursuant to this Section 4.2.1; and

          4.2.2     Other Net Losses.  Second, any additional Net Profits shall
                    ----------------
be allocated to Class A and Class B Members according to their Percentage
Interests.

     4.3  Tax-Book Differences.  For tax purposes, items will be allocated to
the Members in the same manner as for book purposes, except that:  (i) Code
Section 704(c) shall apply to the allocation of items of income, gain,
deduction, and loss related to contributed property having an adjusted federal
income tax basis at the time of contribution that differs from its fair market
value; and (ii) Regulations Section 1.704-1(b)(2)(iv)(f)(4) shall apply to the
items of income, gain, deduction, and loss related to property with a book value
adjusted pursuant to Regulations Section 1.704-1(b)(2)(iv)(f).  In cases where
Code Section 704(c) or Regulations Section 1.704-1(b)(2)(iv)(f) applies, the
Members' Capital Accounts shall be adjusted in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g).  In the event that the book value of property is
adjusted pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), (i) the Members'
Capital Accounts shall also be adjusted as required by Regulations Section
1.704-1(b)(2)(iv)(f)(2) and (ii) thereafter, in applying the allocation
provisions of this Agreement for book purposes, the unrealized items reflected
in the Capital Account adjustments required by Regulations Section 1.704-
1(b)(2)(iv)(f)(2) shall be deemed to have been allocated to the Members pursuant
to such allocation provisions.

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     4.4  Obligations of Members to Report Consistently.  The Members agree to
be bound by the provisions of this Agreement in reporting their shares of
Company income and loss for income tax purposes.

     4.5  Tax Elections.  The Managers may, in their sole discretion, cause the
Company to make any elections required or permitted to be made by the Company
under the Code and not otherwise expressly provided for in this Agreement,
including, without limitation, the election referred to in Section 754 of the
Code and corresponding provisions of state law; provided, however, that if the
                                                --------  -------
election referred to in Section 754 and corresponding provisions of state law is
made, the Company shall not be required to make (and shall not be obligated to
bear the expenses of making) any accounting adjustment resulting from such
election in the information supplied to the Members, or if it provides such
adjustments the Membership shall have the right to charge the Members benefiting
from such election for the Company's reasonable expenses in making such
adjustments.  Each of the Members will upon request supply the information
necessary to give proper effect to such election.

     4.6  Variations in Percentage Interests.  If the number of Units are
increased or decreased by reason of the admission of a new Member or the
repurchase of a Member's Units, additional Capital Contributions or otherwise,
during any Fiscal Year, each item of income, gain, loss, deduction or credit of
the Company for such Fiscal Year shall be allocated among the Members by the
Managers in accordance with any method permitted by Section 706(d) of the Code
and the applicable Regulations in order to take into account the Members'
varying Percentage Interests during the year.

5.   Distributions

     5.1  Distribution of Assets by the Company.  Subject to applicable law and
any limitations contained elsewhere in this Agreement, the Managers may elect in
their discretion from time to time to distribute cash or property to the
Members, except that no distribution shall be made if, after giving effect to
the distribution:  (a) the Company would not be able to pay its debts as they
become due in the usual course of business; or (b) the Company's total assets
would be less than the sum of its total liabilities plus, unless this Agreement
provides otherwise, the amount that would be needed, if the Company were to be
dissolved at the time of the distribution, to satisfy the preferential rights of
other Members, if any, upon dissolution that are superior to the rights of the
Member receiving the distribution.

     5.2  Allocations of Distributions.  Subject to Section 5.1, any
distribution shall be made to the Members as follows:

          5.3.1.    First, to the Class A Members to the extent of their
accumulated but undistributed Preferred Distributions unless waived in writing
by each Class A Member;

          5.3.2     then (but only if the distribution is as a part of the
liquidation of the Company), to the Class A Members in the amount of $1,000 per
Class A Unit; and

          5.3.3     then, to the Class A and Class B Members in proportion to
their Percentage Interests.

     5.3  Persons to Receive Distribution.  All distributions shall be made to
the Persons who, according to the books and records of the Company, are the
holders of record of the Units in

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respect of which such distributions are made on the actual date of distribution.
Neither the Company nor any Company Person shall incur any liability for making
distributions in accordance with this Section 5.

     5.4  Form of Distribution.  A Member, regardless of the nature of the
Member's Capital Contribution, has no right to demand and receive any
distribution from the Company in any form other than money.  No Member may be
compelled to accept from the Company a distribution of any asset in kind in lieu
of a proportionate distribution of money being made to other Members.  A Member
may be compelled to accept a distribution of any asset in kind from the Company
to the extent that the percentage of the asset distributed to such Member is
equal to a percentage of that asset which is equal to the percentage in which
such Member shares in distributions from the Company.

     5.5  Withholding on Distributions.  Each Member agrees that the Company may
deduct and withhold amounts for tax or other obligations of such Member on any
amount distributed or allocated by the Company to such Member if the Company
believes in good faith that it is required by law to do so.  Each Member shall
promptly furnish the Tax Matters Partner with an Internal Revenue Service Form
W-8 or W-9, as applicable.  All amounts so withheld with respect to such Member
shall be treated as amounts distributed to such Person for all purposes under
this Agreement.  In addition, the affected Member shall reimburse the Company
for any such amounts so withheld to the extent not deducted from a distribution.

     5.6  Return of Distributions.  Except for distributions made in violation
of the Act or as expressly set forth in this Agreement or any other written
agreement executed by such Person, no Company Person shall be obligated to
return any distribution to the Company or pay the amount of any distribution for
the account of the Company or to any creditor of the Company.  The amount of any
distribution returned to the Company by a Member or paid by a Member for the
account of the Company or to a creditor of the Company shall be added to the
account or accounts from which it was subtracted when it was distributed to the
Member.

6.   Members

     6.1  Limited Liability.  Except as required under the Act or as expressly
set forth in this Agreement, no Member shall be personally liable for any debt,
obligation, or liability of the Company, whether that liability or obligation
arises in contract, tort or otherwise.

     6.2  Admission of Additional Members.  No additional Members shall be
admitted unless approved by the Managers, which approval shall not be
unreasonably conditioned, delay or denied; provided, however, the conditions
imposed under this Section 6.2 and in Article 8 relating to the admission of a
new Member shall be deemed reasonable conditions to a transfer of Units.  No
additional Member shall become a Member until such additional Member has made
any required Capital Contribution and has become a party to this Agreement, and
transferees may only be admitted as Members in accordance with Article 8.

     6.3  Transactions with the Company.  Subject to applicable law, such
Company Person or Affiliate thereof has the same rights and obligations with
respect to a transaction with the Company as a Person who is not a Member.

     6.4  Members Are Not Agents.  Pursuant to Section 7.1 and the Articles, the
management of the Company is vested in the Managers.  No Member, acting solely
in the capacity

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of a Member, is an agent of the Company nor can any Member in such capacity bind
or execute any instrument on behalf of the Company or render the Company liable
for any purpose.

     6.5  Voting Rights.

          6.5.1     General Rule.  Members shall have the right to vote on
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matters only to the extent expressly provided in this Agreement or the
Certificate, or as requested by the Managers.  Except as otherwise expressly
provided in this Agreement, in all matters in which a vote, approval, consent or
agreement of the Members is required, a vote, consent or approval of Members
holding a Majority of the Class B Units shall be sufficient to authorize or
approve such act.

          6.5.2     Meetings of Members.  The Company shall hold an annual
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meeting of Members on a date and time designated by the Managers.  At each
annual meeting, Managers shall be elected and other proper business within the
power of the Members may be transacted.  A special meeting of the Members may be
called by any two Managers, the Chairman of the Board, or by the President, or
by Class B Members with collective Percentage Interests of at least 10%.
Meetings of Members may be held at such date, time and place within or without
the State of California as the Managers may fix from time to time.  Notice of
any meeting shall be given in accordance with Section 17104 of the Corporations
Code.  At any Members' meeting, the President shall appoint a person to preside
at the meeting and a person to act as secretary of the meeting.  The secretary
of the meeting shall prepare minutes of the meeting, which shall be placed in
the minute books of the Company.  A Majority of the Units entitled to vote,
represented in person or by proxy, constitutes a quorum at a meeting of Members.
In the absence of a quorum, any meeting of Members may be adjourned from time to
time by the vote of the Majority of the Units represent either in person or by
proxy, but no other business may be transacted.  Any action that may be taken at
a meeting of Members may be taken without a meeting, if a consent in writing
setting forth the action so taken, is signed and delivered to the Company by
Members having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all Members entitled to
vote on that action at a meeting were present and voted.  All such consents
shall be filed with the Company and shall be maintained in the Company records.
Members may participate in any Members' meeting through the use of any means of
conference telephones or similar communications equipment as long as all Members
participating can hear one another.  A Member so participating is deemed to be
present in person at the meeting.

     6.6  Proxies.  Every Member entitled to vote may authorize another person
or persons to act by proxy with respect to his or her Units.  No proxy shall be
valid after the expiration of 11 months from the date thereof unless otherwise
provided in the proxy.  Every proxy continues in full force and effect until
revoked by the Member executing it prior to the vote pursuant thereto, except as
otherwise herein provided.  Such revocation may be effected by a writing
delivered to the Company stating that the proxy is revoked or by a subsequent
proxy executed by the Member executing the prior proxy and presented to the
meeting, or as to any meeting by attendance at such meeting and voting in person
by the person executing the proxy.  The dates contained on the forms of proxy
preemptively determine the order of execution, regardless of the postmark dates
on the envelopes in which they are mailed.  A proxy is not revoked by the death
or incapacity of the Member unless, before the vote is counted, written notice
of such death or incapacity is received by the Company.  The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of Sections 703(e) and 705(f) of the Corporations Code.

     6.7  Voting Rights of Class A Units.  In addition to any other rights
provided by law, so long as any Class A Units shall be outstanding, the Company
shall not, without first obtaining the

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affirmative vote or written consent of holders of not less than a Majority of
the outstanding Class A Units, voting separately as a class:

          (a)   amend or repeal any provision of, or add any provision to, this
Agreement if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Class A Units, or allow the issuance of additional Class A Units;

          (b)   authorize or issue Units of any class or series of Units not
authorized herein having any preference or priority as to dividends or assets
superior to or on a parity with any such preference or priority of the Class A
Units; authorize or issue Units of any class or series of any bonds, debentures,
notes or other obligations convertible into or exchangeable for, or having
option rights to purchase, any Units having any preference or priority as to the
dividends or assets superior to or on a parity with any such preference or
priority of the Class A Units;

          (c)   reclassify any class or series of any Units into Units having
any preference or priority as to dividends or assets superior to or on a parity
with any such preference or priority of the Class A Units;

          (d)   apply any of its assets to the redemption, retirement, purchase
or acquisition, directly or indirectly, through subsidiaries (meaning entities
in which the Company owns 50% or more of the total combined voting power of all
classes of securities) or otherwise, of any class or series of Units, except
from employees, advisors, officers, Managers and consultants of, and person
performing services for, the Company or its subsidiaries on terms approved by
the Managers upon termination of employment or association;

          (e)   (i) sell, convey or otherwise dispose of all or substantially
all of its property or business, or (ii) merge into or consolidate with any
other entity (other than a wholly owned subsidiary) or effect any other
transaction or series of related transactions disposing of more than 50% of the
voting power of the Company.

7.   Management and Control of the Company

     7.1  Management of the Company by Managers.

          7.1.1 Exclusive Management by Managers. Subject to the provisions of
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the Articles and this Agreement, the business, property and affairs of the
Company shall be managed, and all powers of the Company shall be exercised, by
or under the direction of the Managers.  Each Manager, in his or her capacity as
a Manager, shall have no authority to act alone, but the Managers shall only act
as members of a Board of Managers as provided in this Agreement.  Every act or
decision done or made by a majority of the Managers sitting on the Board,
whether or not present, at a meeting duly held at which a quorum is present is
the act of the Board of Managers, unless a greater number or the same number
after disqualifying one or more Managers from voting is required by law, or by
this Agreement.

          7.1.2 Agency Authority of Managers.  The Managers, acting in their
                ----------------------------
capacity as Managers, shall have no authority to endorse checks, drafts, and
other evidences of indebtedness made payable to the order of the Company or to
sign checks, drafts, and other instruments obligating the Company to pay money,
or sign agreements or other documents.

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     7.2  Managers.

          7.2.1.    Number, Term, and Qualifications.  The Company shall have
                    --------------------------------
not less than five and not more than 9 Managers until changed by amendment of
this Section 7.2.1 and amendment changing the maximum number or minimum number
of Managers may be adopted only by the vote or written consent of holders of a
Majority of the Class B Units; provided however, that amendment reducing the
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minimum number of Managers to a number less than 5 cannot be adopted if the
votes cast against adoption at a meeting, or the Units not consenting in the
case of an action by written consent, exceeded 16 2/3 percent of the outstanding
Class B Units.  Until changed as herein provided, the maximum number of Managers
is hereby fixed at 13.  The number so fixed may be changed, within the limits
specified in this Section 7.2.1, by approval of the Managers or by vote of a
Majority of the Class B Units.  Unless a Manager resigns or is removed, each
Manager shall hold office for an annual term commencing on the date of election
(or in the case of the current Managers, commencing on the date hereof) and
expiring upon the earlier of (i) the date on which such Manager is removed or
(ii) the date on which such Manager resigns.  A Manager need not be a Member, an
individual, a resident of the State of California, or a citizen of the United
States.

          7.2.2     Resignation.  Any Manager may resign at any time by giving
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written notice to the Chairman of the Board, the President, the Secretary or the
Board of Managers without prejudice to the rights, if any, of the Company under
any contract to which the Manager is a party.  The resignation of any Manager
shall take effect upon receipt of that notice or at such later time as shall be
specified in the notice.  Unless otherwise specified in the notice, the
acceptance of the resignation shall not be necessary to make it effective.  If a
resignation of a Manager is effective at a future time, a successor may be
elected to take office when the resignation becomes effective.

          7.2.3     Removal.  The Managers may declare vacant the office of a
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Manager has been declared of unsound mind by order of a court or convicted of a
felony.  Any or all of the Managers may be removed from office without cause in
the manner provided for removal of directors in Section 303(a) of the
Corporations Code.  Any removal shall be without prejudice to the rights, if
any, of the Manager and the Company under any employment contract and, if the
Manager is also a Member, shall not affect the Manager's rights as a Member or
constitute a withdrawal of a Member, except as otherwise provided in this
Agreement or any other contract with such Member.

          7.2.4     Vacancies.  Vacancies in the Board of Managers, except
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vacancies created by the removal of Managers, may be filled by a majority of the
remaining Managers, although less than a quorum, or by a sole remaining Manager.
Any vacancy occurring for any reason in the number of Managers may be filled by
the Members.  In electing more than one Manager, each Class B Member may
cumulate his or her votes.

          7.2.5     Meetings.  Meetings of the Managers for any purpose may be
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called by the Chairman of the Board or the President or any Vice President or
the Secretary or any two Managers of the Company.  All meetings shall be held
upon four (4) days notice by mail or forty-eight (48) hours notice delivered
personally or by telephone, telegraph or facsimile.  A notice need not specify
the purpose of any meeting.  Notice by mail shall be deemed to have been given
at the time a written notice is deposited in the United States mail, first-
class, postage prepaid.  Notice of a meeting need not be given to any Manager
who signs a waiver of notice or a consent to holding the meeting or an approval
of the minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior to its commencement, the lack of notice to
such Manager.  All such waivers, consents and approvals shall be filed with the
Company records or made a part of the minutes of the meeting.  A majority of the
Managers present, whether or not a quorum is present,

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may adjourn any meeting to another time and place. If the meeting is adjourned
for more than twenty-four (24) hours, notice of any adjournment shall be given
prior to the time of the adjourned meeting to the Managers who are not present
at the time of the adjournment. Meetings of the Managers may be held at any
place within or without the State of California that has been designated in the
notice of the meeting or at such place as may be approved by the Managers.
Managers may participate in a meeting through the use of conference telephone or
similar communications equipment, so long as all Managers participating in such
meeting can hear one another. Participation in a meeting in such manner
constitutes a presence in person at such meeting. A majority of the authorized
number of Managers constitutes a quorum of the Managers for the transaction of
business, and every act or decision done or made with the approval of at least
that number of Managers, whether present at a meeting duly held or by written
consent is the act of the Managers. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
Managers. Any action required or permitted to be taken by the Managers may be
taken by the Managers without a meeting, if such action is approved in writing
by all of the Managers. Such action by written consent shall have the same force
and effect as a determination of the Managers.

          7.2.6     Ex-Officio Managers. In addition to the Managers authorized
                    -------------------
in Sections 7.2.1 and 7.2.2, the Board of Managers (and any management or
executive committee of the Company) may include one ex-officio Manager. Any ex-
officio Manager shall have all of the rights and obligations of a Manager (or
management or executive committee member), except that such ex-officio Manager
shall not be entitled to vote. The ex-officio Manager shall not be counted for
the purpose of determining the number of Managers (or committee members)
required for a quorum, or for the purpose of determining whether a quorum is
present. Any ex-officio Manager shall be elected, and a vacancy filled, in the
manner provided in Section 7.2.4.

          7.2.7     Manager Emeritus.  In addition to the Managers authorized in
                    ----------------
Section 7.2.1, and 7.2.6, the Managers may appoint one or more individuals as
Manager emeritus.  Any Manager emeritus shall be a former member of the Board of
Managers and shall have none of the rights, powers or obligations of a Manager,
including, but not limited to, the right to vote, but shall be entitled to
attend meetings of the Managers.  Each Manager emeritus shall not be counted for
the purpose of determining the number of Managers required for a quorum, or for
the purpose of determining whether or quorum is present.  Any Manager emeritus
shall be elected by a majority of the Managers and shall hold office until
resignation or removal by the Managers.

          7.2.8     Committees.
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                    7.2.8.1   Authorization. By resolution adopted by a majority
of the authorized number of Managers, the Board of Managers may designate one or
more committees, each consisting of two or more Managers, to serve at the
pleasure of the Managers and may designate one or more Managers as alternate
members of a committee, who may replace any absent member at any meeting of the
committee.

                    7.2.8.2   Powers. Subject to the provisions of the
Corporations Code and any limitations contained in this Agreement, each such
committee shall have such authority as shall be delegated to it by resolution of
the Managers. The foregoing notwithstanding, no committee or committees, singly
or in the aggregate, shall have any authority with respect to:

                              a)   the approval of any action for which
applicable law or this Agreement also requires approval by the Members;

                                       9
<PAGE>

                              (b)  the filling of vacancies on the Board of
Managers or on any committee;

                              (c)  the fixing of compensation of the Managers
for serving on the Board of Managers or on any committee;

                              (d)  the amendment or repeal of any resolution of
the Managers;

                              (e)  any distribution to the Members; and

                              (f)  the appointment of other committees of the
Board of Managers or other members thereof.

                    7.2.8.3   Procedures. The provisions of this Agreement
relating to meetings of the Board of Managers shall apply to meetings of each
committee, substituting the word "committee" wherever the words "Board of
Managers" or "Managers" appear, unless the context requires otherwise. Subject
to the foregoing, the procedures for notice and conduct of meetings of each
committee shall be as prescribed by the Managers or, in the absence of
prescription by the Managers, as prescribed by the committee.

     7.3  Officers.

          7.3.1     Appointment of Officers. The Managers may appoint officers
                    -----------------------
at any time. The officers of the Company, if deemed necessary by the Managers,
may include a Chairperson, President, Vice President, Secretary, and Chief
Financial Officer. The officers shall serve at the pleasure of the Managers,
subject to all rights, if any, of an officer under any contract of employment.
Any individual may hold any number of offices. An officer need not be a Member,
a resident of the State of California or citizen of the United States. The
officers shall exercise such powers and perform such duties as specified in this
Agreement and as shall be determined from time to time by the Managers, or, if
no such duties are specified, shall be as provided in Schedule 7.3.1. In
                                                      --------------
addition to the powers and duties specifically prescribed for the respective
officers, the Managers may from time to time by resolution impose or confer upon
any of the officers such additional duties and powers as the Managers may see
fit, and/or determine the order of seniority among the officers.  Any such
resolution may be final, subject only to further action by the Managers, or the
resolution may grant such discretion, as the Managers deems appropriate, to the
Chairman of the Board or to the President (or in his absence the Vice President
serving in his place) to impose or confer additional duties and powers and to
determine the order of seniority among officers.  The Managers, the Chairman of
the Board or the President may designate any officer or officers to substitute
for and assume the duties, powers and authority of any absent officer or
officers in any instances not provided for above.

          7.3.2     Removal, Resignation and Filing of Vacancy of Officers.  Any
                    ------------------------------------------------------
officer may be removed, either with or without cause, by the Managers at any
time.  Any officer may resign at any time by giving written notice to the
Managers.  Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective.  Any resignation or removal is without prejudice
to the rights, if any, of the parties under any contract to which the officer is
a party.  A vacancy in any office because of death, resignation,

                                       10
<PAGE>

removal, disqualification or any other cause shall be filled in the manner
prescribed in this Agreement for regular appointments to that office.

          7.3.3     Acts of Officers as Conclusive Evidence of Authority.  Any
                    ----------------------------------------------------
check, note, mortgage, evidence of indebtedness, contract, certificate,
statement, conveyance, or other instrument in writing, and any assignment or
endorsement thereof, executed or entered into between the Company and any other
Person, when signed by any two officers, one of which must be the President or a
Vice President of the Company is not invalidated as to the Company by any lack
of authority of the signing officer(s) in the absence of actual knowledge on the
part of the other Person that the signing officer(s) had no authority to execute
the same.

          7.3.4     Signing Authority of Officers.  Subject to any restrictions
                    -----------------------------
imposed by the Managers, any officer, acting alone, is authorized to endorse
checks, drafts, and other evidences of indebtedness made payable to the order of
the Company, but only for the purpose of deposit into the Company's accounts.
All checks, drafts, and other instruments obligating the Company to pay money in
an amount less than $10,000 to the same payee in any sixty (60) day period may
be signed by any one officer acting alone.  All checks, drafts, and other
instruments obligating the Company to pay money in an amount of $10,000 or more
to the same payee in any sixty (60) day period must be signed on behalf of the
Company by any two officers acting together.  Any one officer, acting alone,
shall be authorized to sign contracts and obligations on behalf of the Company,
in accordance with the other terms and conditions of this Operating Agreement.

     7.4  General.

          7.4.1     Limited Liability.  Except as required under the Act or as
                    -----------------
expressly set forth in this Agreement, no person shall be personally liable for
any debt, obligation or liability of the Company, whether that liability or
obligation arises in contract, tort or otherwise, solely by reason of being a
Company Person.

          7.4.2     Performance of Duties; Liability of Company Persons.  No
                    ---------------------------------------------------
Company Person or officer shall be liable to the Company or to any Member for
any loss or damage sustained by the Company or any Member, unless the loss or
damage shall have been the result of fraud, deceit, gross negligence, reckless
or intentional misconduct, or a knowing violation of law by the Company Person.

          7.4.3     Devotion of Time.  Except as required by any individual
                    ----------------
contract, no Company Person is obligated to devote all of his or her time or
business efforts to the affairs of the Company, but shall devote such time,
effort and skill as he or she deems appropriate for the operation of the
Company.

          7.4.4     Competing Activities.  Except as provided by any applicable
                    --------------------
individual contract, any Company Person (and their respective officers,
directors, shareholders, partners, members, managers, agents and Affiliates) may
engage or invest in, independently or with others, any business activity of any
type or description, including those that might be the same as or similar to the
Company's business and that might be in direct or indirect competition with the
Company.  Neither the Company nor any Member shall have any right in or to such
other ventures or activities or to the income or proceeds derived therefrom.
Except as provided by any applicable individual contract, no Company Person
shall be obligated to present any investment opportunity or prospective economic
advantage to the Company, even if the opportunity is of the character that, if
presented to the Company, could be taken by the Company.

                                       11
<PAGE>

          7.4.5     Payments to Company Persons.  Except as specified in this
                    ---------------------------
Agreement or as provided by a written agreement or otherwise approved by the
Managers, no Company Person in his or her capacity as such is entitled to
remuneration for services rendered or for reimbursement for overhead expenses
including, without limitation, rent and general office expenses.  The Managers
may be paid their expenses of attending each meeting of the Board of Managers.
In addition, the Managers may from time to time, in its discretion, pay to
Managers a fixed sum for attendance at each meeting of the Board of Managers or
may pay a stated fee for services as a director.  No such payment shall preclude
any director from serving the Company in any other capacity and receiving
compensation therefor.  Members of special or standing committees may be allowed
like reimbursement and compensation for attending committee meetings.

8.   Transfer and Assignment of Interests

     8.1  Transfer and Assignment of Interests.  No Member shall be entitled to
Transfer all or any part of its Membership Interest, unless all of the following
conditions have been met: (a) the Company shall have received written notice of
the proposed Transfer, setting forth the circumstances and details thereof; (b)
the Company shall (at its option) have received an attorney's written opinion,
in a form reasonably satisfactory to the Company, specifying the nature and
circumstances of the proposed Transfer, and based on such facts stating that the
proposed Transfer will not be in violation of any of the registration provisions
of the Securities Act of 1933, as amended, or any applicable state securities
laws; (c) the Company shall have received from the Transferee (and any
Transferee's spouse if such spouse might receive a community property interest
in the Units) a written consent to be bound by all of the terms and conditions
of this Agreement in form satisfactory to the Company; (d) the Transfer could
not cause the termination of the Company or make it a publicly traded
partnership under the Code, as determined by the Managers; (e) the Company is
reimbursed upon request for its reasonable expenses in connection with the
Transfer; and (f) the Transfer complies with all other applicable requirements
of this Agreement.

     8.2  Effect of Non Compliance.  Transfers or assignments in violation of
this Article 8 shall be null and void ab initio.  After the consummation of any
                                      -- ------
transfer or assignment of any part of a Membership Interest in accordance with
this Article 8, the Membership Interest so transferred or assigned shall
continue to be subject to the terms and provisions of this Agreement and any
further transfers or assignments shall be required to comply with all the terms
and provisions of this Agreement.

     8.3  Effective Date of Permitted Transfers.  Any permitted transfer of all
or any portion of a Membership Interest shall be effective as of the date upon
which the requirements of Section 8.1 have been met.

9.   Termination and Withdrawal of Members and Other Matter

     9.1  Withdrawals, Resignations or Retirements.  Except as required by law,
no Class B Member may withdraw, resign or retire from the Company without the
consent of the Members.  Any Class A Units may be redeemed by the Company at any
time in exchange for an amount of cash equal to its Liquidation Preference.

     9.2  Offer to Convert.  The Managers may offer to convert the Class A Units
to Class B Units, at a price per Unit to be determined by the Board of Managers.
If the Managers offer to convert the Class A Units into Class B Units as
described in the prior sentence, the Company shall

                                       12
<PAGE>

deliver a notice to each holder of Class A Units setting forth such offer as
soon as practical, together with calculations of the Liquidation Preference of
such holder's Class A Units, the conversion price for each Class B Units, and
the number of Class B Units distributable to such holder in respect of such
holder's Class A Units. Such notice shall be deemed delivered upon personal
delivery, or seven days after deposit in the United States mail, by registered
or certified mail, addressed to a party at its address as shown in the Company's
records. No later than ten days after delivery of the notice, each holder of
Class A Units may deliver an election to the Company notifying the Company that
the holder desires to receive cash rather than having such holder's Class A
Units being converted into Class B Units. If no such election is received by
this Company within such ten day period, such holder shall be deemed to have
accepted the offer and shall receive Class B Units as provided for under this
Section 9.2. If such election is so delivered to the Company within such ten day
period, such holder shall be entitled to receive, as and when (and to the
extent) funds become legally available therefore, cash in the amount of the
aggregate Liquidation Preference a such holder's Class A Units, together with
interest on the unpaid balance thereof to and including the date of payment at
the Applicable Rate.

     9.3  Exchange of Units for MRC Stock.  The Managers shall have the right to
exchange units of the company for shares of stock in MRC upon such terms and
conditions to be determined by the managers from time to time.

10.  Accounting, Records, Reporting by Members

     10.1 Books and Records.  The books and records of the Company shall be
kept, and the financial position and the results of its operations recorded in
accordance with the accounting methods followed for federal income tax purposes
for income allocation and distribution purposes.  The books and records of the
Company shall reflect all the Company transactions and shall be appropriate and
adequate for the Company's business.  The Company shall maintain at its
principal office in California all of the following:

          10.1.1    A current list of the full name and last known business or
residence address of each Member set forth in alphabetical order, together with
the Class of Units, Capital Contributions, Capital Account and Percentage
Interest of each Member;

          10.1.2    A current list of the full name and business or residence
address of each officer;

          10.1.3    A copy of the Articles and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which the
Articles or any amendments thereto have been executed;

          10.1.4    Copies of the Company's federal, state, and local income tax
or information returns and reports, if any, for the six most recent taxable
years;

          10.1.5    A copy of this Agreement and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which this
Agreement or any amendments thereto have been executed;

          10.1.6    Copies of the financial statements of the Company, if any,
for the six most recent Fiscal Years; and

                                       13
<PAGE>

          10.1.7    The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four Fiscal
Years.

     10.2 Delivery to Members and Inspection.

          10.2.1    Copy of Agreement.  Upon the request of any Member for
                    -----------------
purposes reasonably related to the interest of that Person as a Member, any
officer shall promptly deliver to the requesting Member, at the expense of the
Company, a copy of the information required to be maintained by Sections
10.1.1,10.1.2, and 10.1.3, and a copy of this Agreement.

          10.2.2    Inspection Rights; Tax Returns.  Each Member has the right,
                    ------------------------------
upon reasonable request for purposes reasonably related to the interest of the
Person as Member, to:

                    10.2.2.1  inspect and copy, at its own expense and during
normal business hours, any of the Company records described in Sections 10.1.1
through 10.1.7; and

                    10.2.2.2  obtain from any officer, promptly after their
becoming available, a copy of the Company's federal, state, and local income tax
or information returns for each Fiscal Year.

          10.2.3    Agents Permitted.  Any request, inspection or copying by a
                    ----------------
Member under this Section 10.2 may be made by the Member or his or her agent or
attorney, subject to any reasonable confidentiality arrangements requested by
the Company.

     10.3 Annual Statements.

          10.3.1    Annual Report.  The Chief Financial Officer shall cause an
                    -------------
annual report to be sent to each of the Members not later than 120 days after
the close of the Fiscal Year.  The report shall contain a balance sheet as of
the end of the Fiscal Year and an income statement and statement of changes in
financial position for the Fiscal Year.  Such financial statements shall be
accompanied by the report thereon of the independent accountants (if any)
engaged by the Company.

          10.3.2    Tax Information.  The Chief Financial Officer shall cause to
                    ---------------
be prepared at least annually, at Company expense, information necessary for the
preparation of the Members' federal and state income tax returns.  The Chief
Financial Officer shall send or cause to be sent to each Member within 90 days
after the end of each taxable year such information as is necessary to complete
federal and state income tax or information returns, and, if the Company has 35
or fewer Members, a copy of the Company's federal, state, and local income tax
or information returns for that year.

          10.3.3    Annual State Report.  The President shall cause to be filed
                    -------------------
at least annually with the California Secretary of State the statement required
under Corporations Code (S)17060.

     10.4 Filings.  The Chief Financial Officer, at Company expense, shall cause
the income tax returns for the Company to be prepared and timely filed with the
appropriate authorities.  The President or any other officer, at Company
expense, shall cause to be prepared and timely filed, with appropriate federal
and state regulatory and administrative bodies, amendments to, or restatements
of, the Articles and all reports required to be filed by the Company with those
entities under the Act or other then current applicable laws, rules, and
regulations.  If an officer required by the Act to

                                       14
<PAGE>

execute or file any document fails, after demand, to do so within a reasonable
period of time or refuses to do so, any other officer or Member may prepare,
execute and file that document with the California Secretary of State.

     10.5 Bank Accounts.  The Chief Financial Officer shall maintain the funds
of the Company in one or more separate bank accounts in the name of the Company,
and shall not permit the funds of the Company to be commingled in any fashion
with the funds of any other Person.

     10.6 Accounting Decisions and Reliance on Others.  Subject to review by the
Managers, decisions as to accounting matters, except as otherwise specifically
set forth herein, shall be made by the Chief Financial Officer.  The Managers
may rely upon recommendations by the Chief Financial Officer or the advice of
the Company's accountants.

     10.7 Tax Matters for the Company Handled by the Managers and Tax Matters
Partner.  The Managers shall from time to time cause the Company to make such
tax elections as the Managers deem to be in the best interests of the Company
and the Members.  The Tax Matters Partner, as defined in Code Section 6231,
shall represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including resulting
judicial and administrative proceedings, and shall expend the Company funds for
professional services and costs associated therewith.  The Tax Matters Partner
shall oversee the Company tax affairs in the overall best interests of the
Company.  Members holding a Majority may designate another Person to be Tax
Matters Partner at any time.

11.  Dissolution and Winding Up

     11.1 Dissolution.  The Company shall be dissolved, its assets shall be
disposed of, and its affairs wound up on the first to occur of the following:

          11.1.1    The happening of any event of dissolution specified in the
Articles;

          11.1.2    The entry of a decree of judicial dissolution pursuant to
Section 17351 of the Corporations Code;

          11.1.3    The vote of Members;

          11.1.4    The expiration of the period fixed for the duration of the
Company.

     11.2 Certificate of Dissolution.  As soon as possible following the
occurrence of any of the events specified in Section 11.1, the Managers shall,
and if they fail to do so within 90 days, any Member may, execute a Certificate
of Dissolution in such form as shall be prescribed by the California Secretary
of State and file the Certificate as required by the Act.

     11.3 Winding Up.  Upon the occurrence of any event specified in Section
11.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets, and satisfying the claims
of its creditors.  The Managers (or if they cannot do so, any Member may) shall
be responsible for overseeing the winding up and liquidation of Company, shall
take full account of the liabilities and assets of the Company, shall either
cause its assets to be sold or distributed, and if sold as promptly as is
consistent with obtaining the fair market value thereof, shall cause the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed as provided in Section 11.5.  The Persons winding up the affairs of
the Company shall

                                       15
<PAGE>

give written notice of the commencement of winding up by mail to all known
creditors and claimants whose addresses appear on the records of the Company.
The Persons winding up the affairs of the Company shall be entitled to
reasonable compensation for such services.

     11.4 Distributions in Kind.  Any non-cash asset distributed to one or more
Members shall first be valued at its fair market value to determine the Net
Profit or Net Loss that would have resulted if such asset were sold for such
value, such Net Profit or Net Loss shall then be allocated pursuant to Article
4, and the Members' Capital Accounts shall be adjusted to reflect such
allocations.  The amount distributed and charged to the Capital Account of each
Member receiving an interest in such distributed asset shall be the fair market
value of such interest (net of any liability secured by such asset that such
Member assumes or takes subject to).  The fair market value of such asset shall
be determined by the Managers or by the Members or if any Member objects by an
independent appraiser (any such appraiser must be recognized as an expert in
valuing the type of asset involved) selected by the Managers or liquidating
trustee and approved by the Members.

     11.5 Order of Payment of Liabilities upon Dissolution.  After determining
that all known debts and liabilities of the Company in the process of winding-
up, including, without limitation, debts and liabilities to Members who are
creditors of the Company, have been paid or adequately provided for, the
remaining assets shall be distributed to the Members in accordance Article 5,
after taking into account income and loss allocations for the Company's taxable
year during which liquidation occurs.  Such liquidating distributions shall be
made by the end of the Company's taxable year in which the Company is
liquidated, or, if later, within ninety (90) days after the date of such
liquidation.

     11.6 Compliance with Regulations.  All payments to the Members upon the
winding up and dissolution of the Company shall be strictly in accordance with
the positive capital account balance limitation and other requirements of
Regulations Section 1.704-1 (b)(2)(ii)(d).

     11.7 Limitations on Payments Made in Dissolution.  Except as otherwise
specifically provided in this Agreement, each Member shall be entitled to look
solely at the assets of the Company for the return of its positive Capital
Account balance and shall have no recourse for such Member's Capital
Contribution and/or share of Net Profits (upon dissolution or otherwise) against
the officers, or any other Member except as provided in Article 12.

     11.8 Certificate of Cancellation.  The Persons who filed the Certificate of
Dissolution shall cause to be filed in the office of, and on a form prescribed
by, the California Secretary of State, a certificate of cancellation of the
Articles upon the completion of the winding up of the affairs of the Company.

     11.9 No Action for Dissolution.  No Member has any interest in specific
property of the Company.  Without limiting the foregoing, each Member
irrevocably waives during the term of the Company any right that it may have to
maintain any action for partition with respect to the property of the Company.
Except as expressly permitted in this Agreement, a Member shall not take any
voluntary action that directly causes a Dissolution Event.  The Members
acknowledge that irreparable damage would be done to the goodwill and reputation
of the Company if any Member should bring an action in court to dissolve the
Company under circumstances where dissolution is not provided for by Section
11.1.  This Agreement has been drawn carefully to provide fair treatment of all
parties and equitable payment in liquidation of the Company.  Accordingly,
except where the Members have failed to liquidate the Company as required by
this Article 11, each Member hereby waives and renounces such Member's right to
initiate legal action to seek the appointment of a

                                       16
<PAGE>

receiver or trustee to liquidate the Company or to seek a decree of judicial
dissolution of the Company on the ground that (a) it is not reasonably
practicable to carry on the business of the Company in conformity with the
Articles or this Agreement, or (b) dissolution is reasonably necessary for the
protection of the rights or interests of the complaining Member.

12.  Indemnification and Insurance

     12.1 Indemnification of Company Persons.  The Company shall indemnify any
Company Person who was or is a party or is threatened to be made a party to, or
otherwise becomes involved in, any Proceeding (including a Proceeding by or in
the right of the Company) by reason of the fact that such Company Person, is or
was an agent of the Company against all Expenses, amounts paid in settlement,
judgments, fines, penalties and ERISA excise taxes actually and reasonably
incurred by or levied against such Company Person in connection with such
Proceeding if such Company Person acted in good faith and in a manner such
Company Person reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe such Company Person's conduct was unlawful.  The termination of
any Proceeding, whether by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that a Company Person did not act in good faith and in a manner
which it reasonably believed to be in or not opposed to the best interests of
the Company or, with respect to any criminal Proceeding, that a Company Person
had reasonable cause to believe that such Company Person's conduct was unlawful.
To the fullest extent permitted by applicable law, a Company Person shall be
conclusively presumed to have met the relevant standards of conduct, as defined
by the laws of the State of California or other applicable jurisdictions, for
indemnification pursuant to this Section 12.1, unless and until a court of
competent jurisdiction, after all appeals, finally determines to the contrary,
and the Company shall bear the burden of proof of establishing by clear and
convincing evidence that such Company Person failed to meet such standards of
conduct. In any event, the Company Person shall be entitled to indemnification
from the Company to the fullest extent permitted by applicable law, including,
without limitation, any amendments thereto subsequent to the date of this
Agreement that increase the protection of Company Persons allowable under such
laws.

     12.2 Successful Defense.  Notwithstanding any other provision of this
Agreement, to the extent that a Company Person has been successful on the merits
or otherwise in defense of any Proceeding referred to in Section 12.1, or in
defense of any claim, issue or matter therein, such Company Person shall be
indemnified against Expenses actually and reasonably incurred in connection
therewith to the fullest extent permitted by the laws of California or other
applicable jurisdictions, including, without limitation, any amendments thereto
subsequent to the date of this Agreement that increase the protection of Company
Persons allowable under such laws.

     12.3 Indemnification of Other Agents.  The Company may, but shall not be
obligated to, indemnify any Person (other than a Company Person) who was or is a
party or is threatened to be made a party to, or otherwise becomes involved in,
any Proceeding (including any Proceeding by or in the right of the Company) by
reason of the fact that such Person is or was an agent of the Company, against
all Expenses, amounts paid in settlement, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by such Person in connection with
such Proceeding under the same circumstances and to the same extent as is
provided for or permitted in this Article 12 with respect to a Company Person,
or with respect to such circumstances and on such terms as the Managers may
determine.

                                       17
<PAGE>

     12.4 Right to Indemnification upon Application.

          12.4.1    Timing.  Any indemnification or advance under Sections 12.1,
                    ------
12.3, or 12.5 shall be made promptly, and in no event later than sixty (60)
days, after the Company's receipt of the written request of a Company Person
therefor, unless, in the case of an indemnification, a determination shall have
been made as provided in Section 12.1 that such Company Person has not met the
relevant standard for indemnification set forth in that Section.

          12.4.2    Enforcement.  The right of a Person to indemnification or an
                    -----------
advance of Expenses as provided by this Article 12 shall be enforceable in any
court of competent jurisdiction.  The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company.  Neither the failure by the Managers or Members of the Company or its
independent legal counsel to have made a determination that indemnification or
an advance is proper in the circumstances, nor any actual determination by the
Managers or Members of the Company or its independent legal counsel that
indemnification or an advance is not proper, shall be a defense to the action or
create a presumption that the relevant standard of conduct has not been met.  In
any such action, the Person seeking indemnification or advancement of Expenses
shall be entitled to recover from the Company any and all expenses of the types
described in the definition of Expenses actually and reasonably incurred by such
Person in such action, but only if such Person prevails therein.  A Person's
Expenses incurred in connection with any Proceeding concerning such Person's
right to indemnification or advances in whole or in part pursuant to this
Agreement shall also be indemnified by the Company regardless of the outcome of
such a Proceeding, unless a court of competent jurisdiction finally determines
that each of the material assertions made by such Person in the Proceeding was
not made in good faith or was frivolous.

     12.5 Payment of Expenses in Advance.  Expenses incurred by a Company Person
in connection with a Proceeding shall be paid by the Company in advance of the
final disposition of such Proceeding upon receipt of a written undertaking by or
on behalf of such Company Person to repay such amount if it shall ultimately be
determined that such Company Person is not entitled to be indemnified by the
Company as authorized in this Article 12.

     12.6 Limitations on Indemnification.  No payments pursuant to this
Agreement shall be made by the Company:

          12.6.1    To indemnify or advance funds to any Person with respect to
a Proceeding initiated or brought voluntarily by such Person and not by way of
defense, except as provided in Section 134 with respect to a Proceeding brought
to establish or enforce a right to indemnification under this Agreement,
otherwise than as required under California law, but indemnification or
advancement of Expenses may be provided by the Company in specific cases if a
determination is made that such indemnification or advancement is appropriate.
The determination as to whether any such indemnification or advancement of
Expenses is appropriate shall be made (i) by the Managers by a majority vote of
a quorum consisting of Managers who were not parties to such Proceeding, or (ii)
if such quorum is not obtainable or, even if obtainable, a quorum of such
disinterested Managers so directs, by independent legal counsel in a written
opinion, or (iii) by the Members by a vote of a Majority of Members, whether or
not constituting a quorum, who were not parties to such Proceeding;

          12.6.2    To indemnify or advance funds to any Person for any
Expenses, judgments, amounts paid in settlement, fines, penalties or ERISA
excise taxes resulting from the such Person's

                                       18
<PAGE>

conduct which is finally adjudged to have been willful misconduct, knowingly
fraudulent or deliberately dishonest; or

          12.6.3    If a court of competent jurisdiction finally determines that
any indemnification or advance of Expenses hereunder is unlawful.

     12.7 Other Terms of Indemnification.

          12.7.1    Partial Indemnification.  If a Person is entitled under any
                    -----------------------
provision of this Article 128 to indemnification by the Company for a portion of
Expenses, amounts paid in settlement, judgments, fines, penalties or ERISA
excise taxes incurred by such Person in any Proceeding but not, however, for the
total amount thereof, the Company shall nevertheless indemnify such Person for
the portion of such Expenses, amounts paid in settlement, judgments, fines,
penalties or ERISA excise taxes to which such Person is entitled, except that no
indemnification shall be given for Expenses in connection with a Proceeding
brought by the Company if the Person is found liable on any portion of the
claims in such Proceeding.

          12.7.2    Indemnity Not Exclusive.  The indemnification and
                    -----------------------
advancement of Expenses provided by, or granted pursuant to, the provisions of
this Article 12, shall not be deemed exclusive of any rights to which any Person
seeking indemnification or advancement of Expenses may be entitled under any
agreement, vote of Members, determination of the Board, or otherwise, both as to
action in such Person's capacity as an agent of the Company and as to action in
another capacity while serving as an agent.  Any repeal or modification hereof
or thereof shall not affect any such rights then existing.

          12.7.3    Insurance.  The Company shall have the power to purchase and
                    ---------
maintain insurance or other financial arrangement on behalf of any Person who is
or was an agent of the Company against any liability asserted against such
Person and incurred by such Person in any such capacity, or arising out of such
Person's status as an agent, whether or not the Company would have the power to
indemnify such Person against such liability under the provisions of this
Article 12 or of Section 17155 of the Act.  In the event a Person shall receive
payment from any insurance carrier or from the plaintiff in any action against
such Person with respect to indemnified amounts after payment on account of all
or part of such indemnified amounts having been made by the Company pursuant to
this Article 12, such Person shall reimburse the Company for the amount, if any,
by which the sum of such payment by such insurance carrier or such plaintiff and
payments by the Company to such Person exceeds such indemnified amounts;
provided, however, that such portions, if any, of such insurance proceeds that
are required to be reimbursed to the insurance carrier under the terms of its
insurance policy shall not be deemed to be payments to such Person hereunder. In
addition, upon payment of indemnified amounts under the terms and conditions of
this Agreement, the Company shall be subrogated to such Person's rights against
any insurance carrier with respect to such indemnified amounts (to the extent
permitted under such insurance policies).  Such right of subrogation shall be
terminated upon receipt by the Company of the amount to be reimbursed by such
Person pursuant to the second sentence of this Section 12.7.3.

          12.7.4    Heirs, Executors and Administrators.  The indemnification
                    -----------------------------------
and advancement of Expenses provided by, or granted pursuant to, this Article 12
shall, unless otherwise provided when authorized or ratified, continue as to a
Person who has ceased to be an agent of the Company and shall inure to the
benefit of such Person's heirs, executors and administrators.

                                       19
<PAGE>

13.  Miscellaneous

     13.1 Counsel to the Company.  Counsel to the Company may also be counsel to
any Member or any Affiliate of a Member, and the Members waive any right to
disqualify such counsel for representing any Member.  The officers of the
Company may execute on behalf of the Company and the Members any consent to the
representation of the Company that counsel may request pursuant to the
California Rules of Professional Conduct or similar rules in any other
jurisdiction.  The Members understand and knowledge that the law firm of Guth
Rothman & Christopher LLP and the general counsel of Kaiser Ventures Inc. have
acted as counsel to the Company and to Kaiser Ventures Inc. (and its
subsidiaries) and hereby waive any conflicts of interest that may currently
exist or arise in the future in connection with its representation of these
entities, or other entities may be formed by Kaiser Ventures Inc.  Further, the
Company and the Members agree not to, in any way seek to disqualify the general
counsel of Kaiser Ventures Inc. or Guth Rothman & Christopher LLP from
representing Kaiser Ventures Inc. as a result of this joint representation.

     13.2 General Provisions.

          13.2.1    Complete Agreement.  This Agreement and any documents
                    ------------------
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all prior or contemporaneous agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof.  To the extent that any provision of the Articles
conflicts with any provision of this Agreement, the Articles shall control.

          13.2.2    Additional Documents.  Each party hereto agrees to execute
                    --------------------
any and all further documents and writings and to perform such other actions
which may be or become necessary or expedient to effectuate and carry out this
Agreement.

          13.2.3    Notices.  Unless otherwise specifically permitted by this
                    -------
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, telecopy, federal express or comparable overnight
service or certified mail (if such service is not available, then by first class
mail), postage prepaid, to such address as may be designated from time to time
by the relevant party, and which shall initially be as set forth on Exhibit "A".
                                                                    -----------

All other notices shall be deemed given when received.  No objection may be made
to the manner of delivery of any notice actually received in writing by an
authorized agent of a party.

          13.2.4    Parties.
                    -------

                    13.2.4.1  No Third-Party Benefits. None of the provisions of
this Agreement shall be for the benefit of, or enforceable by, any third party.

                    13.2.4.2  Successors and Assigns. Except as provided herein
to the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.

          13.2.5    Disputes.
                    --------

                    13.2.5.1  Governing Law; Jurisdiction. This Agreement has
been negotiated and entered into in the State of California, concerns a
California business and all questions with respect to the Agreement and the
rights and liabilities of the parties will be governed

                                       20
<PAGE>

by the laws of that state, regardless of the choice of law provisions of
California or any other jurisdiction. Any and all disputes between the parties
which may arise pursuant to this Agreement not covered by arbitration will be
heard and determined before an appropriate federal or state court located in Los
Angeles, California. The parties hereto acknowledge that such court has the
jurisdiction to interpret and enforce the provisions of this Agreement and the
parties waive any and all objections that they may have as to personal
jurisdiction or venue in any of the above courts.

                    13.2.5.2  Arbitration as Exclusive Remedy. Except for
actions seeking injunctive relief, which may be brought before any court having
jurisdiction, any claim arising out of or relating to (i) this Agreement,
including its validity, interpretation, enforceability or breach, or (ii) the
relationship between the parties (including its commencement and termination)
whether based on breach of covenant, breach of an implied covenant or
intentional infliction of emotional distress or other tort of contract theories,
which are not settled by agreement between the parties, shall be settled by
arbitration in Los Angeles, California by the Judicial Arbitration and Mediation
Service. Each party agrees that the arbitration provisions of this Agreement are
its exclusive remedy and expressly waives any right to seek redress in another
forum. Each party shall bear the fees of the arbitrator appointed by it, and the
fees of the neutral arbitrators shall be borne equally by each party during the
arbitration, but the fees of all arbitrators shall be borne by the losing party.

                    13.2.5.3  Waiver of Jury. WITH RESPECT TO ANY DISPUTE
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, AS
TO WHICH NO MEMBER INVOKES THE RIGHT TO ARBITRATION HEREINABOVE PROVIDED, OR AS
TO WHICH LEGAL ACTION NEVERTHELESS OCCURS, EACH MEMBER HEREBY IRREVOCABLY WAIVES
ALL RIGHTS IT MAY HAVE TO DEMAND A JURY TRIAL, INCLUDING ITS CONSTITUTIONAL
RIGHTS. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE
MEMBERS AND EACH MEMBER ACKNOWLEDGES THAT NONE OF THE OTHER MEMBERS NOR ANY
PERSON ACTING ON BEHALF OF THE OTHER PARTIES HAS MADE ANY REPRESENTATION OF FACT
TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS
EFFECT. THE MEMBERS EACH FURTHER ACKNOWLEDGE THAT IT HAS BEEN REPRESENTED (OR
HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND
IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN
FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL. THE MEMBERS EACH FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS
THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION.

                    13.2.5.4  Attorneys' Fees. In any dispute between the
parties hereto or their representatives concerning any provision of this
Agreement or the rights and duties of any person or entity hereunder, the party
or parties prevailing in such dispute shall be entitled, in addition to such
other relief as may be granted, to the attorneys' fees and court costs incurred
by reason of such litigation.

          13.2.6    Waivers Strictly Construed.  With regard to any power,
                    --------------------------
remedy or right provided herein or otherwise available to any party hereunder
(i) no waiver or extension of time shall be effective unless expressly contained
in a writing signed by the waiving party; and (ii) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension of
time, delay or omission in exercise, or by any other indulgence.

                                       21
<PAGE>

          13.2.7    Rules of Construction.
                    ---------------------

                    13.2.7.1  Headings. The Article and Section headings in this
Agreement are inserted only as a matter of convenience, and in no way define,
limit, or interpret the scope of this Agreement or of any particular Article or
Section.

                    13.2.7.2  Tense and Case. Throughout this Agreement, as the
context may require, references to any word used in one tense or case shall
include all other appropriate tenses or cases, and the term "including" means
"including but not limited to."

                    13.2.7.3  Severability. The validity, legality or
enforceability of the remainder of this Agreement will not be affected even if
one or more of the provisions of this Agreement will be held to be invalid,
illegal or unenforceable in any respect.

                    13.2.7.4  Agreement Negotiated. The parties hereto are
sophisticated and have been represented by lawyers throughout this transaction
who have carefully negotiated the provisions hereof. As a consequence, the
parties do not believe that the presumptions of Civil Code Section 1654 and
similar laws or rules relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and therefore
waive their effects. Only the final executed version of this Agreement may be
admitted into evidence or used for any purpose, and drafts of this Agreement
shall be disregarded for all purposes.

          13.2.8    Counterparts.  This Agreement may be executed simultaneously
                    ------------
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

     13.3 Amendments.  All amendments to this Agreement shall be in writing and
approved by a Majority of each Class of Members voting separately; provided,
                                                                   ---------
however, that (a) no amendment shall become effective without the written
-------
consent of all of the Members if such amendment would (i) increase or extend the
liabilities or obligations of any Member or extend the term of this Agreement;
or (ii) amend this Section 13.4; and (b) without the specific written consent of
each Member affected thereby, no amendment shall reduce the Capital Account of
any Member, any Member's rights to distributions with respect thereto, any
Member's rights to withdraw from the Company, or any Member's interest in income
and losses of the Company.  The Managers (without action of Members) may modify
Exhibit "A" hereto at any time and from time to time to reflect the admission or
-----------
withdrawal of any Member, or the change in any Member's Capital Contributions,
or any changes in the Member's addresses, all as contemplated by this Agreement.

     13.4 Reliance on Authority of Person Signing Agreement.  If a Member is not
a natural person, neither the Company nor any Member will be required to
determine the authority of the individual signing this Agreement to make any
commitment or undertaking on behalf of such entity or to determine any fact or
circumstance bearing upon the existence of the authority of such individual.

     13.5 Investment Representation.  Each Member hereby represents and warrants
to, and agrees with, the other Members and the Company that he or she is
acquiring the Membership Interest for investment purposes for his or her own
account only and not with a view to or for sale in connection with any
distribution of all or any part of the Membership Interest.  No other person
will have any direct or indirect beneficial interest in or right to the
Membership Interest.

                                       22
<PAGE>

        Signature Page to Operating Agreement for Mine Reclamation, LLC

     IN WITNESS WHEREOF, all of the Members of Mine Reclamation, LLC, a
California limited liability company, have executed this Agreement, effective as
of the date written above.

                               "Members"
                               Mine Reclamation Corporation

                               By: /s/ Richard A. Daniels
                                   ----------------------------------
                                   Richard A. Daniels
                                   President & CEO

                                   /s/ Richard A. Daniels
                                   ----------------------------------
                                   Richard A. Daniels
                                   Individually

                                       23
<PAGE>

                                 Schedule "0"
                                 ------------

                                  Definitions

     When used in this Agreement, the capitalized terms shall have the meanings
set forth below or as set forth elsewhere in this Agreement):

     "Act" means the Beverly-Killea Limited Liability Company Act, codified in
the Corporations Code, Section 17000 et seq., as the same may be amended from
                                     -- ----
time to time.

     "Affiliate" means any individual, partnership, corporation, trust or other
entity or association, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with, a
Member.  The term "control," as used in the immediately preceding sentence,
means, with respect to a corporation or limited liability company, the right to
exercise, directly or indirectly, more than fifty percent (50%) of the voting
rights attributable to the controlled corporation or limited liability company
and, with respect to any individual, partnership, trust, other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.

     "Agreement" means this Operating Agreement, as originally executed and as
amended and/or restated from time to time.

     "Applicable Rate" means nine percent (9%) or such other rate of interest as
may be mutually agreed upon.

     "Articles" means the Articles of Organization for the Company originally
filed with the California Secretary of State, as amended and/or restated from
time to time.

     "Capital Account" means with respect to any Member the capital account that
the Company establishes and maintains for such Member pursuant to Section 3.

     "Capital Contribution" means the total value of cash and fair market value
(as determined by the Managers or as agreed upon by the Members under this
Agreement) of property (including promissory notes or other obligations to
contribute cash or property) or services contributed by Members.

     "Capital Interests" means the ratio of each Member's Capital Account to the
total of all Member's Capital Accounts at any time.

     "Code" means the Internal Revenue Code of 1986, as amended from time to
time, the provisions of succeeding law and to the extent applicable, the
Regulations.

     "Company" means Mine Reclamation, LLC, a California limited liability
company.

     "Company Person" means a Member, Manager (including ex-officio and
emeritus) or officer of the Company.

                                       1
<PAGE>

     "Corporations Code" means the California Corporations Code, as amended from
time to time, and the provisions of succeeding law.

     "Expenses" includes, without limitation, reasonable attorneys' fees,
disbursements and retainers, court costs, transcript costs, fees of accountants,
experts and witnesses, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, and all other expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, or being or preparing to be a
witness or other participant in a Proceeding.

     "Fiscal Year" means the Company's fiscal year, which shall be the calendar
year.

     "Liquidation Preference" for each Class B Unit means (i) $1,000 plus (ii)
the Preferred Distributions allocated to that Unit through the end of the prior
calendar quarter, less (iii) any Preferred Distributions actually distributed
with respect to that Unit under Section 5.3.2.

     "LLC Unit" has the meaning set forth in Section 1.1.

     "Majority" means one or more Percentage Interests of Members that, taken
together, exceed fifty percent (50%) of the aggregate of all Percentage
Interests of Units entitled to act on any matter; provided, however, that for
                                                  --------- -------
purposes of Section 11.1, "Majority" also requires more than fifty percent (50%)
                                     ----
of both the capital and profit interests in the Company (within the meaning of
such terms in Revenue Procedure 9446,1994-28 IRB 1) held by the Remaining
Members.

     "Manager" shall mean one or more managers who are designated from time to
time as provided in Section 7.2.

     "Member" means each Person who (a) is an initial signatory to this
Agreement, has been admitted to the Company as a Member in accordance with the
Articles and this Agreement or is an assignee who has become a Member in
accordance with Article 8 and (b) has not resigned, withdrawn, been expelled or
had all of its Units redeemed or transferred in accordance with this Agreement.
Holders of Class A Units are referred to as Class A Members, and holders of
Class B Units are referred to as Class B Members.

     "Membership Interest" means a Member's entire interest in the Company or
any portion thereof, including the Member's, the right to vote on or participate
in the management and the right to receive information concerning the business
and affairs of the Company.

     "Net Profits" and "Net Losses" means the income, gain, loss, deductions and
credits of the Company in the aggregate or separately stated, as appropriate,
determined in accordance with generally accepted accounting principles employed
under the method of accounting at the close of each Fiscal Year of the Company
on the Company's information tax return filed for federal income tax purposes.

     "Percentage Interest" means, as of any date and with respect to each
Member, that fraction, expressed as a percentage, having as its numerator the
number of Units (both Class A and Class B) then held by such Member and having
as its denominator the number

                                       2
<PAGE>

of Units (both Class A and Class B) then held by all Members. Where appropriate,
Percentage Interest may be calculated on a class by class basis.

     "Person" means an individual, general partnership, limited partnership,
limited liability company, corporation, trust, estate, real estate investment
trust association or any other entity.

     "Preferred Distributions" means an amount per Class A Unit each calendar
quarter equal to the sum of (i) $30 dollars, plus (ii) a return of 12 percent
per annum on any Preferred Distributions from prior calendar quarters which had
not been previously distributed to the holder of the Class A Unit.

     "Proceeding" means any action, suit, arbitration, alternative dispute
resolution mechanism, investigation, administrative hearing or other proceeding,
whether civil, criminal, administrative or investigative in nature, except a
proceeding initiated by a Person pursuant to Section 12.10(b) of this Agreement
to enforce such Person's rights under this Agreement.

     "Regulations" means, unless the context clearly indicates otherwise, the
regulations currently in force from time to time as final or temporary that have
been issued by the U.S. Department of Treasury pursuant to its authority under
the Code, as it may be amended from time to time.

     "Tax Matters Partner" shall be Mine Reclamation Corporation or its
successor as designated pursuant to Section 10.8.

     "Transfer" means any sale, transfer, assignment, hypothecation, encumbrance
or other disposition, whether voluntary or involuntary, whether by gift, bequest
or otherwise.  In the case of a hypothecation, the Transfer shall be deemed to
occur both at the time of the initial pledge and at any pledgee's sale or a sale
by any secured creditor.

                                       3
<PAGE>

                                Schedule 7.3.1
                                --------------

     Chairman of the Board. The Chairman of the Board, if there be such officer,
shall, if present, preside at all meetings of the Managers and shall exercise
and perform such other powers and duties as may be assigned from time to time to
the Chairman of the Board by the Managers. Whenever there is no President, the
Chairman of the Board shall have the powers and duties of the President.

     President. Subject to such supervisory powers, if any, as may be given by
the Managers to the Chairman of the Board, if there be such an officer, the
President shall be the general manager and chief executive officer of the
Company and, subject to the control of the Managers, shall supervise, direct and
control the business and affairs of the Company. He shall preside at all
meetings of the Members and, provided the President is also a Manager, in the
absence of the Chairman of the Board or if there be none, the President shall
preside at all meetings of the Managers. He shall have the general powers and
duties of management usually vested in the office of president of a corporation
and such other powers and duties as may be prescribed by the Managers or this
Agreement.

     Vice Presidents. The Vice Presidents shall have such powers and perform
such duties as from time to time may be prescribed for them respectively by the
Managers, the Chairman of the Board, the President or any other officer
supervising such Vice President. In the absence or disability of the President
and Chairman of the Board, a Vice President designated by the Managers shall
substitute for and assume the duties, powers and authority of the President.

     Secretary and Assistant Secretary.

          The Secretary shall attend all meetings of the Managers and all
meetings of the Members, shall record or cause to be recorded all votes and
minutes thereof, shall give notice of each meeting of the Members and Managers
requiring notice and shall perform such other duties as may be prescribed by the
Managers, the Chairman of the Board, or the President. The Secretary shall keep
in safe custody the seal of the Company and, when authorized by the Managers,
shall affix the same to any instrument.

          The Assistant Secretary shall perform such corporate secretarial
duties as may be prescribed by the Managers, the Chairman of the Board, the
President or the Secretary, and in the absence or disability of the Secretary
shall substitute for and assume the duties, powers and authority of the
Secretary.

     Chief and Subordinate Financial Officers.

          The Chief Financial Officer shall keep and maintain or cause to be
kept and maintained adequate and correct accounts of the properties and business
transactions of the Company, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital and retained earnings. The books
of account shall be open to inspection by all Managers at all reasonable times.
The Chief Financial Officer shall deposit or cause to be deposited all moneys
and other valuables in the name and to the credit of the Company with such
depositories as may be designated by the Managers. The Chief Financial Officer
shall

                                       1
<PAGE>

disburse or cause to be disbursed the funds of the Company as may be ordered by
the Managers. The Chief Financial Officer shall supervise the subordinate
financial officers.

          The subordinate financial officers, which may be a Treasurer, a
Controller and one or more Assistant Treasurers and Assistant Controllers, shall
perform such duties and exercise such powers as shall be delegated to them by
the Managers, the Chairman of the Board, the President or the Chief Financial
Officer.

                                       2
<PAGE>

                                  SCHEDULE I

     1.   Profits and Losses When Capital Accounts Exhausted.  In compliance
with applicable Regulations, if there are Net Losses at any time when no
Member's Capital Account is positive, then (i) if there is any Member
Nonrecourse Debt outstanding, any Member Nonrecourse Deductions shall be
specially allocated to the Member(s) who bears the economic risk of loss with
respect to that Member Nonrecourse Debt in accordance with Regulations Section
1.704-2(i) and Regulations Section 1.704-1(b), and (ii) all other deductions or
losses shall be allocated to the Members in accordance with their Percentage
Interests. Following any such allocations, except as otherwise provided in
Regulation Section 1 .704-2(i)(4) or 1.704-2(f) respectively, each Member who
has a share of any decrease in Member Minimum Gain (determined in accordance
with Regulations Section 1.704-2(i)(5)) or in Company Minimum Gain (determined
in accordance with Regulations Section 1.704-2(g)(2)) shall be specially
allocated items of Company income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to that portion of such
Member's share of such net decrease. Allocations pursuant to the previous
sentence shall be made in proportion to the amounts required to be allocated to
each Member pursuant thereto.  The items to be so allocated shall be determined
in accordance with (a) Regulations Section 1.704-2(i)(4) and 1.704-(j)(2) or (b)
Regulations 1 .704-2(f)(6) and 1 .704-(j)(2) as applicable.  This provision is
intended to comply with the minimum gain chargeback requirements contained in
the Regulations and shall be interpreted consistently therewith.

     2.   No Adjusted Capital Account Deficit.  Regardless of the other
provisions of this Agreement, no Member will be allocated any Net Losses to the
extent it would create or increase a deficit in that Member's Adjusted Capital
Account at the end of any Fiscal Year.  Any Net Losses not allocated because of
the preceding sentence shall be allocated as if the Member(s) affected were not
Member(s).  If, notwithstanding the prior sentence, any Member's Adjusted
Capital Account would be negative following a tentative allocation of Net Losses
and Net Profits under the other provisions of this Agreement, items of Company
income and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate that deficit.

     3.   Curative Allocations.  The allocations set forth in this Schedule I
                                                                   ----------
(the "Regulatory Allocations") are intended to comply with the Regulations.  To
the extent possible, the Members wish that the actual allocations made reflect
what would have happened without the effect of these Regulatory Allocations.
Therefore, except as prohibited by the Regulations, the Managers shall make such
offsetting special allocations of Company income, gain, loss, or deduction in
whatever manner it determines appropriate so that, after such offsetting
allocations are made, a Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of this Agreement.  In exercising its
discretion under this section, the Managers shall take into account any future
Regulatory Allocations that, although not yet made, are likely to offset
previous Regulatory Allocations.

                                       1
<PAGE>

     4.   Definitions.

     "Adjusted Capital Account" means, with respect to any Member, an amount
equal to such Member's Capital Account plus (a) any amounts that such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); plus (b) any Member Nonrecourse
Deductions or any Nonrecourse Deductions; and minus (c) the items described in
Regulations Sections 1.704-1 (b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5), and
1.704-1 (b)(2)(ii)(d)(6). This definition of Adjusted Capital Account is
intended to comply with Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

     "Company Minimum Gain" has the meaning ascribed to the term "Partnership
Minimum Gain" in Regulations Section 1.704-2(d).

     "Member Nonrecourse Debt" has the meaning ascribed to the term "Partner
Nonrecourse Debt" in Regulations Section 1.704-2(b)(4).

     "Member Minimum Gain" means an amount determined in accordance with
Regulations Section 1.704-2(i)(3) with respect to each Member Nonrecourse Debt
equal to the Company Minimum Gain that would result if such Member Nonrecourse
Debt were treated as a Nonrecourse Liability (as defined in Regulations Section
1.704-2(b)(3)).

     "Member Nonrecourse Deductions" means items of Company loss, deduction, or
Code Section 705(a)(2)(B) expenditures that are attributable to Company
Nonrecourse Debt or to other liability owed to a Member for which no other
Member bears the economic risk of loss.

     "Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and shall also include items of Company loss or deduction
referable to such Member's share (determined in accordance with the Member's
Percentage Interest) of outstanding recourse liabilities owed by the Company to
non-Members for which no Member bears any economic risk of loss.

                                       2
<PAGE>

                Other Schedules and Exhibits will be furnished

                          upon written request to the

                   Securities and Exchange Commission (SEC)

                                       1<PAGE>

                                                                   Exhibit 10.19
                                                                   =============

                             Kaiser Ventures Inc.

                         Board of Directors Stock Plan
<PAGE>

<TABLE>
<CAPTION>
Section                           Contents                                  Page
<S>                                                                         <C>
   1.      General Purpose of Plan; Definitions...........................   1

   2.      Administration.................................................   2

   3.      Stock Subject to Plan..........................................   2

   4.      Limitation in Stock Awards.....................................   3

   5.      Non-Employee Directors.........................................   3

   6.      Restricted Stock...............................................   3

   7.      Amendments and Termination.....................................   5

   8.      Unfunded Status of Plan........................................   5

   9.      General Provisions.............................................   5

   10.     Effective Date of Plan.........................................   6
</TABLE>

                                       i
<PAGE>

                             Kaiser Ventures Inc.
                         Board of Directors Stock Plan

SECTION 1.  General Purpose of Plan; Definitions.

     The name of this plan is the Kaiser Board of Directors Stock Plan (the
"Plan").  The purpose of the Plan is to enable Kaiser Ventures Inc. (the
"Company") to retain and attract Non-Employee Directors who contribute to the
Company's success by their ability, ingenuity and industry, and to enable such
individuals to participate in the long-term success and growth of the Company by
giving them a proprietary interest in the Company.  This Plan is a part of an
overall compensation program for Non-Employee Directors of the Company.

     For purposes of the Plan, the following terms shall be defined as set forth
below:

     a.   "Agreement" means an agreement by and between the Company and a
          ----------
recipient of an award under the Plan setting forth the terms and conditions of
the award.

     b.   "Board" means the Board of Directors of the Company as it may be
           -----
comprised from time to time.

     c.   "Cause" means a felony conviction of a participant or the failure of a
           -----
participant to contest prosecution for a felony, willful misconduct, dishonesty
or intentional violation of a statute, rule or regulation, any of which, in the
judgment of the Company, is harmful to the business or reputation of the
Company.

     d.   "Code" means the Internal Revenue Code of 1986, as amended from time
           ----
to time, or any successor statute.

     e.   "Committee" means the Committee referred to in Section 2 of the Plan.
           ---------
If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board, unless the Plan
specifically states otherwise.

     f.   "Company" means Kaiser Ventures Inc., a corporation organized under
           -------
the laws of the State of Delaware (or any successor entity).

     g.   "Disability" means permanent and total disability as determined by the
           ----------
Committee.

     h.   ""Fair Market Value" of Stock on any given date shall be determined by
            -----------------
the Committee as follows:  (a) if the Stock is listed for trading on one of more
national securities exchanges, or is traded on the Nasdaq Stock Market, the
average of the bid and ask prices for the Stock or the Nasdaq Small Cap Market,
the last reported sale on the principal such exchange or the Nasdaq Stock Market
for the five calendar days prior to and including the date in question, or if
such Stock shall not have been traded on such principal exchange on any such
date, the last reported sales price on such principal exchange or the Nasdaq
Stock Market on the first day prior thereto on which such Stock was so traded;
or (b) if the Stock is not listed for trading on a national securities exchange
or the Nasdaq Stock Market or the Nasdaq Small Cap Market, but is traded in the
over-the-counter market, including the Nasdaq OTC Bulletin Board System, the
closing bid price for such Stock on the date in question, or if there is no such
bid price for such Stock on such date, the closing bid price on the first day
prior thereto on which such price existed; or (c) if neither (a) or (b) is
applicable, by any means fair and reasonable by the Committee, which
determination shall be final and binding on all parties.

                                       1
<PAGE>

     i.   "Non-Employee Director" means a "Non-Employee Director" within the
           ---------------------
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.

     j.   "Outside Director" means a Director who: (a) is not a current employee
           -----------------
of the Company or any member of an affiliated group which includes the Company;
(b) is not a former employee of the Company who receives compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
taxable year; (c) has not been an officer of the Company; (d) does not receive
remuneration from the Company, either directly or indirectly, in any capacity
other than as a director, except as otherwise permitted under Code Section
162(m) and regulations thereunder.  For this purpose, remuneration includes any
payment in exchange for good or services.  This definition shall be further
governed by the provisions of Code Section 162(m) and regulations promulgated
thereunder.

     k.   "Restricted Stock" means an award of shares of Stock that are subject
           ----------------
to restrictions under Section 6 below.

     l.   "Stock" means the Common Stock, $.03 par value per share, of the
           -----
Company.

SECTION 2.  Administration.

     The Plan shall be administered by the Board of Directors or by a Committee
of at least two directors, all of whom shall be Non-Employee Directors and
Outside Directors, who shall serve at the pleasure of the Board.

     The Committee shall have the power and authority to grant pursuant to the
terms of this Plan Restricted Stock awards to Non-Employee Directors.

     In particular, the Committee shall have the authority:

     (i)  to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder (including, but not limited to, any
restriction on any Stock Restricted award and which authority shall be
exclusively vested in the Committee for purposes of establishing any performance
criteria that may be imposed in connection with Restricted Stock awards; and

     (ii) to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem advisable; to
interpret the terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.  The Committee may delegate to officers of the
Company the authority to exercise the powers specified in above.

     All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.

SECTION 3.  Stock Subject to Plan.

     (a)  Subject to the adjustments provided or allowed pursuant to this Plan,
the total number of shares of Stock reserved and available for distribution
under the Plan shall be limited to 25,000. Such shares may consist, in whole or
in part, of authorized and unissued shares.

                                       2
<PAGE>

     (b)  If any shares subject to any Restricted Stock award granted hereunder
are forfeited or such award otherwise terminates without receipt of the shares
by a  participant, such shares shall again be available for distribution in
connection with future awards under the Plan.

     (c)  In the event of any merger, reorganization, consolidation,
recapitalization, distribution, cash dividend or distribution (other than
regular reoccurring cash dividends), stock dividend, other change in corporate
structure affecting the Stock, or spin-off or other distribution of assets to
stockholders, such substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, and the number of Shares
or other securities subject to Restricted Stock awards granted under the Plan,
as may be determined to be appropriate by the Committee, in its sole discretion,
provided that the number of Shares subject to any award shall always be a whole
number.

SECTION 4.  Limitation in Stock Awards.

     No person shall receive grants of Stock under this Plan that exceed 1,500
shares during any fiscal year of the Company, and no person shall receive grants
totaling more than 7,500 shares under this Plan.

SECTION 5.  Non-Employee Directors.

     Each Non-Employee Director shall be entitled to Stock as provided in this
Section.  Each Non-Employee Director who, on or after the Plan's effective date,
is first elected, reelected, or serving an unexpired term as a member of the
Board, shall automatically be granted Restricted Stock as follows:

     (a)  One-Time Initial Grant.  Each Non-Employee Director shall, with the
Plan's effective date and on the date such Non-Employee Director is first
elected to the Board, be automatically granted 1,500 shares of Restricted Stock
(that "Initial Restricted Stock Grant").  The Initial Restricted Stock Grant
shall vest at such time or upon the occurrence of such events as specified in
this Plan, in any contract with a Non-Employee Director, or as specified in any
resolution approved by the Committee.  No more than one of Initial Restricted
Stock Grant may be granted to a Non-Employee Director, regardless of the number
or sequence of his or her terms as a member of the Board.

     (b)  Annual Grant.  Each Non-Employee Director who is reelected or serving
an unexpired term as a member of the Board at an annual meeting of holders of
stock of the Company occurring after the Plan's effective date and prior to July
1, 2010 shall, as of the date of such annual meeting, be automatically granted
750 shares of Restricted Stock at price equal to 100% of the Fair Market Value
of a share of Stock on the date of such award.  The annual Restricted Stock
grant shall vest at such time or upon the occurrence of such events as specified
in this Plan, in any contract with a Non-Employee Director, or as specified in
any resolution approved by the Committee.  Notwithstanding the foregoing, if
more than 14 calendar months have elapsed since the annual meeting of
shareholders, the Board may award the annual Restricted Stock grant at anytime
after such 14 months.  Any person who is first elected as a Non-Employee
Director at an annual meeting of shareholders shall, at such meeting, receive
the Initial Restricted Stock Grant of 1,500 shares described in subsection (i)
above and not the 750 Stock Restricted grant described in this subsection (ii).
There shall be no more than one annual Restricted Stock award every eleven
calendar months.

SECTION 6.  Restricted Stock.

     (a)  Awards and Certificates.  The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.

                                       3
<PAGE>

          (i)   Each participant shall be issued a stock certificate in respect
of shares of Restricted Stock awarded under the Plan. Such certificate shall be
registered in the name of the participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such award,
substantially in the following form:

                "The transferability of this certificate and the shares of stock
                represented hereby are subject to the terms and conditions
                (including forfeiture) of the Kaiser Ventures Inc. Board of
                Directors Stock Plan and an Agreement entered into between the
                registered owner and Kaiser Ventures Inc. Copies of such Plan
                and Agreement are on file in the offices of Kaiser Ventures
                Inc., 3633 East Island Empire Blvd., Suite 850, Ontario, CA
                91764."

          (ii)  The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.

     (b)  Restrictions and Conditions.  The Shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:

          (i)   Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such award (the
"Restriction Period"), the participant shall not be permitted to sell, transfer,
pledge, or assign shares of Restricted Stock awarded under the Plan.  Within
these limits, the Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.

          (ii)  Except as provided in subsection (b)(i) of this Section 6, the
participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company, including the right to vote the
shares and the right to receive any cash dividends or distributions.  The
Committee, in its sole discretion, may permit or require the payment of cash
dividends or distributions to be deferred.  Certificates for shares of
Restricted Stock shall be delivered to the grantee promptly after, and only
after, the period of forfeiture shall have expired or any other event
accelerating vesting shall have occurred without forfeiture in respect of such
shares of Restricted Stock.

          (iii) Subject to the provisions of the award agreement and subsection
(b)(iv) of this Section 6, upon a voluntary resignation from the Board of
Directors for any reason during the Restriction Period, all Restricted Stock
still subject to restriction shall be subject to forfeiture by the participant.

          (iv)  In the event of special hardship circumstances of a participant
whose service is terminated (other than for Cause), including death, Disability
or retirement, or in the event of an unforeseeable emergency of a participant
still in service, the Committee may, in its sole discretion, when it finds that
a waiver would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to such participant's shares of
Restricted Stock.

          (v)   Notwithstanding the foregoing, unless the Restricted Stock award
provides otherwise, the restrictions and conditions of a Restricted Stock Award
shall lapse for a period specified by the Company, but not to exceed sixty (60)
days prior to the occurrence of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the
Company or any similar occurrence; (ii) any merger, consolidation, acquisition,
separation, reorganization, or

                                       4
<PAGE>

similar occurrence, where the Company will not be the surviving entity; or (iii)
the transfer of a material portion of or substantially all of the assets of the
Company or 51% or more of the outstanding stock of the Company. The grant of a
Restricted Stock award pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassification, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

SECTION 7.  Amendments and Termination.

     The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Restricted Stock award theretofore granted,
without the optionee's or participant's consent.

     The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan.

SECTION 8.  Unfunded Status of Plan.

     The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation.  With respect to Restricted Stock not yet delivered to a
participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.  In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock with respect to awards hereunder, provided, however, that the
existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.

SECTION 9.  General Provisions.

     (a)  The Committee may require each person acquiring Restricted Stock under
the Plan to represent to and agree with the Company, in writing that the
participant is acquiring Restricted Stock without a view to distribution
thereof, and that the Restricted Stock under the Plan is not registered under
applicable securities laws and that the participant is a sophisticated and
knowledgeable investor.  The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer
including the legend specified in Section 6(a)(i)..

     All certificates for shares of Stock delivered under the Plan pursuant to
any Restricted Stock, award shall be subject to such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed, and any applicable
Federal or state securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference to such
restrictions.

     (b)  Subject to subsection (d) below, recipients of Restricted Stock under
the Plan are not required to make any payment or provide consideration other
than the rendering of services.

     (c)  Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.  The adoption
of this Plan shall not confer upon any person rights to continue service with
the Company, as a

                                       5
<PAGE>

director, nor shall it interfere in any way with the right of the Company to
terminate the service of any person at any time.

     (d)  Each participant understands and agrees that he or she is fully
responsible for payment of all federal, state, and local withholding and tax
obligations for awards to the participant under the Plan.

SECTION 10.  Effective Date of Plan.

     The Plan shall be effective as of May 10, 2000.

                                       6

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