Document:

Exhibit
10.3

Execution
Version

MSC SHAREHOLDERS AGREEMENT

Entered into as of September 25, 2006

among

APEX SILVER MINES SWEDEN AB,

APEX LUXEMBOURG S.À R.L.,

GOTLEX LAGERAKTIEBOLAG nr 451 (organization number
556702-1083),

and

MINERA SAN CRISTÓBAL, S.A.

 

TABLE OF
CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
   

  	
  2  

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II MANAGEMENT OF MSC

  	
   

  	
  22

  
	
  Section 2.1

  	
   

  	
  Shareholders Meetings.

  	
   

  	
  22

  
	
  Section 2.2

  	
   

  	
  Board; Sindicos.

  	
   

  	
  25

  
	
  Section 2.3

  	
   

  	
  Significant Matters.

  	
   

  	
  34

  
	
  Section 2.4

  	
   

  	
  Deadlock on Significant Matters

  	
   

  	
  38

  
	
  Section 2.5

  	
   

  	
  Management

  	
   

  	
  38

  
	
  Section 2.6

  	
   

  	
  Indemnification of Directors, Officers, and Sindicos

  	
   

  	
  39

  
	
  Section 2.7

  	
   

  	
  Finance and Operating Committee.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III PROGRAM AND BUDGETS

  	
   

  	
  42

  
	
  Section 3.1

  	
   

  	
  Initial Program and Budget

  	
   

  	
  42

  
	
  Section 3.2

  	
   

  	
  Annual Program and Budget

  	
   

  	
  42

  
	
  Section 3.3

  	
   

  	
  Deadlock on Proposed Program and Budgets

  	
   

  	
  43

  
	
  Section 3.4

  	
   

  	
  Put Right

  	
   

  	
  43

  
	
  Section 3.5

  	
   

  	
  Overruns; Emergencies

  	
   

  	
  45

  
	
  Section 3.6

  	
   

  	
  Termination of Certain ARTICLE III Rights

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV FINANCING OF MSC

  	
   

  	
  46

  
	
  Section 4.1

  	
   

  	
  No Obligation

  	
   

  	
  46

  
	
  Section 4.2

  	
   

  	
  Funding for the Project through the Commercial
  Operations Date

  	
   

  	
  46

  
	
  Section 4.3

  	
   

  	
  Post-Commercial Operations Funding

  	
   

  	
  47

  
	
  Section 4.4

  	
   

  	
  Additional Funding Mechanics

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V TRANSFERS

  	
   

  	
  57

  
	
  Section 5.1

  	
   

  	
  General Restrictions on Sales and Pledges; Legend;
  Effect of Sales and Pledges Not in Accordance with This Article

  	
   

  	
  57

  
	
  Section 5.2

  	
   

  	
  Certain Restrictions on Sales and Pledges

  	
   

  	
  58

  
	
  Section 5.3

  	
   

  	
  Sales to Third Parties; Right of First Refusal

  	
   

  	
  62

  
	
  Section 5.4

  	
   

  	
  Sales to Third Parties; Right of First Offer

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI DEFAULTS

  	
   

  	
  67

  
	
  Section 6.1

  	
   

  	
  Default Notice

  	
   

  	
  67

  
	
  Section 6.2

  	
   

  	
  Procedure

  	
   

  	
  67

  
	
  Section 6.3

  	
   

  	
  Bankruptcy of a Sponsor

  	
   

  	
  69

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII ADDITIONAL COVENANTS AND AGREEMENTS

  	
   

  	
  67

  
	
  Section 7.1

  	
   

  	
  Amendment of Estatutos; Further Assurances

  	
   

  	
  72

  
	
  Section 7.2

  	
   

  	
  Notice to MSC

  	
   

  	
  72

  
	
  Section 7.3

  	
   

  	
  Business of MSC

  	
   

  	
  73

  
	
  Section 7.4

  	
   

  	
  Offices

  	
   

  	
  73

  
	
  Section 7.5

  	
   

  	
  Access to Information

  	
   

  	
  73

  
							

 

 i
 

 

 

	
  Section 7.6

  	
   

  	
  Confidentiality

  	
   

  	
  74

  
	
  Section 7.7

  	
   

  	
  Distribution of Available Cash

  	
   

  	
  75

  
	
  Section 7.8

  	
   

  	
  Compliance with Law.

  	
   

  	
  76

  
	
  Section 7.9

  	
   

  	
  Sumitomo Exploration

  	
   

  	
  76

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII TERM AND TERMINATION

  	
   

  	
  79

  
	
  Section 8.1

  	
   

  	
  Term

  	
   

  	
  79

  
	
  Section 8.2

  	
   

  	
  Termination

  	
   

  	
  79

  
	
  Section 8.3

  	
   

  	
  Survival

  	
   

  	
  79

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
   

  	
  79

  
	
  Section 9.1

  	
   

  	
  Entire Agreement

  	
   

  	
  79

  
	
  Section 9.2

  	
   

  	
  Governing Law

  	
   

  	
  79

  
	
  Section 9.3

  	
   

  	
  Dispute Resolution

  	
   

  	
  79

  
	
  Section 9.4

  	
   

  	
  Limitation on Damages

  	
   

  	
  79

  
	
  Section 9.5

  	
   

  	
  Headings

  	
   

  	
  80

  
	
  Section 9.6

  	
   

  	
  Notices

  	
   

  	
  80

  
	
  Section 9.7

  	
   

  	
  Severability

  	
   

  	
  81

  
	
  Section 9.8

  	
   

  	
  Amendment; Waiver

  	
   

  	
  81

  
	
  Section 9.9

  	
   

  	
  Assignment and Binding Effect

  	
   

  	
  81

  
	
  Section 9.10

  	
   

  	
  No Benefit to Others

  	
   

  	
  81

  
	
  Section 9.11

  	
   

  	
  Counterparts

  	
   

  	
  81

  
	
  Section 9.12

  	
   

  	
  Interpretation.

  	
   

  	
  82

  
	
  Section 9.13

  	
   

  	
  Rules of Construction

  	
   

  	
  82

  
	
  Section 9.14

  	
   

  	
  No Partnership

  	
   

  	
  83

  

 

	
  Schedule A

  	
   

  	
   Total Project
  Investment

  
	
  Schedule B

  	
   

  	
   Open
  Properties Map

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Estatutos

  
	
  Exhibit B

  	
   

  	
  Form of Defaulting Shareholder Loan Note

  
	
  Exhibit C

  	
   

  	
  Form of Defaulting MSC Loan Note

  

 

 ii

 

MSC SHAREHOLDERS AGREEMENT

This MSC Shareholders Agreement is entered into as of
September 25, 2006, by and among

APEX SILVER MINES SWEDEN AB, a privat aktiebolag duly organized and validly existing under
the Laws of the Kingdom of Sweden (“Apex Sweden”), with its registered
office at c/o Accurate Accounting AB, Drakegatan 7, SE-412 50 Göteborg, Sweden;

APEX LUXEMBOURG S.À R.L., a société à responsabilité limitée duly organized and validly
existing under the Laws of the Grand Duchy of Luxembourg (“Apex Luxembourg”),
with its registered office at 73, Côte d’Eich, L-1450 Luxembourg, registered
with the Luxembourg Register of Commerce (Registre de Commerce et
des Sociétés du Grand-Duché de Luxembourg) under number B 110 956;

GOTLEX LAGERAKTIEBOLAG nr. 451,
organization number 556702-1083, a privat aktiebolag
duly organized and validly existing under the Laws of the Kingdom of Sweden (“New
Sweden 1”), with its registered office at c/o Wistrand Advokatbyra, Lilla
Bommen 1, 411 04 Göteborg, Sweden; and

MINERA SAN CRISTÓBAL, S.A., a sociedad anónima organized under the Laws of Bolivia (“MSC”),
with domicile at the city of Potosi, Bolivia, with register of commerce number
13681.

Apex Sweden, Apex Luxembourg, New Sweden 1, and MSC
(together with their respective successors and permitted assigns, as well as
any Person that otherwise becomes a party hereto in accordance with the
provisions hereof) are sometimes referred to herein individually as a “Party”
and collectively as the “Parties.” 
Capitalized terms used and not otherwise defined in this Agreement have
the respective meanings ascribed thereto in ARTICLE I.

RECITALS

A.            Apex Sweden owns, beneficially and of record,
13,983,846 Shares representing approximately 65% of the issued and
outstanding share capital of MSC.  Apex
Luxembourg owns, beneficially and of record, one Share of the issued and
outstanding share capital of MSC.  Apex
Sweden is the holder of the Apex Sweden MSC Subordinated Note.

B.            New Sweden 1 owns, beneficially and of record,
7,529,763 Shares representing 35% of the issued and outstanding share
capital of MSC.  New Sweden 1 is the
holder of the New Sweden 1 MSC Subordinated Note.

C.            MSC owns and is developing the San Cristóbal silver,
zinc, and lead mine in Bolivia.

D.            The Shareholders desire to enter into this Agreement for
the purpose of recording their mutual agreement on the financing, operation,
and management of MSC, and their mutual rights and obligations relative to MSC
and, through MSC, to the Project.

 1
 

 

 

E.             The Shareholders and MSC desire to enter into this
Agreement to establish certain rights, responsibilities, and obligations by and
among themselves.

AGREEMENT

In consideration of the
mutual promises, covenants, and agreements set forth herein, the Parent
Guarantees, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

ARTICLE
I

DEFINITIONS

For purposes of this Agreement, the following terms
shall have the following meanings:

“Additional Funds” has the meaning specified in
Section 4.4(a)(i).

“Additional Post-Commercial Operations Funds”
has the meaning specified in Section 4.3(a).

“Additional Pre-Commercial Operations Funds”
has the meaning specified in Section 4.2(b).

“Affiliate” means, with respect to any Person,
any other Person that directly, or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with,
the Person in question.

“Affiliated New Cayman Shareholders” has the
meaning specified in Section 5.2(d)(ii).

“Affiliated Quotaholders” has the meaning
specified in Section 5.2(d)(i).

“Agreement” means this MSC Shareholders
Agreement (including the Exhibits and Schedules attached hereto).

“Alternative Shareholder Loan Notice” has the
meaning specified in Section 4.4(a)(iii).

“Alternative Shareholder Capital Contribution
Notice” has the meaning specified in Section 4.4(b)(iii).

“Apex” means Apex Silver Mines Limited, an
exempted company limited by shares organized under the laws of the Cayman
Islands.

“Apex Change of Control” means (a) any
merger or consolidation of Apex with or into any person, or any sale, transfer,
or other conveyance of all or substantially all of Apex’s assets, on a
consolidated basis, in one transaction or a series of related transactions shall
have occurred after the date hereof, if either (i) immediately after
giving effect to such transaction or transactions, any person or group is or
becomes the beneficial owner of more than 50% of the aggregate voting power of
all outstanding classes of voting securities of the resulting, surviving, 

 2
 

 

or transferee Entity, or
Apex, as applicable, in elections for directors of the resulting, surviving, or
transferee Entity, or Apex, as applicable, or (ii) the voting power of all
outstanding classes of voting securities of Apex in elections for directors of
Apex immediately prior to such transaction or transactions ceases to represent
more than 50% of the aggregate voting power of all outstanding classes of
voting securities of the resulting, surviving, or transferee Entity, or Apex,
as applicable, in elections of directors of the resulting, surviving, or
transferee Entity, or Apex, as applicable, immediately after giving effect to
such transaction or transactions; (b) any Person or group is or becomes
the beneficial owner of more than 50% of the aggregate voting power of all
outstanding classes of voting securities of Apex in elections for directors of
Apex; or (c) the adoption of a plan relating to the liquidation or
dissolution of Apex in a Bankruptcy of Apex; if as a result of or at any time
following the occurrence of an event described in clause (a) or (b) of this
definition, a majority of the members of the board of directors of the
resulting, surviving, or transferee Entity, or Apex, as applicable, are not
Continuing Directors.  For purposes of
this “Apex Change of Control” definition, (i) ”beneficial owner”
shall be determined in accordance with Rule 13d-3 and Rule 13d-5 of the
Commission under the Exchange Act; (ii) ”person” or “group”
have the meanings given to them for purposes of Sections 13(d) and 14(d)
of the Exchange Act, and the term “group” includes any group acting for the
purpose of acquiring, holding, or disposing of securities within the meaning of
Rule 13d-5(b)(1) of the Commission under the Exchange Act; (iii) ”Exchange
Act” means the U.S. Securities Exchange Act of 1934, as amended; and
(iv) ”Continuing Director” means any member of the board of
directors of the resulting, surviving, or transferee Entity, or Apex, as
applicable, who (A) was a member of the board of directors of Apex on the
date hereof or (B) was nominated for election or elected to the board of
directors of Apex with the approval of a majority of the members of the board
of directors of Apex, who were members of the board of directors of Apex on the
date hereof or who were nominated for election or elected to the board of
directors of Apex in accordance with this clause (B).

“Apex Control Group” means Apex and its
wholly-owned Subsidiaries.

“Apex Director” means any member of the Board
nominated by one or more of the Apex Shareholders in accordance with Section
2.2(c) (including any alternate director therefor).

“Apex Election Notice” has the meaning
specified in Section 7.9(e).

“Apex Election Period” has the meaning specified
in Section 7.9(e).

“Apex Guaranty” means that certain Apex
Guaranty, dated as of the date hereof, made by Apex in favor of New Sweden 1,
New Sweden 2, and Sumitomo in the form of Exhibit C to the Purchase and
Sale Agreement.

“Apex Indirect Interests” means any equity
interests in or Indebtedness of any of the Subsidiaries of Apex that are
Interestholders or that own, directly or indirectly, equity interests in or
Indebtedness of any of the Subsidiaries of Apex that are Interestholders.

“Apex Interestholders” means (a) the Apex
Shareholders and (b) each member of the Apex Control Group that
(i) is or becomes the owner of Interests and (ii) is or has become a
Party pursuant to the terms of this Agreement.

 3
 

 

“Apex Interests” has the meaning specified in
Section 6.3(c).

“Apex Luxembourg” has the meaning specified in
the preamble.

“Apex Member” has the meaning specified in
Section 2.7(a).

“Apex Shareholders” means (a) Apex Sweden
and Apex Luxembourg, and (b) each member of the Apex Control Group that
(i) is or becomes the owner of Shares and (ii) is or has become a
Party pursuant to the terms of this Agreement.

“Apex Sindico” means any Sindico of MSC
nominated by one or more of the Apex Shareholders in accordance with Section
2.2(c).

“Apex Sponsor Default Cure Notice” has the
meaning specified in Section 6.3(b).

“Apex Sweden” has the meaning specified in the
preamble.

“Apex Sweden MSC Subordinated Debt” means
Indebtedness of MSC to Apex Sweden evidenced by that certain Subordinated
Promissory Note, dated as of September 25, 2006, made by MSC in favor of
Apex Sweden in the original principal amount of US$27,495,378 (the “Apex
Sweden MSC Subordinated Note”).

“ASC Bolivia” means ASC Bolivia LDC (Sucursal
Bolivia), the branch, existing under the Laws of Bolivia, with domicile at
Calle Campos N° 265, La Paz, Bolivia and with register of commerce number
13961, of ASC Bolivia LDC, an exempted limited duration company organized under
the Laws of the Cayman Islands, British West Indies, with its registered office
at Walker House, Mary Street, George Town, Grand Cayman, Cayman Islands,
British West Indies.

“Available Cash” means, for each fiscal year,
as determined quarterly by the unaudited financial statements of MSC and its
Subsidiaries, the Revenues received during such period, minus
(a) the operating costs and expenses (which shall not include the
Subordinated Management Fee) and capital expenditures of MSC and its
Subsidiaries paid during such period, including all costs and expenses for the
operation, maintenance, and protection of their respective assets and
properties, but excluding all costs and expenses such as depreciation or
depletion that do not represent cash outlays; (b) payments of principal
and interest on any Indebtedness owed to any Person other than any Shareholder
or any Affiliate of any Shareholder (excluding New Metals and New Cayman, if
applicable) paid by MSC and its Subsidiaries during such period; (c) Taxes
assessed against or imposed on MSC or any of its Subsidiaries or any of their
respective assets or properties and paid by MSC or any of its Subsidiaries
during such period, but excluding any such Taxes to the extent that reserves
therefor were set aside pursuant to clause (d) of this definition during any
prior period; and (d) any amounts that the Board reasonably determines are
prudent to set aside as cash reserves to assure that MSC and its Subsidiaries
have adequate funds on hand to timely pay the items described in clauses (a),
(b), and (c) of this definition and any other items provided for by the
applicable Program and Budget with respect to future periods.

 4
 

 

“Bankruptcy” means, with respect to any Person,
(a) (i) the commencement or institution by such Person of any
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debts, insolvency, bankruptcy, discontinuance, winding up, dissolution,
liquidation or similar Law; (ii) the seeking by such Person of any order
for the appointment of a receiver, trustee, or other such official for it or
all or a substantial part of its property; or (iii) the making by such
Person of a general assignment for the benefit of its creditors; or
(b) the commencement or institution against such Person without its
application or consent, in any court of competent jurisdiction, (i) seeking
any order for relief under any reorganization, arrangement, adjustment of debt,
relief of debts, insolvency, bankruptcy, discontinuance, winding up,
dissolution, liquidation or similar Law; or (ii) seeking any order for the
appointment of a receiver, trustee, or other such official for it or all or a
substantial part of its property, in each case of clause (b)(i) and (b)(ii),
where such proceeding shall continue undismissed, or an order, Judgment, or
decree approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 days or more.

“Big Four Auditing Firms” means
PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG
including any of their respective affiliated or associated auditing firms.

“Board” means the Board of Directors of MSC.

“Bolivia” means the Republic of Bolivia.

“Bolivian Corporations Law” means the Bolivian
Code of Commerce enacted by Law Decree No. 14379 dated February 25, 1977.

“Bolivianos” or “Bs.” means Bolivianos,
the lawful currency of Bolivia.

“Business Day” means any day other than
Saturday, Sunday, and a day on which banks in New York, New York, U.S.A. or
Tokyo, Japan are required or permitted to close.

“Chairman” has the meaning specified in Section
2.2(d).

“Commercial Operations” means the Project’s
normal commercial operations in accordance with the then-current approved
Program and Budget, including the mining, crushing, and milling of ore and the
shipment of concentrates, as confirmed by the occurrence of the latest of (i)
the successful completion of the Fourteen Day Throughput Test (as defined in
the EPCM Contract), (ii) Commercial Operation (as defined in the Rail
Transportation Agreement), (iii) the Commercial Operation Date (as defined in
the Port Agreement), (iv) Power Operation (as defined in the Transmission Line
Agreement), and (v) the date 90 days after MSC shall have received
provisional payment in respect of shipped concentrates aggregating at least
10,000 tonnes each of lead concentrates and zinc concentrates.

“Commercial Operations Date” means the date on
which Commercial Operations commence.

“Commission” means the U.S. Securities and
Exchange Commission.

 5
 

 

“Commodity Hedge Instrument” means any forward
purchase, forward sale, put option, synthetic put option, call option, collar,
or any other arrangement relating to commodities entered into by a Person to
hedge such Person’s exposure to or to speculate on commodity prices.

“Common Security Agreement” means that certain
Common Security Agreement, dated as of December 1, 2005, among MSC, Apex
Sweden, Apex Luxembourg, Old Metals, BNP Paribas, Barclays Capital, Corporación
Andina de Fomento, JPMorgan Chase Bank, N.A., the senior lenders party thereto,
and the hedge banks party thereto, as amended by the Omnibus Amendment
Agreement.

“Consolidated Loan” has the meaning specified
in Section 4.4(a)(iii).

“Consolidated Loan Contribution Notice” has the
meaning specified in Section 4.4(a)(iv).

“Contract” means any note, bond, indenture,
debenture, security agreement, trust agreement, mortgage, lease, contract,
license, franchise, permit, guaranty, joint venture agreement, or other
agreement, instrument, commitment, or obligation, whether oral or written.

“Contribution Alternative Funding” has the
meaning specified in Section 4.4(b)(iii)(C).

“Control” means the ability to direct or cause
the direction (whether through the ownership of voting securities, by contract,
or otherwise) of the management and policies of a Person or to control (whether
affirmatively or negatively and whether through the ownership of voting
securities, by contract, or otherwise) the decision of such Person to engage in
the particular conduct at issue.  A
Person shall be rebuttably presumed to control an Entity if such Person owns,
directly or indirectly through one or more intermediaries, (a) sufficient
shares of stock or other equity interests of such Entity to allow such Person,
under ordinary circumstances, to elect or direct the election of a majority of
the members of the board of directors or other governing body of such Entity,
or (b) shares of stock or other equity interests of such Entity
representing, in the aggregate, more than 50% of the aggregate outstanding
economic interests in such Entity.  The
term “Controlled” has a meaning correlative to that of Control.

“Control Group” means either the Apex Control
Group or the Sumitomo Control Group, as applicable.

“Conversion Date” has the meaning specified in
Section 4.4(a)(iv).

“Conversion Price” has the meaning specified in
Section 4.4(a)(v).

“CSA Penalty Subscription Price” has the
meaning specified in Section 4.2(d).

“Cure Period” has the meaning specified in
Section 6.2(a).

“deadlock” has the meaning specified in Section
2.4(a).

“Deadlock Meeting” has the meaning specified in
Section 2.4(a).

“Deadlock Notice” has the meaning specified in
Section 3.3(b).

 6
 

 

“December 31, 2005 Reserves” has the meaning
specified in Section 3.4(b).

“Default Notice” has the meaning specified in
Section 6.1.

“Defaulting Capital Contribution” has the
meaning specified in Section 6.1.

“Defaulting MSC Loan” has the meaning specified
in Section 6.1.

“Defaulting MSC Loan Contribution Notice” has
the meaning specified in Section 6.2(d).

“Defaulting MSC Loan Conversion Date” has the
meaning specified in Section 6.2(d).

“Defaulting Shareholder” has the meaning
specified in Section 6.2(b).

“Defaulting Shareholder Loan” has the meaning
specified in Section 6.1.

“Deferred Payments Agreement” means that
certain Deferred Payments Agreement, dated as of the date hereof, between Apex
Sweden and Sumitomo.

“Designated Apex Member” has the meaning
specified in Section 7.9(g).

“Designated SCG Member” has the meaning
specified in Section 7.9(b).

“Development Plan” means that certain San
Cristóbal Development Plan, dated November 2004, prepared by MSC and concerning
the construction and operation of the Project, as amended or otherwise modified
by (a) those certain San Cristóbal Project Monthly Project Reports
prepared by Aver Kvaerner through the date hereof, (b) that certain First
Amendment to EPCM Services Supply Agreement, effective as of April 11, 2005,
together with that certain First Change Order to EPCM Services Supply
Agreement, dated as of June 8, 2005, that certain Second Change Order to
EPCM Services Supply Agreement, dated as of July 21, 2005, that certain
Third Change Order to EPCM Services Supply Agreement, dated as of
December 2, 2005, that certain Fourth Change Order to EPCM Services Supply
Agreement, dated as of June 13, 2006, and that certain Fifth Change Order to
EPCM Services Supply Agreement, dated as of June 14, 2006, (c) the “Definitive
Estimate” set forth in that certain Banks Reconciliation Template, dated August
2006, and (d) the memorandum and Table 1-Comparison of the Development
Plan Production Plan and the July 2006 Revised Production Plan thereto, sent by
email to Sumitomo on August 9, 2006, in each case as may be amended,
restated, supplemented, replaced, or otherwise modified from time to time in
accordance with ARTICLE II, ARTICLE III, and the Financing Documents, as
applicable.

“Director” means a member of the Board.

“Dispute Resolution Agreement” means that
certain Dispute Resolution Agreement, dated as of the date hereof, by and among
Apex, Apex Sweden, Apex Luxembourg, Service Company, Sumitomo, New Sweden 1,
New Sweden 2, MSC, New Metals, and New Cayman.

“Disqualified Person” means any Person
(a) whose ownership of Interests is reasonably likely to cause MSC or any
of its Subsidiaries to have any material License suspended, revoked, 

 7
 

 

or otherwise terminated,
in each case considering any waivers, approvals and consents that have been
obtained and (b) in the case of any Sumitomo Interestholder, who or whose
parent guarantor does not have a credit rating from Standard and Poor’s
Corporation, Moody’s Investors Services, or Fitch Ratings Limited of either “investment
grade” or at least equivalent to that of Sumitomo.

“Dollars” means the lawful currency of the U.S.

“Entity” means any sociedad
anónima,  sociedad de responsabilidad limitada,
Aktiengesellshchaft, Gesellschaft mit beschränkter
Haftung,  privat aktiebolag, société à responsabilité
limitée, corporation, general or limited partnership, limited
liability company, joint venture, trust, association, unincorporated entity of
any kind, or Governmental Authority.

“EPCM Contract” means that certain EPCM
Services Supply Agreement, dated as of November 8, 2004, between MSC and
Aker Kvaerner Metals, Inc., together with that certain First Amendment to EPCM
Services Supply Agreement, effective as of April 11, 2005, that certain First
Change Order to EPCM Services Supply Agreement, dated as of June 8, 2005,
that certain Second Change Order to EPCM Services Supply Agreement, dated as of
July 21, 2005, that certain Third Change Order to EPCM Services Supply
Agreement, dated as of December 2, 2005, that certain Fourth Change Order
to EPCM Services Supply Agreement, and that certain Fifth Change Order to EPCM
Services Supply Agreement, dated as of June 14, 2006.

“Equity Interests” means Shares of any
Shareholder in MSC or any of its Subsidiaries, and interests in such Shares,
including voting and dividend rights, Preemptive Rights, and interests in
respect of capital, and corporate funds of any kind, purpose, or denomination,
such as reserve, revaluation, credit, profit, and dividend funds, whether
accumulated or not.

“Estatutos” means the estatutos
sociales of MSC, as hereafter amended, modified, supplemented, and
restated in accordance with this Agreement and applicable Law.

“Exercise Period” has the meaning specified in
Section 3.4(a).

“FCPA” has the meaning specified in Section
7.8.

“Fair Market Value of the Apex Interests” has
the meaning specified in Section 6.3(d).

“Fair Market Value of the Sumitomo Interests”
has the meaning specified in Section 6.3(d).

“Fifty-Fifty Control” has the meaning specified
in Section 2.2(c)(i).

“Fifty-Fifty Date” has the meaning specified in
Section 2.2(c)(i).

“Filing” means any written registration,
declaration, application, or filing.

“Final Feasibility Study” has the meaning
specified in Section 7.9(d).

“Finance and Operating Committee” has the
meaning specified in Section 2.7(a).

 8
 

 

“Finance and Operating Committee Chairman” has
the meaning specified in Section 2.7(a).

“Financial Resources” means, from time to time,
all cash and cash equivalent balances standing on MSC’s accounts and the
proceeds of any third-party financing (available for drawing by MSC).

“Financing Documents” means:

(a)           that
certain Loan Agreement, dated December 1, 2005, among MSC, certain lenders
named therein, and BNP Paribas, as administrative agent;

(b)           that
certain Loan Agreement, dated December 1, 2005, between MSC and
Corporación Andina de Fomento;

(c)           the
Common Security Agreement;

(d)           that
certain Sponsor Pledge and Agreement, dated as of December 1, 2005, between
Apex and JPMorgan Chase Bank, N.A., as collateral agent (as amended by the
Omnibus Amendment Agreement);

(e)           that
certain Transfer Restrictions Agreement, dated as of December 1, 2005,
among Apex, Apex Luxembourg, Apex Sweden, Old Metals, BNP Paribas, as
administrative agent, and JPMorgan Chase Bank, N.A., as collateral agent (as
amended by Amendment No. 1 to the Transfer Restrictions Agreement, dated
as of May 2, 2006 and as further amended by the Omnibus Amendment
Agreement);

(f)            that
certain Completion Agreement, dated as of December 1, 2005, among Apex,
Barclays Capital, BNP Paribas, and JPMorgan Chase Bank, N.A. (as amended by the
Omnibus Amendment Agreement);

(g)           that
certain ISDA Master Agreement (together with the Schedule and the Credit
Support Annex thereto), dated as of March 16, 2005 (as amended by that certain
Amendment No. 1 to Master Agreement, dated as of June 16, 2005, and as
further amended by that certain Amendment and Restatement of the Schedule to
Master Agreement, dated as of December 1, 2005), between BNP Paribas and
Old Metals, as novated by the
Metals Hedge Novation Agreements related thereto and as further amended by that
certain Schedule to Master Agreement, dated on or about the date hereof,
between BNP Paribas and New Cayman;

(h)           that
certain ISDA Master Agreement (together with the Schedule and the Credit
Support Annex thereto), dated as of September 4,1998 (as amended by that
certain Amendment, dated February 18, 2005, as further amended by that
certain Amendment No. 2, dated as of June 16, 2005, and as further amended
by that certain Amendment and Restatement of the Schedule to Master Agreement,
dated as of December 1, 2005), between Barclays Bank PLC and Old Metals, as novated by the Metals Hedge Novation
Agreements related thereto and as further amended by that certain Schedule to
Master 

 9
 

 

Agreement, dated on or about the date hereof, between Barclays Bank PLC
and New Cayman;

(i)            the
Security Documents, including the Bolivian Security Documents (in each case, as
defined in the Common Security Agreement);

(j)            the
Omnibus Amendment Agreement;

(k)           that
certain Pledge Agreement, dated on or about the date hereof, by Apex Luxembourg
in favor of JPMorgan Chase Bank, N.A. (regarding shares of New Cayman);

(l)            that
certain Pledge Agreement, dated on or about the date hereof, by Apex Sweden in
favor of JPMorgan Chase Bank, N.A. (New York law pledge regarding quotas of New
Metals);

(m)          that
certain Pledge Agreement, dated on or about the date hereof, by Apex Sweden in
favor of JPMorgan Chase Bank, N.A. (Swiss law pledge regarding quotas of New
Metals);

(n)           that
certain Pledge Agreement, dated on or about the date hereof, by New
Sweden 2 in favor of JPMorgan Chase Bank, N.A. (Swiss law pledge regarding
quotas of New Metals);

(o)           that
certain Pledge Agreement, dated on or about the date hereof, by New
Sweden 2 in favor of JPMorgan Chase Bank, N.A. (New York law pledge
regarding quotas of New Metals);

(p)           that
certain Apex Silver Finance Cross-Guarantee and Security Agreement, dated on or
about the date hereof, between New Cayman and JPMorgan Chase Bank, N.A.;

(q)           that
certain Sumitomo Pledge and Guarantee Agreement, dated on or about the date
hereof, between Sumitomo and JPMorgan Chase Bank, N.A.;

(r)            that
certain Sumitomo Transfer Restrictions Agreement, dated on or about the date
hereof, among Sumitomo, New Sweden 1, New Sweden 2, BNP Paribas, and
JPMorgan Chase Bank, N.A.;

(s)           the
Sumitomo Completion Agreement; and

(t)            any related notes, guarantees,
collateral documents, instruments, and agreements executed in connection with
the foregoing;

in each case of clauses (a) through (v) of this definition with respect
to any such agreement, schedule, note, guarantee, document, or instrument to
which MSC, New Metals, or New Cayman is not a party, as such agreement,
schedule, note, guarantee, document, or instrument is last in effect on the
date hereof.

 10
 

 

“GAAP” means generally accepted accounting
principles as used in the United States of America.

“General Shareholders Meeting” means a meeting
of the shareholders of MSC, held in accordance with the Estatutos and Bolivian
Law, which may be a regular meeting or an extraordinary meeting.

“Governing Documents” means the estatutos sociales, escritura de constitución
social, articles or certificate of incorporation or formation or
association, general or limited partnership agreement, limited liability
company or operating agreement, bylaws, or other incorporation or governing
documents of any Entity.

“Government Approvals” means any authorization,
consent, approval, License, lease, ruling, permit, tariff, rate, certification,
exemption, Filing, variance, claim, Judgment, decree, sanction, or publication
of, by or with, any notice to, any declaration of or with, or any registration
by or with, or any other action or deemed action by or on behalf of, any
Governmental Authority.

“Governmental Authority” means any domestic or
foreign national, regional, or local, court, governmental department,
commission, authority, central bank, board, bureau, agency, official, or other
instrumentality exercising executive, legislative, judicial, taxing,
regulatory, or administrative powers or functions of or pertaining to
government.

“Hedge Instrument” means (a) any currency
swap agreement, option contract, future contract, option on futures contract,
spot or forward contract, or other agreements to purchase or sell currency or
any other arrangement entered into by a Person to hedge such Person’s exposure
or to speculate on movements in rates of exchange of currencies; (b) any
interest rate swap, option contract, futures contract, options on futures
contract, cap, floor, collar, or any other similar hedging arrangements entered
into by a Person to hedge such Person’s exposure to or to speculate on
movements in interest rates; (c) Commodity Hedge Instrument; and
(d) any other derivative transaction or hedging arrangement of any type or
nature whatsoever that is the subject at any time of trading in the
over-the-counter derivatives market.

“Implied Equity of MSC” has the meaning specified
in Section 4.4(a)(v).

“Indebtedness” means, without duplication,
(a) all obligations created, issued, or incurred for borrowed money
(whether by loan, the issuance and sale of debt securities, or the sale of
property to another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such property from such other Person); (b) all
obligations to pay the deferred purchase price or acquisition price of property
or services (other than accrued expenses and trade accounts payable incurred in
the ordinary course of business that are not more than 90 days past due);
(c) all obligations to pay money evidenced by a note, bond, debenture, or
similar instrument; (d) the principal amount of all obligations under or
in respect of leases capitalized in accordance with generally accepted
accounting principles as used in the U.S.; (e) all reimbursement
obligations in respect of letters of credit or similar instruments issued or
accepted by banks and other financial institutions; (f) all payment
obligations under any Hedge Instrument to the extent constituting a liability
under generally accepted accounting principles as used in the 

 11
 

 

U.S.; and (g) all
obligations of another Person of the type listed in clauses (a) through (f) of
this definition, payment of which is guaranteed by or secured by Liens on the
property of such Person (with respect to Liens, to the extent of the value of
property pledged pursuant to such Liens if less than the amount of such
obligations).

“Independent Investment Banker” has the meaning
specified in Section 6.3(d).

“Indirect Interests” means the Apex Indirect
Interests or the Sumitomo Indirect Interests, as applicable.

“Initial Offered Terms” has the meaning
specified in Section 5.4(a).

“Interestholder” means each of the Apex
Interestholders and the Sumitomo Interestholders.

“Interestholder Group” means either the Apex
Interestholders or the Sumitomo Interestholders.

“Interest Ratio” means, with respect to any
Interestholder, the number of Shares held by such Interestholder, from time to
time, expressed as a percentage of the total number of Shares issued and
outstanding at that time; provided, however, that the total of
all Interest Ratios shall always equal 100%. 
As of the date hereof, the Interest Ratio of the Apex Shareholders is
65% and the Interest Ratio of New Sweden 1 is 35%.

“Interests” means (i) all Equity
Interests, (ii) the MSC Subordinated Debt, and (iii) all Indebtedness
of MSC or any of its Subsidiaries in the form of Consolidated Loans,
Shareholder Loans, Supplemental Loans, or Defaulting MSC Loans.

“Judgment” means any judgment, writ, order,
decree, injunction, award, restraining order, or ruling of or by any court,
judge, justice, arbitrator, or magistrate, including any bankruptcy court or
judge, and any writ, order, decree, or ruling of or by any Governmental
Authority.

“Law” means any national, regional, or local,
or any foreign, statute, law, code, ordinance, rule, regulation, resolution,
Judgment, regulatory agreement with a Governmental Authority, or general
principle of common or civil law or equity.

“Lease Agreement” has the meaning specified in
Section 7.9(d).

“LIBOR” means the London interbank offered rate
of major banks for six-month Dollar deposits that appears on page 3750 of the
Dow Jones Telerate Service (or on any successor or substitute page of such
service or any successor to or substitute for such service or similar service,
if such service is no longer available) at approximately 11:00 a.m., London,
England time on any date of determination therefor.

 12
 

 

“Licenses” means all franchises, concessions,
licenses, permits, authorizations, certificates, variances, exemptions,
consents, leases, rights of way, easements, instruments, orders, and approvals
issued by or pending with any Governmental Authority.

“Lien” means any (a) security agreement,
conditional sale agreement, or other title retention agreement; (b) lease,
consignment, or bailment given for security purposes; and (c) lien,
charge, restrictive agreement, prohibition against transfer, mortgage, pledge,
legal privilege, option, encumbrance, adverse interest, security interest,
claim, attachment, exception to or defect in title, or other ownership interest
(including reservations, rights of entry, possibilities of reverter, encroachments,
easements, rights of way, restrictive covenants, leases, and Licenses granted
to other Persons) of any kind, but excluding any of the foregoing created or
imposed by or pursuant to this Agreement or any other Transaction Document.

“Loan” has the meaning specified in Section
2.3(a)(viii).

“Loan Alternative Funding” has the meaning
specified in Section 4.4(a)(iii)(C).

“Majority Shareholder Group” means, as of any
date of determination, the Shareholder Group that is entitled to nominate a
majority of the Directors.

“Mandatory Metals Hedge Agreements” means any
Hedge Instrument required under the Financing Documents.

“Material Project Document” means the Contracts
listed on Schedule B to the Purchase and Sale Agreement and each other
Contract to which MSC is or becomes a party or by which MSC’s assets are or are
to be bound, which has a term of more than one year and has payments due to or
from MSC thereunder in excess of US$10,000,000.00.

“MSC” has the meaning specified in the
preamble.

“MSC Confidential Information” has the meaning
specified in Section 7.6.

“MSC Management Agreement” means that certain
Amended and Restated Management and Services Agreement, dated as of the date
hereof, between MSC and Service Company.

“MSC Subordinated Debt” means the Apex Sweden
MSC Subordinated Debt and the New Sweden 1 MSC Subordinated Debt.

 13
 

 

“Metals Hedge Novation Agreements” means

(a)           that certain Novation Agreement, dated on or about the
date hereof, among BNP Paribas, Old Metals, as transferor, and Apex Luxembourg,
as transferee, concerning that certain ISDA Master Agreement (together with the
Schedule and the Credit Support Annex thereto), dated as of
March 16, 2005 (as amended by that certain Amendment No. 1 to
Master Agreement, dated as of June 16, 2005, and as further amended
by that certain Amendment and Restatement of the Schedule to Master Agreement,
dated as of December 1, 2005), between BNP Paribas and Old Metals;

(b)           that certain Novation Agreement,
dated on or about the date hereof, among BNP Paribas, Apex Luxembourg, as
transferor, and New Cayman, as transferee, concerning that certain ISDA Master
Agreement (together with the Schedule and the Credit Support Annex thereto),
dated as of March 16, 2005 (as amended by that certain Amendment
No. 1 to Master Agreement, dated as of June 16, 2005, and as
further amended by that certain Amendment and Restatement of the Schedule to
Master Agreement, dated as of December 1, 2005), between BNP Paribas
and Old Metals, as novated by that certain Novation Agreement specified in
clause (a) of this definition and as further amended by that certain Schedule
to Master Agreement, dated on or about the date hereof, between BNP Paribas and
New Cayman;

(c)           that certain Novation Agreement,
dated on or about the date hereof, among Barclays Bank PLC, Old Metals, as
transferor, and Apex Luxembourg, as transferee, concerning that certain ISDA
Master Agreement (together with the Schedule and the Credit Support Annex
thereto), dated as of September 4, 1998 (as amended by that certain Amendment,
dated February 18, 2005, as further amended by that certain Amendment
No. 2, dated as of June 16, 2005, and as further amended by that
certain Amendment and Restatement of the Schedule to Master Agreement, dated as
of December 1, 2005), between Barclays Bank PLC and Old Metals; and

(d)           that certain Novation Agreement,
dated on or about the date hereof, among among Barclays Bank PLC, Apex
Luxembourg, as transferor, and New Cayman, as transferee, concerning that
certain ISDA Master Agreement (together with the Schedule and the Credit
Support Annex thereto), dated as of September 4, 1998 (as amended by that
certain Amendment, dated February 18, 2005, as further amended by
that certain Amendment No. 2, dated as of June 16, 2005, and as
further amended by that certain Amendment and Restatement of the Schedule to
Master Agreement, dated as of December 1, 2005), between Barclays
Bank PLC and Old Metals, as novated by that certain Novation Agreement
specified in clause (c) of this definition and as further amended by that
certain Schedule to Master Agreement, dated on or about the date hereof,
between Barclays Bank PLC and New Cayman.

“New Cayman” means Apex Silver Finance Ltd., an
exempted company limited by shares incorporated under the Laws of the Cayman
Islands, British West Indies, with its registered office at the offices of
Walkers SPV Limited, Walker House, PO Box 908GT, Mary Street, George Town,
Grand Cayman, Cayman Islands, British West Indies.

 14
 

 

“New Cayman Interests” means “Interests” as
defined in the New Cayman Shareholders Agreement.

“New Cayman Interest Ratio” means “Interest
Ratio” as defined in the New Cayman Shareholders Agreement.

“New Cayman Shareholders Agreement” means that
certain Apex Silver Finance Shareholders Agreement, dated the date hereof, by
and among Apex Luxembourg, Sumitomo, and New Cayman.

“New Cayman Shareholder” means “Shareholder” as
defined in the New Cayman Shareholders Agreement.

“New Cayman Shares” means “Shares” as defined
in the New Cayman Shareholders Agreement.

“New Concentrate Sales Agreement” means that
certain Concentrate Sales Agreement, dated on or about the date hereof, between
New Metals and MSC.

“New Metals” means Apex Metals Marketing GmbH,
a Gesellschaft mit beschränkter Haftung
organized under the Laws of Swiss Confederation, with its seat in Zug, canton
of Zug, Switzerland and with a registered address of c/o Juris Treuhand AG,
Industriestrasse 47, 6304 Zug, Switzerland.

“New Metals Interests” means “Interests” as
defined in the New Metals Quotaholders Agreement.

“New Metals Interest Ratio” means “Interest
Ratio” as defined in the New Metals Quotaholders Agreement.

“New Metals Quotaholders Agreement” means that
certain Metals Quotaholders Agreement, dated the date hereof, by and among Apex
Sweden, New Sweden 2, and New Metals.

“New Metals Quotaholder” means “Quotaholder” as
defined in the New Metals Quotaholders Agreement.

“New Metals Quotas” means “Quotas” as defined
in the New Metals Quotaholders Agreement.

“New Shares” has the meaning specified in
Section 4.4(a)(iv).

“New Sweden 1” has the meaning specified in the
preamble.

“New Sweden 1 MSC Subordinated Debt” means
Indebtedness of MSC to New Sweden 1 evidenced by that certain
Subordinated  Promissory Note, dated as
of September 25, 2006, made by MSC in favor of New Sweden 1 in the
original principal amount of US$14,805,204 (the “New Sweden 1 MSC
Subordinated Note”).

 15
 

 

“New Sweden 2” means Comercial Metales Blancos
AB, a privat aktiebolag organized under the
Laws of the Kingdom of Sweden, with its registered office at c/o Anders
Sköldberg, Ernst & Young AB, 401 82 Göteborg, Sweden.

“Non-Contributing Shareholder Group” has the
meaning specified in Section 4.4(b)(iii).

“Non-Contributing Shareholder Notice” has the
meaning specified in Section 4.4(b)(iii).

“Non-Defaulting Shareholder Group” has the
meaning specified in Section 6.1.

“Non-Lending Shareholder Group” has the meaning
specified in Section 4.4(a)(iii).

“Non-Lending Shareholder Notice” has the
meaning specified in Section 4.4(a)(iii).

“Non-Offering Interestholders” has the meaning
specified in Section 5.4(a).

“Non-Selling Interestholders” has the meaning
specified in Section 5.3(a).

“Offer Notice” has the meaning specified in
Section 5.4(a).

“Offered Terms” has the meaning specified in
Section 5.3(a).

“Offering Interestholder” has the meaning
specified in Section 5.4(a).

“Old Metals” means Apex Metals GmbH, a Gesellschaft mit beschränkter Haftung existing
under the Laws of Switzerland, with its seat in Zug, canton of Zug, Switzerland
and with a registered address of c/o Juris Treuhand AG, Industriestrasse 47,
6304 Zug, Switzerland.

“Omnibus Amendment Agreement” means that
certain Omnibus Amendment Agreement, dated as of September 20, 2006, among
MSC, Apex, Apex Sweden, Apex Luxembourg, Old Metals, New Cayman, New Metals,
New Sweden 1, New Sweden 2, BNP Paribas, Barclays Capital,
Corporación Andina de Fomento, JPMorgan Chase Bank, N.A., the senior lenders
party thereto, and the hedge banks party thereto.

“Open Properties” has the meaning specified in
Section 7.9(a).

“Option Agreement” means that certain Option
Agreement, dated as of the date hereof, between Apex and Sumitomo.

“Parent Guarantees” means the Apex Guaranty and
the Sumitomo Guaranty.

“Party” or “Parties” has the meaning
specified in the preamble.

“Payment Default” has the meaning specified in
Section 6.1.

“Penalty Subscription Price” has the meaning
specified in Section 4.4(b)(iv)(B).

“Periodic Exploration Report” has the meaning
specified in Section 7.9(d).

 16
 

 

“Permitted Transferee” has the meaning specified
in Section 5.3(d).

“Person” means any natural person or Entity.

“Pledge” means any pledge of, or any creation,
incurrence, assumption, or grant of any Lien on, any Interest, whether direct
or indirect.  The terms “Pledges,”
“Pledging,” and “Pledged” have meanings correlative to that of
Pledge.

“Port Agreement” means that certain
Construction and Port Services Agreement, dated as of September 1, 2003, as
amended by that certain First Amendment to the Construction and Port Services
Agreement, dated as of March 31, 2005, and as further amended by that certain
Second Amendment to the Construction Port Services Agreement, dated as of
December 16, 2005, between MSC and Puerto de Mejillones, S.A.

“Post-Commercial Operations Contribution Notice”
has the meaning specified in Section 4.3(a).

“Pre-Commercial Operations Contribution Notice”
has the meaning specified in Section 4.2(b).

“Preemptive Rights” means the preferred rights
that the shareholders of a sociedad anónima
have, pursuant to Article 255 of the Bolivian Corporations Law, entitling
them to purchase newly issued shares of such sociedad
anónima in accordance with their pro rata shareholding.

“Program and Budget” means the Development Plan
and the cost estimates for construction and operation of the Project included
in the Development Plan, or either of them as the context requires, in each
case as may be amended, restated, supplemented, replaced, or otherwise modified
from time to time in accordance with ARTICLE II, ARTICLE III, and the Financing
Documents, as applicable.

“Project” means the development, establishment,
construction, and operation by MSC of the San Cristóbal open pit silver, zinc,
and lead mine and processing facilities located in the Potosi Department,
Bolivia (including any expansions or extensions thereto over time), the
processing of silver, zinc, and lead ores to recover silver, zinc, and lead
concentrates and related infrastructure (including rail transportation, power
transmission, and port facilities), and the transportation, marketing, and sale
of the products thereof and other activities reasonably ancillary thereto.

“Proposed Third-Party Buyer” has the meaning
specified in Section 5.3(a).

“Prospective Transferee” has the meaning
specified in Section 5.2(c).

“Purchase and Sale Agreement” means that
certain Purchase and Sale Agreement, dated as of the date hereof, by and among
Apex, Sumitomo and the other parties thereto.

“Put Closing” has the meaning specified in
Section 3.4(c).

 17
 

 

“Put Closing Date” means the date of the Put
Closing, if any.

“Put Interests” has the meaning specified in
Section 3.4(a).

“Put Notice” has the meaning specified in
Section 3.4(a).

“Put Price” has the meaning specified in
Section 3.4(b).

“Put Right” has the meaning specified in
Section 3.4(a).

“Qualified Contributor Group” has the meaning
specified in Section 4.4(b)(iii).

“Qualified Shareholder Group” has the meaning
specified in Section 4.4(a)(iii).

“Rail Transportation Agreement” means that
certain Transportation Agreement, dated as of March 15, 2005, between MSC
and Antofagasta Railway Company PLC.

“Reference Exchange Rate” has the meaning
specified in Section 9.12(c).

“Refinancing Document” has the meaning
specified in Section 6.1.

“Restatement Document” has the meaning
specified in Section 6.1.

“Revenues” mean all revenues received by or on
behalf of MSC and its Subsidiaries on a consolidated basis, from any source,
excluding (a) capital contributions and (b) Indebtedness owed to any
Person.

“Sale” means any sale, assignment, gift,
exchange, or other transfer or disposition of any Interest, whether direct or
indirect (including by operation of Law through a merger or consolidation, as
well as any repossession, foreclosure or similar action by a creditor, but not
including any Pledge).  The terms “Sell,”
“Sells,” “Selling,” and “Sold” have meanings correlative
to that of Sale.

“Sale Notice” has the meaning specified in
Section 5.3(a).

“SCG Historical Costs” means the documented or
supported aggregate costs incurred by a Designated SCG Member with respect to a
Selected Open Property until (i) in the case of Section 7.9(f), the date of the
acquisition referred to therein, and (ii) in the case of Section 7.9(g), the
date on which a joint venture relating to such Selected Open Property has been
entered into by the Designated SCG Member and a Designated Apex Member.  Such costs shall include a reasonable
allocation of overhead expenses.

“Section 5.3 Offered Interests” has the meaning
specified in Section 5.3(d).

“Section 5.3 Offer Period” has the meaning
specified in Section 5.3(b).

“Section 5.4 Offered Interests” has the meaning
specified in Section 5.4(a).

 18
 

 

“Section 5.4 Offer Period” has the meaning
specified in Section 5.4(b).

“Selected Open Property” has the meaning
specified in Section 7.9(b).

“Selling Interestholder” has the meaning
specified in Section 5.3(d).

“Service Company” means Apex Silver Mines
Corporation, a corporation organized under the Laws of Delaware, U.S.A.

“Share” means a registered share of MSC.

“Shareholder” means each of the Apex Shareholders
and the Sumitomo Shareholders.

“Shareholder Capital Contributions” has the
meaning specified in Section 4.4(b)(i).

“Shareholder Capital Contribution Notice” has
the meaning specified in Section 4.4(b)(i).

“Shareholder Capital Contribution Response Notice”
has the meaning specified in Section 4.4(b)(ii)(B).

“Shareholder Group” means either the Apex
Shareholders or the Sumitomo Shareholders.

“Shareholder Loan Notice” has the meaning
specified in Section 4.4(a)(i).

“Shareholder Loan Response Notice” has the
meaning specified in Section 4.4(a)(ii)(B).

“Shareholder Loans” has the meaning specified
in Section 4.4(a)(i).

“Significant Matter” has the meaning specified
in Section 2.3(a).

“Significant Operational Matter” has the
meaning specified in Section 2.7(b).

“Sindico” means an individual appointed as a
sindico by the General Shareholders Meeting of MSC pursuant to the Estatutos
and the Bolivian Corporations Law to perform the administrative supervisory
functions therein provided for.

“Special Purpose Interestholder” means any
Entity (other than Sumitomo or Apex) (a) formed for the sole purpose of,
and which conducts no other business than, holding Interests or (b) all or
substantially all of the assets of which, on a consolidated basis, consist of
any or all of the Interests, Indirect Interests, New Cayman Interests, New
Metals Interests, or indirect interests in any thereof.

“Subordinated Management Fee” has the meaning
specified in the MSC Management Agreement.

“Subscription Price” has the meaning specified
in Section 4.4(b)(iv)(A).

 19
 

 

“Subsidiary” means
with respect to any Person:

(a)           a corporation a majority in voting
power of whose share capital with voting power, under ordinary circumstances,
to elect directors is, at the date of determination thereof, directly or
indirectly, owned by such Person, by a Subsidiary of such Person, or by such
Person and one or more Subsidiaries of such Person,

(b)           a partnership or limited liability
company in which such Person or a Subsidiary of such Person is, at the date of determination
thereof, (i) in the case of a partnership, a general partner of such
partnership with the power affirmatively to direct the policies and management
of such partnership or (ii) in the case of a limited liability company, the
managing member or, in the absence of a managing member, a member with the
power affirmatively to direct the policies and management of such limited
liability company, or

(c)           any Entity (other than a corporation,
partnership, or limited liability company) in which such Person, a Subsidiary
of such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination, has (i) the power to
elect or direct the election of a majority of the members of the governing body
of such Person or (ii) in the absence of such a governing body, at least a
majority ownership interest.

“Sumitomo” means Sumitomo Corporation, a
corporation organized under the Laws of Japan.

“Sumitomo Completion Agreement” means that
certain Sumitomo Completion Agreement, dated on or about the date hereof, among
Sumitomo, Barclays Capital, BNP Paribas, and JPMorgan Chase Bank, N.A.

“Sumitomo Control Group” means Sumitomo and its
wholly-owned Subsidiaries.

“Sumitomo Director” means any member of the
Board nominated by the Sumitomo Shareholders in accordance with Section 2.2(c)
(including any alternate director therefor).

“Sumitomo Guaranty” means that certain Sumitomo
Guaranty, dated as of the date hereof, made by Sumitomo in favor of Apex and
the Apex Shareholders.

“Sumitomo Indirect Interests” means any equity
interests in or Indebtedness of any of the Subsidiaries of Sumitomo that are
Interestholders or that own, directly or indirectly, equity interests in or
Indebtedness of any of the Subsidiaries of Sumitomo that are Interestholders.

“Sumitomo Interestholders” means (a) the
Sumitomo Shareholders and (b) each member of the Sumitomo Control Group
that (i) is or becomes the owner of Interests and (ii) is or has
become a Party pursuant to the terms of this Agreement.

“Sumitomo Interests” has the meaning specified
in Section 6.3(c).

 20
 

 

“Sumitomo Member” has the meaning specified in
Section 2.7(a).

“Sumitomo Shareholders” means (a) New
Sweden 1 and (b) each member of the Sumitomo Control Group that
(i) is or becomes the owner of Shares and (ii) is or has become a
Party pursuant to the terms of this Agreement.

“Sumitomo Sindico” means any Sindico of MSC
nominated by the Sumitomo Shareholders in accordance with Section 2.2(c).

“Sumitomo Sponsor Default Cure Notice” has the
meaning specified in Section 6.3(a).

“Supplemental Loan” has the meaning specified
in Section 4.4(a)(iii).

“Tax Authority” means any Governmental
Authority with the power to impose any Tax.

“Tax” or “Taxes” means all taxes,
however denominated, including any monetary adjustments, interest, penalties or
other additions to tax that may become payable in respect thereof, imposed by
any Tax Authority, which taxes include, without limiting the generality of the
foregoing, all income or profits taxes, payroll and employee withholding taxes,
unemployment insurance, social security taxes, income withholding taxes, sales
and use taxes, value added taxes, ad valorem taxes, excise taxes, franchise
taxes, gross receipts taxes, business or municipal license (patente
municipal) taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, severance taxes, production taxes,
transfer taxes, workers’ compensation, governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing.

“Tonnes Processed” has the meaning specified in
Section 3.4(b).

“Total Project Investment” has the meaning
specified in Section 4.2(a).

“Transaction Documents” has the meaning
specified in the Purchase and Sale Agreement.

“Transferee” means any Person that receives any
Interest as a result of any Sale or Pledge.

“Transmission Line Agreement” means that
certain Power Line Construction and Transmission Agreement, dated as of January
14, 2005, as amended by that certain First Amendment to Power Line Construction and Transmission Agreement, dated as of
March 14, 2005, and as further amended by that certain Second
Amendment to Power Line Construction
and Transmission Agreement, dated as of August 29, 2005, among MSC,
Ingelec S.A., Ingelec Transportadora de Electricidad S.A., Ingelec Electricity
Transportation Investments, Corp., and San Cristóbal Transportadora de
Electricidad, S.A.

“Transmission Line Loan Documents” means
(a) the Transmission Line Agreement; (b) that certain Loan Agreement,
dated as of April 15, 2005, between ASC Bolivia and San Cristóbal
Transportadora de Electricidad, S.A.; (c) that certain Promissory Note,
dated as of April 15, 2005, made by San Cristóbal Transportadora de
Electricidad, S.A. in favor of ASC 

 21
 

 

Bolivia; (d) that
certain Escrow Agreement and Account Pledge and Security Agreement, dated as of
April 15, 2005, among San Cristóbal Transportadora de Electricidad, S.A.,
ASC Bolivia, and Atlantic Security Bank, Cayman Islands; (e) that certain
Pledge Agreement, dated as of April 15, 2005, made by Ingelec Electricity
Transportation Investments, Corp., Raúl Quiroga, and Rene Fernández in favor of
ASC Bolivia; (f) that certain Pledge Agreement, dated as of April 15,
2005, made by Ingelec Transportadora de Electricidad S.A. in favor of ASC
Bolivia; (g) that certain Guaranty, dated as of April 15, 2005, made
by Ingelec S.A., Ingelec Transportadora de Electricidad S.A., and Ingelec
Electricity Transportation Investments, Corp. in favor of ASC Bolivia;
(h) a moveables pledge agreement to be entered into pursuant to the
agreement referred to in clause (b) of this definition; and (i) any
related notes, guarantees, collateral documents, instruments, and agreements
executed in connection therewith, in each case of (a) through (h), as such
agreements, note, guaranty, and related notes, guarantees, collateral
documents, instruments, and agreements may be amended, restated, supplemented,
novated,  renewed, extended, refunded,
refinanced, replaced, or otherwise modified from time to time.

“U.S.” or “U.S.A.” means the United
States of America.

“US$” means Dollars.

“Vice Chairman” has the meaning specified in
Section 2.2(d).

ARTICLE II

MANAGEMENT OF MSC

Section 2.1             Shareholders
Meetings.

(a)           Authority.  The General Shareholders Meeting of MSC is
the supreme governing body of MSC. 
General Shareholders Meetings can be regular (ordinaria)
or extraordinary (extraordinaria).  An annual regular General Shareholders
Meeting shall be held at least once each year within three months after the end
of each fiscal year, in accordance with the Estatutos, and regular and
extraordinary General Shareholders Meetings may be held at any time in
accordance with the provisions of this Section 2.1, in order to decide any
matter that according to Bolivian Law or the Estatutos may be decided by the
General Shareholders Meeting.

(b)           Convocation.  General Shareholders Meetings shall be called
by the Board.  The Board shall call
(i) regular General Shareholders Meetings, on the dates determined by the
Board; (ii) extraordinary General Shareholders Meetings, if the Board
determines that the interests of MSC so require, on the dates determined by the
Board; and (iii) regular or extraordinary General Shareholders Meetings,
as applicable, upon the written request (which request shall indicate the items
that such holders desire to have discussed and voted on at such General
Shareholders Meeting) of one or more holders of record of at least 20% of the
Shares issued, outstanding, and entitled to vote, on the date determined by the
Board.

 22

 

(c)           Notice.  Once a General Shareholders Meeting has been
called, notice of the nature of the General Shareholders Meeting, the place,
date, and time thereof, and an agenda (and for an extraordinary General
Shareholders Meeting, a brief description of the items to be discussed and
voted on thereat) shall be delivered to each Shareholder in accordance with
Section 9.6 at least 30 days and no more than 90 days prior to such meeting,
and such notice, agenda, and the requirements for participation shall be published
in a nationwide newspaper in Bolivia on three discontinuous days with the last
publication being made at least five and no more than 30 days before such
meeting as required by applicable Law; provided, however, that
the Shareholders may waive any such notice if all Shareholders are present or
duly represented at such meeting as provided by the Bolivian Corporations Law,
and any Shareholder’s presence or due representation at such General
Shareholders Meeting shall be deemed a waiver thereof.

(d)           Quorum.

(i)                                     Regular
(Ordinaria) General Shareholders
Meetings.  Holders of at least a
majority of Shares issued, outstanding, and entitled to vote, whether present
in person or represented by a letter (carta poder) or
a notarized power of attorney, shall constitute a quorum to hold a meeting for
all purposes of any regular General Shareholders Meeting; provided, however,
that, except as set forth in Section 2.3(a), with respect to any matter that
cannot be approved without the affirmative vote of the holder or holders of
Shares representing a higher voting percentage, such holder or holders of
Shares issued, outstanding, and entitled to vote representing at least such
higher voting percentage, whether present in person or represented by a letter
(carta poder) or a notarized power of
attorney, shall be required to constitute a quorum for purposes of voting on
such matter.  If the absence of one or
more such holders at such General Shareholders Meeting prevents the establishment
of a quorum (including with respect to any particular matter), then
(A) the individual (which individual shall be the Chairman) presiding at
such General Shareholders Meeting shall adjourn such General Shareholders
Meeting (unless such lack of quorum relates only to a particular matter, in which
case the General Shareholders Meeting may proceed as to the other matters and
thereafter shall be adjourned only with respect to such matter), and
(B) the Board shall call for such General Shareholders Meeting to be
reconvened on a date of its choosing, which date shall be no earlier than 10
days nor later than 30 days following the date for which such General
Shareholders Meeting was originally called. 
Notice of such reconvened General Shareholders Meeting shall be
published in a nationwide newspaper in Bolivia on two days with the last
publication being made at least three and no more than 30 days before such
meeting as required by applicable Law, and may be waived in accordance with Section 2.1(c).  Subject to the proviso

 23
 

 

at the end of
the first sentence of this Section 2.1(d)(i), at such reconvened General
Shareholders Meeting, holders of one-third or more of Shares issued,
outstanding, and entitled to vote, whether present in person or represented by
a letter (carta poder) or a notarized power of attorney,
shall constitute a quorum to hold such reconvened General Shareholders Meeting
and the individual presiding at such General Shareholders Meeting shall be
appointed by the affirmative vote required to approve any action of any
reconvened General Shareholders Meeting set forth in Section 2.1(e).

(ii)                                  Extraordinary
(Extraordinaria) General Shareholders
Meetings.  Holders of two-thirds or
more of Shares issued, outstanding, and entitled to vote, whether present in
person or represented by a letter (carta poder) or
a notarized power of attorney, shall constitute a quorum to hold a meeting for
all purposes of any extraordinary General Shareholders Meeting; provided,
however, that, except as set forth in Section 2.3(a), with respect to
any matter that cannot be approved without the affirmative vote of the holder
or holders of Shares representing a higher voting percentage, such holder or
holders of Shares issued, outstanding, and entitled to vote representing at
least such higher voting percentage, whether present in person or represented
by a letter (carta poder) or a notarized power
of attorney, shall be required to constitute a quorum for purposes of voting on
such matter.  If the absence of one or
more such holders at such General Shareholders Meeting prevents the
establishment of a quorum (including with respect to any particular matter),
then (A) the individual (which individual shall be the Chairman) presiding
at such General Shareholders Meeting shall adjourn such General Shareholders
Meeting (unless such lack of quorum relates only to a particular matter, in
which case the General Shareholders Meeting may proceed as to the other matters
and thereafter shall be adjourned only with respect to such matter), and
(B) the Board shall call for such General Shareholders Meeting to be
reconvened on a date of its choosing, which date shall be no earlier than 10
days nor later than 30 days following the date for which such General
Shareholders Meeting was originally called. 
Notice of such reconvened General Shareholders Meeting shall be
published in a nationwide newspaper in Bolivia on two days with the last
publication being made at least three and no more than 30 days before such
meeting as required by applicable Law, and can be waived in accordance with Section 2.1(c).  Subject to the proviso at the end of the
first sentence of this Section 2.1(d)(ii), at such reconvened General
Shareholders Meeting, holders of one-third or more of Shares issued,
outstanding, and entitled to vote, whether present in person or

 24
 

 

represented by
a letter (carta poder) or a notarized power of
attorney, shall constitute a quorum to hold such reconvened General
Shareholders Meeting and the individual presiding at such General Shareholders
Meeting shall be appointed by the affirmative vote required to approve any
action of any reconvened General Shareholders Meeting set forth in Section
2.1(e).

(e)           Voting.  Subject to Section 2.3, and except when a
higher voting percentage is required under Bolivian Law, the affirmative vote by the holders of a
majority of Shares issued, outstanding, and entitled to vote, whether present
in person or represented by a letter (carta poder) or
a notarized power of attorney, at a General Shareholders Meeting where a quorum
is present and acting throughout the time such vote is taken shall be required
to approve any action of the General Shareholders Meeting; provided, however,
that at any reconvened General Shareholders Meeting described in Section
2.1(d), the affirmative vote by the holders of a majority of Shares in
attendance thereat, whether present in person or represented by a letter (carta poder) or a notarized power of attorney, shall be
required to approve any action of the General Shareholders Meeting, subject to
Section 2.3, and except when a higher voting percentage is required under
Bolivian Law.

(f)            Conflict of
Interest.  No Shareholder shall be
disqualified from voting on or signing a written resolution with respect to any
matter, including the approval of any proposed Contract, solely because that
Shareholder or an Affiliate of that Shareholder or any officer or director of
that Shareholder or of any Affiliate of that Shareholder is interested or has a
material interest in that matter.

Section 2.2             Board; Sindicos.

(a)           Authority;
Composition of the Board.  Subject to
Section 2.3, and except for those powers granted by Bolivian Law or the
Estatutos to the holders of Shares, acting through a General Shareholders
Meeting, the direction and management of MSC is vested in the Board.  The Board shall initially consist of three
Directors but not more than twelve, with one or more alternate directors for
each Director, which Directors and alternate directors shall be nominated and
elected in accordance with Section 2.2(c). 
As approved by the General Shareholders Meeting (or as otherwise
required pursuant to Section 2.2(c) in the event each Shareholder Group’s
Interest Ratio equals 50%), the Board may consist of more than three Directors,
with one or more alternate directors for each Director, which Directors and
alternate directors shall be nominated and elected in accordance with Section
2.2(c).  Each Director (and any alternate
director therefor) shall hold office until the annual regular General
Shareholders Meeting following his or her election and until his or her
successor is elected or until his or her earlier removal, resignation, death,
or disability.  Each alternate director
shall be entitled to participate in all meetings of the Board with a right to
speak, but shall be entitled to vote in such meetings only in case of the
applicable Director’s absence or temporary impediment, in which case such
alternate director may replace such Director and vote in such Director’s stead.

 25
 

 

(b)           Sindicos.  MSC shall have two
Sindicos. 
Each Sindico shall have the powers and authority granted by Bolivian Law
or the Estatutos to Sindico and shall hold office until the annual regular
General Shareholders Meeting following his or her election and until his or her
successor is elected or until his or her earlier removal, resignation, death,
or disability.  In accordance with article 62 of the Estatutos, the Sindicos
shall exercise permanent and full controlling functions regarding MSC’s operations and books, without interfering
with the administrative affairs of MSC. At each annual regular General
Shareholders Meeting, the Sindicos shall present a detailed report on the
annual memory (memoria) of the Board including the balance sheet, accounts, and results of MSC for the
previous fiscal year and such other information as the Sindicos deem
appropriate for review by the Shareholders. 
At each regular and extraordinary General Shareholders Meeting, the
Sindicos shall present a report addressing each of the points contemplated in
the notice of such meeting.  The Sindicos
shall also attend Board meetings and shall have the right to speak but may not
vote.  The two Sindicos shall become a
controlling committee and shall hold mandatory meetings at least once each year
and at any time one of its members so requests. 
The Sindicos shall verify compliance with the requirements under
applicable Law and provisions of the Governing Documents of MSC for calling
meetings and recording agreements.  If
the Board shall fail to call any regular or extraordinary General Shareholders
Meeting that it is required to call, the Sindicos may call such General
Shareholders Meeting.  The Sindicos, as
they deem advisable, may also call any extraordinary General Shareholders
Meeting.  The Sindicos also shall
supervise MSC’s liquidation when and if that has been resolved by the General
Shareholders Meeting.

(c)           Nomination,
Election, and Removal of Directors and Sindicos; Vacancies.  Except as provided in Section 2.2(a), Section
2.2(c)(v), and Section 2.2(c)(vi), the Directors, alternate directors, and
Sindicos shall be nominated, elected, and removed and vacancies in the office
of Director, alternate director, and Sindico shall be filled as follows:

(i)                                     Nomination.  In the event, and for so long as, the Board
consists of three Directors (and one or more alternate directors for each such
Director), the Apex Shareholders shall be entitled to nominate two Directors
(and one or more alternate directors for each such Director), and the Sumitomo
Shareholders shall be entitled to nominate one Director (and one or more alternate
directors for such Director); provided, however, that, in the
event, and for so long as, the aggregate Interest Ratio of the Sumitomo
Shareholders exceeds 50%, (A) the Sumitomo Shareholders shall be entitled
to nominate two Directors (and one or more alternate directors for each such
Director), (B) the Apex Shareholders shall be entitled to nominate one
Director (and one or more alternate directors for such Director),
(C) notwithstanding Section 2.2(d), each of the then-elected Chairman and
Vice Chairman shall be replaced by one of the Sumitomo Directors, one of the
Sumitomo

 26
 

 

Directors
shall thereafter be elected as Chairman and one of the Sumitomo Directors shall
thereafter be elected as Vice Chairman, and (D) the Shareholders shall
take such actions as are necessary to remove, nominate, and elect any Director
(and any alternate director therefor), as applicable to implement the
provisions of clauses (A), (B), and (C) of this proviso.

In the event, and for so long as, the aggregate Interest Ratio of the
Sumitomo Shareholders equals 50% and the aggregate Interest Ratio of the Apex
Shareholders equals 50% (“Fifty-Fifty Control,” and the date of such
occurrence, the “Fifty-Fifty Date”), (A) the Board shall consist of
at least four, or a greater even number of, Directors, (B) the Sumitomo
Shareholders shall be entitled to nominate 50% of the total number of the
Directors (and one or more alternate directors for each such Director),
(C) the Apex Shareholders shall be entitled to nominate 50% of the total number
of the Directors (and one or more alternate directors for each such Director),
(D) notwithstanding Section 2.2(d), each of the then-elected Chairman and
Vice Chairman shall be replaced by one of the Sumitomo Directors who shall
serve until the first anniversary of the Fifty-Fifty Date (thereafter, Chairmen
and Vice Chairmen shall serve one-year terms with the right to appoint the
Chairman and Vice Chairman alternating between the Sumitomo Shareholders and
the Apex Shareholders; provided, that the Apex Shareholders shall
appoint the Chairman and Vice Chairman for the year following the first
anniversary of the Fifty-Fifty Date), and (E) the Shareholders shall take
such actions as are necessary to remove, nominate, and elect any Director (and
any alternate director therefor), as applicable to implement the foregoing
provisions.

Except in the circumstance described in the immediately preceding
paragraphs, in the event, and for so long as, the Board consists of more than
three directors as approved by a General Shareholders Meeting in accordance
with Section 2.2(a), (A) the Sumitomo Shareholders shall be entitled to
nominate (1) a number of Directors equal to the product of (I) the
total number of Directors multiplied by (II) the aggregate Interest
Ratio of the Sumitomo Shareholders, with such product being rounded down to the
nearest whole number; provided, however, that such number of
Directors nominated by the Sumitomo Shareholders shall not be less than one
except pursuant to Section 2.2(c)(v); and (2) one or more alternate
directors for each such Director, and (B) the Apex Shareholders shall be
entitled to nominate (1) a number of Directors equal to the product of
(I) the total number of Directors multiplied by (II) the
aggregate Interest Ratio of the Apex Shareholders, with such product being
rounded down to the nearest

 27
 

 

whole number; provided, however, that such number of
Directors nominated by the Apex Shareholders shall not be less than one except
pursuant to Section 2.2(c)(vi); provided, further, that if,
solely as a result of the rounding down described in the preceding clauses (A)
and (B), one of the Directors to be nominated to the Board (as approved by a
General Shareholders Meeting in accordance with Section 2.2(a)) is not
nominated, then such Director shall be nominated by the Shareholder Group that
has an aggregate Interest Ratio in excess of 50%.

At each regular General
Shareholders Meeting called to elect Directors, alternate directors, or
Sindicos, the Directors, alternate directors, and Sindicos, as applicable,
shall be nominated in accordance with this Section 2.2(c)(i), the Estatutos,
and the Bolivian Corporations Law.

The Apex Shareholders’ initial nominees to serve as
the Apex Directors and their respective alternate directors are as follows:

	
  Director

  	
   

  	
  Alternate Directors

  
	
  Jeffrey
  Clevenger

  	
   

  	
  Alan Edwards

  Jerry Danni

  
	
  Gerald J. Malys

  	
   

  	
  Robert Vogels

  Marcel F. DeGuire

  

 

The Sumitomo Shareholders’
initial nominees to serve as the Sumitomo Director and his alternate directors
are as follows: 

	
  Director

  	
   

  	
  Alternate Directors

  
	
  Mitsuhiko Yamada

  	
   

  	
  Akira Takeuchi

  Koji Nakamura

  

 

The Apex Shareholders
shall be entitled to nominate one Sindico and the Sumitomo Shareholders shall
be entitled to nominate one Sindico.  The
Apex Shareholders’ initial nominee to serve as the Apex Sindico is Eduardo R. Quintanilla B.  The Sumitomo Shareholders’ initial nominee to
serve as the Sumitomo Sindico is Fernando Aguirre B.

(ii)                                  Election.  Promptly following the execution and delivery
of this Agreement, an extraordinary General Shareholders Meeting shall be held
for the purpose of, among other things, amending and restating the Estatutos in
the form attached hereto as Exhibit A. 
On the same date, a regular
General Shareholders Meeting shall be held for the purpose of, among other
things, (A) electing the Directors and their alternate directors
and (B) electing the

 28
 

 

Sindicos. 
At such extraordinary General Shareholders Meeting, and at each regular
General Shareholders Meeting thereafter called to elect Directors, alternate
directors, or Sindicos, the
Directors, alternate directors, and Sindicos, as applicable, shall be elected
in accordance with the Estatutos and the Bolivian Corporations Law, and all
Shareholders shall vote their respective Shares in favor of all of the
Directors, their alternate directors, and Sindicos nominated in accordance with
Section 2.2(c)(i).

(iii)                               Removal.  The Apex Shareholders shall have the right to
remove any or all of the Apex Directors, any alternate director therefor, and
the Apex Sindico at any time with or without cause and no Apex Director,
alternate director therefor, or Apex Sindico may be removed without the consent
of the Apex Shareholders.  If the Apex
Shareholders notify the Sumitomo Shareholders of their desire to remove any
Apex Director, any alternate director therefor, or the Apex Sindico, the
Shareholders promptly shall do all things necessary pursuant to Bolivian Law
and the Estatutos to remove such Apex Director, alternate director, or Apex
Sindico, as applicable, and vote their
respective Shares in favor of such removal. 
The Sumitomo Shareholders shall have the right to remove any or all of
the Sumitomo Directors, any alternate director therefor, and the Sumitomo
Sindico at any time with or without cause and no Sumitomo Director, any
alternate director therefor, or Sumitomo Sindico may be removed without the
consent of the Sumitomo Shareholders.  If
the Sumitomo Shareholders notify the Apex Shareholders of their desire to
remove any Sumitomo Director, any alternate director therefor, or the Sumitomo
Sindico, the Shareholders promptly shall do all things necessary pursuant to
Bolivian Law and the Estatutos to remove such Sumitomo Director, alternative
director, or Sumitomo Sindico, as applicable, and vote their respective Shares
in favor of such removal.  The term of
any Director, alternate director, or Sindico so removed shall immediately
terminate and there shall be a vacancy or vacancies on the Board or in the
office of Sindico, as applicable, to be filled
as provided in Section 2.2(c)(iv).

(iv)                              Vacancies.  Whenever any vacancy has occurred on the
Board or in the office of Sindico due to the
removal, resignation (other than resignations pursuant to Section 2.2(c)(v) or
Section 2.2(c)(vi)), death, or disability of a Director, alternate director, or
Sindico, it shall be filled by a Person nominated by the Shareholder Group that
nominated such Director, alternate director, or Sindico.  Such Person shall be elected by resolution of
the General Shareholders Meeting at the next regular General Shareholders
Meeting (which meeting may be called solely for such purpose) following the

 29
 

 

Chairman’s receipt of the nomination from
such Shareholder Group (or, if the Chairman receives the nomination during a
General Shareholders Meeting, then at the meeting in which the Chairman
received the nomination).  The Person so
nominated and elected shall hold office until the next annual regular General
Shareholders Meeting and until his or her successor is elected or until his or
her earlier removal, resignation, death, or disability.

(v)                                 Changes
in the Ownership of the Sumitomo Control Group.  Notwithstanding anything to the contrary in
Section 2.2(c)(i), Section 2.2(c)(ii), Section 2.2(c)(iii), Section 2.2(c)(iv),
and Section 2.7, if the aggregate Interest Ratio of the Sumitomo Shareholders
ceases to be at least 20%, then immediately and thereafter until this Agreement
is terminated:

(A)                              the
Sumitomo Shareholders’ rights under this Agreement to nominate and remove any
Director (and any alternate director therefor) and fill a vacancy on the Board
and its rights under this Agreement to nominate and remove any Sindico and fill
a vacancy in the office of Sindico shall cease;

(B)                                the
Sumitomo Director(s) (and the alternate director(s) therefor) shall, and the
Sumitomo Shareholders shall cause the Sumitomo Director(s) (and the alternate
director(s) therefor) to, immediately resign from the Board;

(C)                                the
Apex Shareholders thereupon shall be entitled to remove and appoint
replacements for such resigning Director(s) (and the alternate director(s)
therefor) and shall be entitled to nominate, elect, and remove any or all
Directors (and an alternate director for each such Director) and fill every
vacancy on the Board, without regard to this Agreement;

(D)                               the
Sumitomo Sindico shall, and the Sumitomo Shareholders shall cause the Sumitomo
Sindico to, immediately resign from the office of Sindico;

(E)                                 the
Apex Shareholders thereupon shall be entitled to remove and appoint replacements
for such resigning Sindico and shall be entitled to nominate, elect, and remove
any or all Sindicos and fill every vacancy in the office of Sindico, without
regard to this Agreement;

(F)                                 the
Sumitomo Shareholders’ rights under this Agreement to nominate and remove any
member of the Finance and

 30
 

 

Operating
Committee shall cease and any such member shall be deemed removed from the
Finance and Operating Committee without any further action of the Sumitomo
Shareholders; and

(G)                                the
Apex Shareholders thereupon shall be entitled to remove and appoint
replacements for such removed member of the Finance and Operating Committee,
without regard to this Agreement.

(vi)                              Changes
in the Ownership of the Apex Control Group. 
Notwithstanding anything to the contrary in Section 2.2(c)(i), Section
2.2(c)(ii), Section 2.2(c)(iii), Section 2.2(c)(iv), and Section 2.7, if the
aggregate Interest Ratio of the Apex Shareholders ceases to be at least 20%,
then immediately and thereafter until this Agreement is terminated:

(A)                              the
Apex Shareholders’ rights under this Agreement to nominate and remove any
Director (and any alternate director therefor) and fill a vacancy on the Board
and its rights under this Agreement to nominate and remove any Sindico and fill
a vacancy in the office of Sindico shall cease;

(B)                                the
Apex Director(s) (and the alternate director(s) therefor) shall, and the Apex
Shareholders (as applicable) shall cause the Apex Director(s) (and the
alternate director(s) therefor) to, immediately resign from the Board;

(C)                                the
Sumitomo Shareholders thereupon shall be entitled to remove and appoint
replacements for such resigning Director(s) (and the alternate director(s)
therefor) and shall be entitled to nominate, elect, and remove any or all
Directors (and an alternate director for each such Director) and fill every
vacancy on the Board, without regard to this Agreement;

(D)                               the
Apex Sindico shall, and the Apex Shareholders shall cause the Apex Sindico to,
immediately resign from the office of Sindico;

(E)                                 the
Sumitomo Shareholders thereupon shall be entitled to remove and appoint
replacements for such resigning Sindico and shall be entitled to nominate,
elect, and remove any or all Sindicos and fill every vacancy in the office of
Sindico, without regard to this Agreement;

 31
 

 

(F)                                 the
Apex Shareholders’ rights under this Agreement to nominate and remove any
member of the Finance and Operating Committee shall cease and any such member
shall be deemed removed from the Finance and Operating Committee without any
further action of the Apex Shareholders; and

(G)                                the
Sumitomo Shareholders thereupon shall be entitled to remove and appoint
replacements for such removed member of the Finance and Operating Committee,
without regard to this Agreement.

(d)           Chairman.  Subject to Section 2.2(c)(i), the Directors
shall elect annually one of the Apex Directors to serve as Chairman (presidente) of the Board (the “Chairman”), whose
term and duties shall be as determined by the Board.  In addition, subject to Section 2.2(c)(i),
the Directors shall elect annually (i) one of the Apex Directors to serve
as Vice Chairman (vicepresidente) of the Board
(the “Vice Chairman”), to substitute for the Chairman in the event of
absence, impediment or death of the Chairman; and (ii) a Secretary of the
Board, who shall be responsible for preparing all resolutions of the General
Shareholders Meeting and the Board, sending and delivering all notices,
managing the correspondence with respect to all matters delegated thereto,
issuing evidentiary documents (constancias)
and certifications, verifying the resolutions and maintaining the books of MSC,
and exercising all other powers and obligations provided by this Agreement and
the Estatutos or required by the Board.

(e)           Board Meetings;
Notice.  Regular meetings of the
Board shall be held at least once every six months, at such times and places as the Board determines; provided,
however, that no Board meeting shall be held in a place other than a
location reasonably convenient to all Directors in any of Denver, Colorado,
U.S.A., New York, New York, U.S.A. and La Paz, Bolivia, unless all the
Directors shall have agreed in advance to the holding of such meeting in such
other place.  As promptly as practicable
following the execution and delivery of this Agreement, a regular meeting of
the Board shall be held for the purpose of, among other things, determining the
times and places for the remaining regular meetings of the Board during the
current calendar year.  Special meetings
of the Board (i) may be called by the Chairman on his or her own
initiative, (ii) shall be called by the Chairman with reasonable
promptness after he or she receives a written request therefor from any
Director, and (iii) may be called by any Director if (A) due to
death, disability, resignation, removal, or any other reason, there is no
Chairman then acting, or (B) the Chairman fails to call a meeting as
required by the preceding clause (ii). 
In connection with all regular meetings of the Board and all special
meetings of the Board properly called in accordance with the preceding
sentence, notice of the place and time thereof and a brief description of the
items to be discussed and voted on thereat (which description shall, in the
case of regular meetings, include any item that any Director requests in
writing as long as (1) such written request is delivered to all other
Directors within a reasonable time before such notice is sent and (2) such
request relates to an issue customarily addressed by boards of directors of sociedades

 32
 

 

anónimas
in Bolivia) shall be delivered to all Directors and alternate directors by
certified letter, and by facsimile or email, at least seven Business Days prior
to the date such meeting is to be held; provided, however, that
the Directors may, by attendance at such meeting of all the Directors then in
office (including alternate directors for any absent Directors), forego or
waive such notice, and any Director’s attendance (or, if any Director is
absent, the respective alternate director’s attendance) at such meeting shall
be deemed a waiver thereof; and provided, further, however,
that the validity of any action taken by the Board shall not be affected by
whether the notice of meeting or the description of the items to be discussed
and voted on thereat is correct or complete. 
If, in the future, the Bolivian Corporations Law permits Directors and
alternate directors to participate in Board meetings through telephone
conference calls, videoconferences, or any other technological means, nothing
in this Agreement shall be deemed to prohibit such participation through any
such means.

(f)            Quorum.  A majority of the Directors then in office
(or an alternate director for any absent Director) shall constitute a quorum to
hold a meeting for all purposes at any regular or special meeting of the Board;
provided, however, that with respect to any matter that cannot be
approved without the affirmative vote of at least one Sumitomo Director and at
least one Apex Director, a majority of the Directors then in office (or an
alternate director for any absent Director), including at least one Sumitomo
Director (or, if absent, his or her respective alternate director) and at least
one Apex Director (or, if absent, his or her respective alternate director),
shall constitute a quorum for purposes of voting on such matter.  If any Director is absent from any regular or
special meeting of the Board, one of his or her alternate directors shall be
entitled to attend such meeting, to act in his or her stead, and to exercise
all rights and powers such Director would have been entitled to exercise had he
been present thereat, and for purposes of this Agreement any such alternate
director shall be considered a Director for purposes of such meeting.  If the absence of one or more Directors and
their alternate directors from any regular or special meeting of the Board
prevents the establishment of a quorum thereat (including with respect to any
particular matter), then (i) the Chairman presiding at such meeting, or,
in his absence, the Vice Chairman, or, in his absence, another Director
designated by a majority of the Directors in attendance to preside at such
meeting, shall adjourn such meeting (unless such lack of quorum relates only to
a particular matter, in which case the meeting may proceed as to the other
matters and thereafter shall be adjourned only with respect to such matter),
and (ii) the Chairman shall call for such meeting to be reconvened on a
date chosen by a majority of the Directors then present, which date shall be no
earlier than three Business Days nor later than 10 Business Days following the
date for which such meeting was originally called.  Notice of such reconvened meeting shall be
delivered or waived in accordance with Section 2.2(e).  At such reconvened meeting, the presence or
absence of a quorum shall be determined in accordance with this Section 2.2(f)
and, if the absence of one or more Directors and their alternate directors
therefrom prevents the establishment of a quorum, then the procedures set forth
in this Section 2.2(f) shall be repeated until such time as a meeting is
reconvened and a quorum is present thereat. 
If any Director and his or her alternate director fails, without cause,
to attend two successive meetings of the Board, and such failures prevent the
establishment of a quorum (either with respect to such

 33
 

 

meetings in
general or with respect to any particular matter), then, promptly following the
Party or Parties that nominated such Director and his or her alternate director
receiving a written request from any other Party to remove and replace such
Director and alternate director, the Shareholders promptly shall do all things
necessary pursuant to Bolivian Law and the Estatutos to remove such Director
and alternate director, as applicable, and vote their respective Shares in
favor of such removal.  The term of any
Director or alternate director so removed shall immediately terminate and there
shall be a vacancy or vacancies in the Board to be filled as provided in
Section 2.2(c)(iv).

(g)           Voting.  Each Director (including the alternate
director for any absent Director) present at a Board meeting shall be entitled
to one vote on each matter presented to the Board for a vote.  Subject to Section 2.3, and except as
otherwise provided under Bolivian Law, the affirmative vote of a majority of
Directors (or an alternate director for any absent Director) present at a
meeting where a quorum is present and acting throughout the time such vote is
taken shall be required to approve any action of the Board.

(h)           Compensation.  All Directors and alternate directors shall
serve without remuneration by MSC, but shall be reimbursed by MSC for all
reasonable out-of-pocket, travel, lodging, food, and incidental expenses
incurred thereby in connection with their attendance at Board meetings and
their other duties performed as Directors of MSC.  All Sindico shall receive compensation from
MSC customary with local practice in Bolivia and shall be reimbursed by MSC for
all reasonable out-of-pocket, travel, lodging, food, and incidental expenses
incurred thereby in connection with their attendance at Board meetings and
General Shareholder Meetings.

(i)            Conflict of
Interest.  An officer of MSC or a
Director who is a party to, or is a director or officer of or has a material
interest in a party to a material Contract or proposed material Contract with
MSC shall disclose in writing to MSC or request to have entered into the
minutes of the meeting of the Board, the nature and extent of that
interest.  To the extent not restricted
by the Bolivian Corporations Law following that disclosure, the officer of MSC
or Director may vote on the approval of any proposed material Contract or on
any matter or issue arising in respect of any material Contract or proposed
material Contract notwithstanding the interest of such officer or Director.

Section 2.3             Significant Matters.

(a)           To the fullest extent
permitted by applicable Law and notwithstanding anything to the contrary in the
Estatutos or any other Governing Document of MSC or any of its Subsidiaries,
except as provided in Section 2.3(c), Section 2.4, Section 3.3, and Section
3.5, the following acts, expenditures, decisions, and obligations made or
incurred by or on behalf of MSC or any of its Subsidiaries (each, a “Significant
Matter”) shall require the prior approval of either (1) the Board
pursuant to the affirmative vote of a majority of Directors (including
alternate directors for any absent Directors) present at a meeting of the Board
where a quorum is present and acting throughout the time such vote is taken, which
majority shall include at least one Apex Director and one Sumitomo Director, or
(2) subject to Section 2.3(b), the General Shareholders Meeting pursuant
to

 34
 

 

the
affirmative vote of the holder or holders of more than 75% of Shares issued,
outstanding, and entitled to vote thereon in attendance thereat, whether
present in person or represented by a letter (carta poder)
or a notarized power of attorney, where a quorum is present and acting
throughout the time such vote is taken:

(i)                                     unless
pursuant to Section 3.5(b), any operating expenditure or series of related
operating expenditures by MSC or any of its Subsidiaries in any calendar year,
not otherwise included in the Program and Budget for that year (without giving
effect to any amendment or modification of such Program and Budget made in
accordance with Section 2.3(a)(iv)), that results in an increase in operating
expenditures under such Program and Budget by more than 15% for that year;

(ii)                                  unless
pursuant to Section 3.5(b), any capital expenditure or series of related
capital expenditures by MSC or any of its Subsidiaries in any calendar year,
not otherwise included in the Program and Budget for that year (without giving
effect to any amendment or modification of such Program and Budget made in accordance
with Section 2.3(a)(iv)), that results in an increase in capital expenditures
under such Program and Budget by more than 15% for that year;

(iii)                               any
expenditure or series of expenditures relating to exploration by MSC or any of
its Subsidiaries in any calendar year, not otherwise included in the Program
and Budget for that year, in excess of US$1,000,000.00 in the aggregate;

(iv)                              from
and after the Commercial Operations Date, the approval of (A) any Program
and Budget proposed by MSC’s officers in accordance with Section 3.2 and
(B) unless pursuant to Section 3.5(b), any amendment or modification to,
or deviation (including a deviation otherwise permitted under any clause of
this Section 2.3(a)) from, any Program and Budget for any calendar year that results
in an increase in the aggregate operating and capital expenditures under the
Program and Budget for that year by more than 15%;

(v)                                 any
incurrence by MSC or any of its Subsidiaries of Indebtedness in any calendar
year in excess of 15% of the aggregate operating and capital expenditures under
the Program and Budget for that year, other than Indebtedness incurred
(A) pursuant to the Financing Documents, (B) to New Metals or Service
Company in respect of amounts payable by MSC under the MSC Management Agreement
or the New Concentrate Sales Agreement, (C) to any member of the Apex
Control Group or Sumitomo Control Group pursuant to ARTICLE IV,
(D) pursuant to the then applicable

 35
 

 

Program and Budget, (E) pursuant to the
Apex Sweden MSC Subordinated Note and the New Sweden 1 MSC Subordinated Note,
and (F) pursuant to the Mandatory Metals Hedge Agreements;

(vi)                              any
request for, modification of the terms of, or prepayment (other than in
accordance with dividend and distribution policies set forth in Section 7.7)
of, Additional Funds from the Shareholders in the form of Shareholder Loans or
Shareholder Capital Contributions, other than any request for Additional Funds
(A) required to fund any expenditure under the then applicable Program and
Budget, (B) in respect of any expenditure for which approval is not
required or, if required, has been given under Section 2.3(a)(i), Section
2.3(a)(ii), Section 2.3(a)(iii), or Section 2.3(a)(iv), or (C) required to
fund any expenditure permitted by Section 3.5;

(vii)                           any Sale
or Pledge of all or part of MSC’s equity interests in any of its Subsidiaries,
or any formation of any Subsidiary or the acquisition of any Person, which
following such acquisition shall be a Subsidiary of MSC;

(viii)                        any
lending of money, extending credit, or making advances to any Person by MSC or
any of its Subsidiaries (each, a “Loan”), in each case other than
(A) Loans for prepaid expenses, negotiable instruments held for
collection, and lease, utility, workers compensation, performance, and other similar
deposits and bonds made in the ordinary course of business, (B) Loans to
employees, officers, and Directors made in the ordinary course of business,
(C) Loans made to contractors or subcontractors in the ordinary course of
business in connection with the construction of the Project, (D) accounts
receivable and commercially reasonable advances to customers in the ordinary
course of business and extensions of trade credit, (E) deposits at banks
and other financial institutions and investments in cash equivalents,
(F) one or more other Loans, all made in the ordinary course of business
in connection with the operation of the Project and having an aggregate
principal amount of less than US$10,000,000.00 at any time outstanding, and
(G) Loans made pursuant to the then applicable Program and Budget;

(ix)                                any
acquisition of any equity interest in any Entity, any acquisition of all or
substantially all the assets of any Entity, or any entering into any
partnership, or profit sharing agreement, or joint venture with any other
Person, by MSC or any of its Subsidiaries;

(x)                                   any
Sale or Pledge, in one transaction or a series of related transactions, of an
asset or assets of MSC or any of its Subsidiaries

 36
 

 

(except for equity interests in any
Subsidiary of MSC) with a value in excess of US$10,000,000.00 in the aggregate
in any calendar year, other than any Sale or Pledge required pursuant to the
Financing Documents or in the ordinary course of business;

(xi)                                (A) any
merger or consolidation of MSC or any of its Subsidiaries with or into any
other Person or any merger or consolidation of any other Person with or into
MSC or any of its Subsidiaries, or (B) any Sale, in one transaction or a
series of related transactions, of all or substantially all of the business or
assets of MSC or any of its Subsidiaries;

(xii)                             any
Bankruptcy of MSC or any of its Subsidiaries;

(xiii)                          permanent
cessation or suspension for more than 180 consecutive days of mining at, or the
abandonment of, the Project;

(xiv)                         any
modification of the dividend and other distribution policies set forth in
Section 7.7 or any declaration or
authorization of the payment by MSC of dividends and other distributions other
than in accordance with Section
7.7;

(xv)                            any
execution, delivery, or performance by MSC or any of its Subsidiaries of any
Hedge Instrument (other than any Hedge Instrument that is a Mandatory Metals
Hedge Agreement);

(xvi)                         except as
may be required by applicable Law, any amendment of the Estatutos or any other
Governing Documents of MSC or any of its Subsidiaries (including any amendment
to increase or decrease the number of Directors);

(xvii)                      any making
of any guaranty by, or any granting of any security interest on the property
of, MSC or any of its Subsidiaries, other than (A) any guaranty or security
interest in respect of any Indebtedness permitted by Section 2.3(a)(v),
(B) any Pledge permitted by Section 2.3(a)(x), and (C) any guaranty
or security interest required by any Material Project Document or any Contract
entered into in accordance with Section 2.7(b)(iv);

(xviii)                   unless made
pursuant to ARTICLE IV or ARTICLE VI and except as may be required by
applicable Law, any change in the capital structure, or any increase or
reduction of the authorized capital stock (or other Equity Interests), of MSC
or any of its Subsidiaries, or reclassification of such stock (or other Equity
Interests) including by changing the number, par value, preferences, or rights
thereof, or creation of new classes of capital stock (or other Equity
Interests) of MSC or any of its Subsidiaries, or any public offering

 37
 

 

of capital stock (or other Equity Interests)
of MSC or any of its Subsidiaries;

(xix)                           any
appointment or removal of the auditors of MSC or any of its Subsidiaries,
unless such appointment is of one of the Big Four Auditing Firms or upon such
removal one of the Big Four Auditing Firms will be appointed for the auditors
so removed; and

(xx)                              any
material change in the accounting policies or principles of MSC or any of its
Subsidiaries, other than any change permitted under or required by GAAP.

(b)           Notwithstanding
anything to the contrary in Section 2.3(a), if a Significant Matter has been
approved by the Board in accordance with Section 2.3(a), and the Estatutos or
applicable Law requires that such Significant Matter also be approved by the
General Shareholders Meeting, then as long as such General Shareholders Meeting
is called for that purpose within 90 days from the date on which the Board
approved the Significant Matter, (i) such Board approval shall be sufficient
to satisfy the requirements of Section 2.3(a), (ii) holders of at least
the number of Shares issued, outstanding, and entitled to vote, whether present
in person or represented by a letter (carta poder) or
a notarized power of attorney, set forth in Section 2.1(d)(i) or Section
2.1(d)(ii), as applicable, shall constitute a quorum for purposes of voting on
such Significant Matter, (iii) in accordance with Section 2.1(e) and
unless a higher voting percentage is required under Bolivian Law, such General
Shareholders Meeting may approve such Significant Matter by the affirmative
vote of the holder or holders of a majority of Shares issued, outstanding, and
entitled to vote thereon, and (iv) at such General Shareholders Meeting,
each Shareholder shall vote its Shares in favor of such Significant Matter.

(c)           Notwithstanding
anything to the contrary in Section 2.3(a), Section 2.3(b), Section 2.4,
Section 2.5, or Section 2.7(b), if the aggregate Interest Ratio of either
Shareholder Group ceases to constitute at least 25%, then immediately and
thereafter until this Agreement is terminated:

(i)                                     Section
2.3(a), Section 2.3(b), Section 2.4, Section 2.5, and Section 2.7(b), shall
terminate and cease to have any force or effect; and

(ii)                                  the
Shareholders shall take all necessary action to amend the Estatutos
accordingly.

Section 2.4             Deadlock on Significant Matters.

(a)           If, at each of two
consecutive meetings of the Board (each, a “Deadlock Meeting”), the Apex
Directors and the Sumitomo Director have opposing positions with respect to any
Significant Matter, the Directors shall confer in good faith over the course of
a period of 30 days following the date of the second Deadlock Meeting to
resolve the matter and if, after such period, the matter on which there is
disagreement has not been

 38
 

 

resolved by
Board action pursuant to Section 2.3(a), a “deadlock” shall be deemed to
exist.

(b)           If at any time a
deadlock is deemed to exist under Section 2.4(a) with respect to a Significant
Matter (other than with respect to a Significant Matter enumerated in Section
2.3(a)(iv)), MSC shall not make or incur any act, expenditure, decision, or
obligation in respect of such Significant Matter and the status quo
as it existed prior to such deadlock shall be preserved until such time as the
Directors or the Shareholders resolve such deadlock.

(c)           If at any time a
deadlock is deemed to exist with respect to a Significant Matter enumerated in
Section 2.3(a)(iv), the provisions of Section 3.3 shall apply.

Section 2.5             Management.  Any officers of MSC (including the president,
vice president, general manager, chief financial officer, and secretary of MSC)
appointed after the date hereof shall be appointed by the Board from one or
more candidates nominated by Apex, subject to the approval of the Sumitomo
Director, such approval not to be unreasonably withheld.  For the avoidance of doubt, no officer of MSC
on the date hereof shall have to be reappointed under this Section 2.5 to
continue as an officer of MSC.  Subject
to any agreements between MSC and its officers, and subject to applicable
provisions of Bolivian labor Laws, the Board shall be entitled to terminate any
of MSC’s officers, at any time with or without cause.  The officers shall be responsible for
implementing the decisions of the Shareholders and the Board and for conducting
the business and affairs of MSC, subject to the terms of this Agreement and the
policies and limitations established by, and the supervision of, the
Shareholders and the Board.

Section 2.6             Indemnification of Directors, Officers,
and Sindicos.

(a)           MSC shall indemnify and
hold harmless, to the maximum extent permitted by applicable Law, any Person
who was or is a party or is threatened to be made a party to, from and against,
any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or
in the right of MSC) by reason of the fact that the Person is or was a Director
or officer of MSC, or is or was serving at the request of MSC as a director or
officer of another Person, against expenses (including reasonable attorneys’
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by the individual in connection with such action, suit, or proceeding
if the individual acted lawfully and in good faith and in a manner the
individual reasonably believed to be in or not opposed to the best interests of
MSC, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe the individual’s conduct was unlawful.

(b)           MSC shall indemnify
each Sindico and hold each Sindico harmless, to the maximum extent permitted by
applicable Law, from and against all claims, causes of action, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, fees, Taxes, and other liabilities, including reasonable attorneys’
fees (whether incurred at trial, at an appellate level, or without litigation)
by whomsoever brought or caused, including any and all of the shareholders,
past, present, or future, of MSC, or any

 39
 

 

Person related
to MSC, which may at any time or times be imposed upon, incurred by or asserted
against such Sindico, in any way arising under or relating to such Sindico’s
appointment as Sindico (including any claim, action, and the like based on an
allegation of improper domicile at the time of such Sindico’s appointment or
during the exercise of such Sindico’s functions) or any resolutions, actions,
lack of actions, or any other performance or non performance by such Sindico as
a result of such Sindico’s said condition, except to the extent of such Sindico’s
gross negligence or willful misconduct. 
MSC, in its own name and that of any of its parent companies, branches,
Subsidiaries, Affiliates, Controlled or related Entities of any kind, hereby
expressly waives and releases each Sindico from any and all claims and causes
of action whatsoever that MSC may at any time or times have against such
Sindico.

Section 2.7             Finance and
Operating Committee.

(a)           Establishment;
Appointment and Removal of Members; Finance and Operating Committee Chairman.  The Shareholders hereby establish a Finance
and Operating Committee (the “Finance and Operating Committee”).  The Finance and Operating Committee shall
consist of one or more members (and one or more alternate members therefor)
appointed and removed by the Apex Shareholders (each, an “Apex Member”)
and one or more members (and one or more alternate members therefor) appointed
and removed by the Sumitomo Shareholders (each, a “Sumitomo Member”).  The chairman of the Finance and Operating
Committee (the “Finance and Operating Committee Chairman”) shall be
appointed and removed by the Shareholder Group that has an aggregate Interest
Ratio in excess of 50% (or by the Shareholder Group having the largest
aggregate Interest Ratio, if no Shareholder Group has an aggregate Interest
Ratio in excess of 50%) from among the members of the Finance and Operating
Committee.  Subject to the limitations
contained in Section 2.7(e), the term and duties of the Finance and Operating
Committee Chairman shall be as determined by the Finance and Operating
Committee.

(b)           Significant
Operational Matters.  To the fullest
extent permitted by applicable Law and notwithstanding anything to the contrary
in the Estatutos or any other Governing Document of MSC or any of its
Subsidiaries, except as provided in Section 2.3(a), Section 2.3(b), Section
2.3(c), Section 2.4, Section 3.3, and Section 3.5, the following acts,
expenditures, decisions, and obligations made or incurred by or on behalf of
MSC or any of its Subsidiaries (each, a “Significant Operational Matter”)
shall require the prior approval of at least one Apex Member and one Sumitomo
Member in a writing or other instrument designated as such:

(i)                                     (A) any
termination of any Material Project Document to which it is a party, any
amendments thereto, or any waiver of any of its rights thereunder, except in
the ordinary course of business; (B) any termination of any Financing
Document to which it is a party, any material amendments thereto, or any waiver
of any of its material rights thereunder; and (C) any voluntary prepayment
of any Indebtedness incurred by MSC or its Subsidiaries pursuant to

 40
 

 

the Financing
Documents or otherwise in an amount exceeding US$10,000,000.00, the refinancing
of any such Indebtedness, or any replacement or restatement of any such
document, agreement, or instrument evidencing such Indebtedness;

(ii)                                  any
exercise or waiver of any “Buy-Out Rights” under the Transmission Line
Agreement;

(iii)                               (A) any
determination to commence legal action with respect to any litigation or
arbitration matter or claim (collectively, a “Claim”) that exceeds or is
reasonably likely to exceed US$10,000,000.00, or (B) any settlement of a
Claim, which settlement (1) exceeds or is reasonably likely to exceed
US$10,000,000.00, (2) involves any acknowledgement by MSC or any of its
Subsidiaries of criminal misconduct or criminal negligence, or
(3) involves any injunctive relief, in each case of clause (A) and (B)
of this Section 2.7(b)(iii), except for any legal action or settlement required
to comply with Law or any legal action or any settlement of any Claim in
response to or as a result of an emergency;

(iv)                              any
entering into any material Contract or any amendment, termination, or waiver of
any of its material rights under any such Contract, (A) which Contract
involves expenditures that are not contemplated by the then applicable Program
and Budget or permitted by Section 2.3(a)(i), Section 2.3(a)(ii), Section
2.3(a)(iii), Section 2.3(a)(iv), Section 2.3(a)(v), or Section 3.5(b);
(B) which Contract effects an amendment, termination, or waiver that is
not permitted under Section 2.7(b)(i); (C) which amendment, termination,
or waiver is not permitted under Section 2.7(b)(i); or (D) which Contract,
amendment, or waiver is not permitted under Section 2.7(b)(v);

(v)                                 any
entering into, amendment of, or waiver of any of its rights under, any Contract
between MSC or any of its Subsidiaries, on the one hand, and any Shareholder or
any Affiliate or Subsidiary of any Shareholder (other than MSC, New Metals, New
Cayman, and their respective Subsidiaries), on the other hand,
(A) involving an expenditure or the incurrence of a liability by MSC or
any of its Subsidiaries exceeding US$1,000,000.00 in any one year or that are
not contemplated by the then applicable Program and Budget or (B) not on
arm’s length terms; and

(vi)                              any
change, replacement, or termination of Service Company pursuant to, or any
amendment, termination, or waiver of, the MSC Management Agreement.

 41
 

 

(c)           Meetings.  Regular meetings of the Finance and Operating
Committee shall be held at least once every calendar quarter, at such times and
places as all the members of the Finance and Operating Committee determine or
the Finance and Operating Committee Chairman determines if such members cannot
agree; provided, however, that no meeting of the Finance and
Operating Committee that is held in person shall be held in a place other than
a location reasonably convenient to all the members of such committee in any of
Denver, Colorado, U.S.A., New York, New York, U.S.A., and La Paz, Bolivia,
unless at least one of each of the Apex Member(s) and the Sumitomo Member(s)
shall have agreed in advance to the holding of such meeting in such other
place.  Special meetings of the Finance
and Operating Committee may be called by the Finance and Operating Committee
Chairman on his or her own initiative or by any two members of the Finance and
Operating Committee.  Reasonable notice
shall be given by facsimile or email or telephone prior to the date such
meeting is to be held.  Members of the
Finance and Operating Committee and alternate members may participate in the
Finance and Operating Committee’s meetings through telephone conference calls,
videoconferences, or any other technological means available.  The Finance and Operating Committee Chairman
shall cause minutes of such meetings to be recorded and entered into the
records of MSC.

(d)           Compensation.  All members of the Finance and Operating
Committee and alternate members shall serve without remuneration by MSC, but
shall be reimbursed by MSC for all reasonable out-of-pocket, travel, lodging,
food, and incidental expenses incurred thereby in connection with their
attendance at any Finance and Operating Committee meetings.

(e)           Scope and Function.  The Finance and Operating Committee shall
serve an informational and advisory function, and as such, shall have no power
or authority to bind MSC or act on its behalf insofar as third parties are
concerned.  Notwithstanding anything to
the contrary in this ARTICLE II, if a Significant Operational Matter has been
approved in writing by at least two members of the Finance and Operating
Committee in accordance with Section 2.7(b), and the Estatutos or applicable
Law requires that such Significant Operational Matter also be approved by the
General Shareholders Meeting or the Board, then each Shareholder shall vote its
Shares or, as applicable, cause any Director it nominated to vote, in favor of
such Significant Operational Matter.

ARTICLE
III

PROGRAM AND BUDGETS

Section 3.1             Initial
Program and Budget.  The Development
Plan is the initial Program and Budget and has been approved by the Board (as
constituted prior to the date hereof). 
The initial Program and Budget may be amended, modified, and revised
from time to time subject to approval by the Board, including, if then
required, approval by the Board in accordance with Section 2.3(a)(iv).

Section 3.2             Annual
Program and Budget.  For each
calendar year beginning from and after the calendar year in which the
Commercial Operations Date falls, at least 60 days prior to the end of that
year, a Program and Budget shall be prepared by MSC’s management, as directed

 42
 

 

by the Board.  Unless directed
otherwise by the Board, each such proposed Program and Budget shall cover a
five-year period, with the part of the Program and Budget related to the first
year being substantially in the form and having substantially the same degree
of detail as the Development Plan, with such changes as MSC’s management
determines are then appropriate considering the stage of operation and
development of the Project.  Once
prepared, such proposed Program and Budget shall be delivered to each of the
Directors, and the Chairman shall call a regular or special meeting of the
Board in accordance with Section 2.2(e) to review, discuss, and vote on such
proposed Program and Budget, which meeting shall in no event be held earlier
than 15 days after the delivery of such proposed Program and Budget to the Sumitomo
Director(s), if any.  During the time
between the delivery of such proposed Program and Budget to the Sumitomo
Director(s), if any, and the meeting of the Board referred to in the preceding
sentence, (a) at the request of any Director, the Board shall hold an
informal meeting (either in person or by conference telephone) to discuss such
proposed Program and Budget, and (b) MSC’s management shall seek to
develop revisions or clarifications to such proposed Program and Budget
reflecting all reasonable requests, if any, of any Director with respect to
such proposed Program and Budget.  For
the avoidance of doubt, unless the Parties agree otherwise, the approval of
such Program and Budget required under Section 2.3(a)(iv) shall be in respect
of the first calendar year of the five-year period covered by the proposed
Program and Budget.

Section 3.3             Deadlock
on Proposed Program and Budgets.

(a)           If the Board fails to
approve a proposed Program and Budget, including a Program and Budget required
to be approved by the Board in accordance with Section 2.3(a)(iv), by the
beginning of the period to which such proposed Program and Budget applies or if
a deadlock is deemed to exist under Section 2.4(a) with respect to a
Significant Matter enumerated in Section 2.3(a)(iv), subject to the contrary
direction of the Board, including, if then required, such direction approved by
the Board in accordance with Section 2.3(a)(iv), and to the receipt of
necessary funds, MSC shall continue operations at levels comparable with the
last adopted Program and Budget.  For
purposes of determining the required contributions of the Shareholders, the
last adopted Program and Budget shall be deemed extended.

(b)           If at any time a
deadlock is deemed to exist under Section 2.4(a) with respect to a Significant
Matter enumerated in Section 2.3(a)(iv) (but only to the extent that such
Section 2.3(a)(iv) deadlock has continued with respect to the approval of any
proposed Program and Budget for at least 180 days after the beginning of the
period to which such proposed Program and Budget applies), then either the Apex
Shareholders or the Sumitomo Shareholders, which ever constitutes the Majority
Shareholder Group, as determined on the date the Deadlock Notice is delivered
hereunder, shall have the right to declare such matter deadlocked by delivering
a written notice declaring such matter deadlocked (a “Deadlock Notice”)
to either the Sumitomo Shareholders or the Apex Shareholders, whichever does
not constitute the Majority Shareholder Group as of such date of determination,
and, thereafter and notwithstanding anything to the contrary in this Agreement,
the approval of such proposed Program and Budget shall require the affirmative
vote of a majority of Directors (or an alternate director for any absent 

 43
 

 

Director)
present at a meeting of the Board where a quorum of a majority of Directors (or
alternate director for any absent Director) is present and acting throughout
the time such vote is taken.  If after a
Deadlock Notice is delivered, such proposed Program and Budget or any
subsequent Program and Budget is approved in accordance with Section
2.3(a)(iv), the deadlock under Section 2.4(a) with respect to a Significant
Matter enumerated in Section 2.3(a)(iv) shall no longer be deemed to exist.

Section 3.4             Put
Right.

(a)           Conditions to
Exercise; Exercise Period.  If
(i) the Apex Shareholders shall have delivered a Deadlock Notice to the
Sumitomo Shareholders pursuant to Section 3.3(b) with respect to a proposed
Program and Budget for any calendar year, (ii) such proposed Program and
Budget shall have been approved by the affirmative vote of a majority of
Directors (or an alternate director for any absent Director), which majority
shall not have included a Sumitomo Director (or an alternate director therefor),
and (iii) the aggregate Interest Ratio of the members of Sumitomo Control
Group that are Sumitomo Interestholders shall be less than 25% solely as a
result of the members of the Sumitomo Control Group that are Sumitomo
Interestholders not contributing their proportionate share of Additional
Post-Commercial Operations Funds under ARTICLE IV pursuant to such proposed
Program and Budget or any other Program and Budget in respect of which a
Deadlock Notice has been delivered by the Apex Shareholders to the Sumitomo
Shareholders (and not as a result of any Sale of Interests or Sumitomo Indirect
Interests), then beginning on the date on which all the conditions specified in
clauses (i) through (iii) of this Section 3.4(a) shall have been satisfied
and ending on the date 180 days thereafter (the “Exercise Period”), the
members of the Sumitomo Control Group that are Sumitomo Interestholders shall
have the right (the “Put Right”) on no more than one occasion to Sell
all, but not less than all, of their Interests, their or their Affiliates’, New
Metals Interests and New Cayman Interests and their or their Affiliates’ right,
title, and interest in the Transmission Line Loan Documents and in all
Defaulting Shareholder Loans made to any Apex Shareholder (collectively, the “Put
Interests”) to the Apex Shareholders for a purchase price equal to the Put
Price on the terms and conditions of this Section 3.4.  The members of the Sumitomo Control Group
that are Sumitomo Interestholders may exercise the Put Right by delivering a
notice (the “Put Notice”) to the Apex Shareholders during the Exercise
Period stating the desire of the members of the Sumitomo Control Group that are
Sumitomo Interestholders to Sell all, but not less than all, of the Put
Interests to the Apex Shareholders for a purchase price equal to the Put Price
on the terms and conditions of this Section 3.4.

(b)           Put Price.  For purposes of this Agreement, “Put Price”
means the product of (i) US$224,000,000.00 times (ii) a
fraction, the numerator of which is December 31, 2005 Reserves minus
Tonnes Processed, and the denominator of which is December 31, 2005
Reserves.  For purposes of this
Agreement, “December 31, 2005 Reserves” means 231,000,000 tonnes of
ore, and “Tonnes Processed” means the aggregate tonnes of ore mined,
crushed, and milled or otherwise processed by MSC from after the date hereof to
and including the date immediately prior to the Put Closing Date.

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(c)           Put Closing.  The closing (the “Put Closing”) of the
purchase and sale of the Put Interests pursuant to this Section 3.4 shall occur
at such time and place as the Apex Shareholders and the members of the Sumitomo
Control Group that are Sumitomo Interestholders agree or, if such time and
place have not otherwise been agreed by them, at the offices of Service Company
at 10:00 a.m., local time, on the date that is 180 days after the Put
Notice shall have been delivered to the Apex Shareholders (subject to delays
reasonably beyond the control of the members of the Sumitomo Control Group that
are Sumitomo Interestholders and the Apex Shareholders in obtaining necessary
approvals and consents of Governmental Authorities and any other Person).  The Parties shall cooperate in good faith
with respect to all actions necessary to effect the Put Closing, including the
execution of all reasonably requested documentation and the making, delivery,
and obtaining of all necessary approvals and consents of Governmental Authorities
and any other Person.  At the Put
Closing, the Apex Shareholders shall pay to the members of the Sumitomo Control
Group that are Sumitomo Interestholders the Put Price by wire transfer of
immediately available Dollar funds to such account or accounts designated by
the members of the Sumitomo Control Group that are Sumitomo Interestholders
prior to the Put Closing against the Sale to the Apex Shareholders of all the
right, title, and interest of the members of the Sumitomo Control Group that
are Sumitomo Interestholders or their Affiliates, as applicable, in and to the
Put Interests, free and clear of all Liens and Restrictions (as defined in the
Purchase and Sale Agreement), other than (i) Liens imposed by applicable
Law or created by this Agreement or the documentation executed and delivered in
connection with the Put Closing, (ii) Liens arising pursuant to the
Governing Documents of MSC and New Metals, and (iii) Liens arising
pursuant to any secured financing consummated by MSC or any of its Subsidiaries.

(d)           Termination of Put Right.  Notwithstanding anything to the contrary
under this Agreement, if a Sale of Interests to which Section 5.2(e) applies
has occurred and such Sale would result in references to “Sumitomo” in this
Agreement being deemed to be to another Person pursuant to Section
5.2(e)(i)(B), then immediately upon the consummation of such Sale this Section
3.4 shall terminate and cease to have any force or effect.

Section 3.5             Overruns;
Emergencies.

(a)           The appropriate officers of MSC shall
notify the Directors promptly of any proposed material departure from the
Program and Budget and of any emergency of the type set forth in Section
3.5(b).

(b)           Notwithstanding anything to the
contrary under this Agreement including Section 2.3(a), in case of emergency or
to comply with applicable Law,  MSC and
any of its Subsidiaries may take any reasonable action and make expenditures
its or their respective officers reasonably deem necessary to protect life,
limb, or property, or to protect and maintain the business and assets of MSC
and any of its Subsidiaries from imminent material economic loss.

 45
 

 

 

Section 3.6             Termination
of Certain ARTICLE III Rights. 
Notwithstanding anything to the contrary in Section 3.2 or Section 3.3,
if the aggregate Interest Ratio of the Sumitomo Shareholders ceases to be at
least 25%, then immediately and thereafter until the termination of this
Agreement:

(a)           except with respect to the exercise
of the Put Right, Section 3.2 and Section 3.3 shall terminate and cease to have
any force or effect;

(b)           the Shareholders shall take all
necessary action to amend the Estatutos accordingly.

ARTICLE
IV

FINANCING OF MSC

Section 4.1             No
Obligation.  No Shareholder shall
have any obligation to make any capital contribution, loan, or provide credit
support to MSC or any of its Subsidiaries except as provided in this Agreement
and the Financing Documents.

Section 4.2             Funding
for the Project through the Commercial Operations Date.

(a)           Deemed Funding.  The total Project investment through the Commercial
Operations Date is estimated as of the date hereof to be US$640,000,000.00 (“Total
Project Investment”) as set forth on Schedule A.  As of the date hereof, the Apex Shareholders
have funded and are deemed to have funded 65% of Total Project Investment and
the Sumitomo Shareholders are deemed to have funded 35% of Total Project
Investment.

(b)           Third-Party Debt Financing;
Additional Pre-Commercial Operations Funds. 
If, prior to the Commercial Operations Date, the Board determines that
additional funds in excess of the Financial Resources are required for MSC to
meet its operating expenses or its capital expenditure requirements or to carry
out any other activities or implement any decision approved by the Board to
achieve Commercial Operations (in the aggregate, the “Additional
Pre-Commercial Operations Funds”), MSC first shall use commercially
reasonable efforts to attempt to obtain such Additional Pre-Commercial
Operations Funds through debt financing from third parties without recourse to
the Shareholders.  If the Board
determines that such third-party debt financing is not available on
commercially reasonable terms or not in the best interests of MSC and its
Subsidiaries or such financing shall not fully provide such Additional
Pre-Commercial Operations Funds, then the Board may request Additional
Pre-Commercial Operations Funds from each Shareholder Group in the form of
loans pursuant to Section 4.4(a).  If the
Board determines that such third-party debt financing and such loans are not
available on commercially reasonable terms or not in the best interests of MSC
and its Subsidiaries or such financing and loans shall not fully provide such
Additional Pre-Commercial Operations Funds, then the Board may request
Additional Pre-Commercial Operations Funds from each Shareholder Group in the
form of contributions to the capital of MSC pursuant to Section 4.4(b).  In connection with any such request, and as
directed by the

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Board, MSC
shall deliver a notice (the “Pre-Commercial Operations Contribution Notice”)
to the Apex Shareholders and the Sumitomo Shareholders.

(c)           Required Additional Pre-Commercial
Operations Contributions.  The Apex
Shareholders and the Sumitomo Shareholders agree among themselves and not for
the benefit of any other Person, including MSC, any creditor of MSC, or any
other shareholder of MSC, that if the Board requests Additional Pre-Commercial
Operations Funds from each Shareholder Group pursuant to Section 4.2(b), each
Shareholder Group shall contribute its respective share of such funds, which
shall be in proportion to its respective Interest Ratio, in each case
determined as of the date immediately prior to the date MSC delivers the
Pre-Commercial Operations Contribution Notice. 
Such contributions, if any, shall be made in accordance with Section
4.4.

(d)           Draws on Sumitomo Completion
Agreement.  If Sumitomo makes any
payment under Section 2.02(a) of the Sumitomo Completion Agreement,
notwithstanding anything in this Agreement to contrary, the Sumitomo
Shareholders shall have the right to have such amount treated as a capital
contribution to MSC upon notice from the Sumitomo Shareholders to the Apex
Shareholders and MSC.  Upon such notice,
(i) the amount so paid by Sumitomo shall be deemed a contribution by the
Sumitomo Shareholders to the capital of MSC, (ii) the “CSA Penalty
Subscription Price” per Share shall be an amount equal to the Implied
Equity of MSC determined in accordance with Section 4.4(a)(v) divided by
the product of two times the number of issued and outstanding Shares immediately
prior to the making of such payment by Sumitomo, (iii) MSC shall issue to
the Sumitomo Shareholders a number of fully paid and nonassessable Shares equal
to the amount so paid by Sumitomo divided by the CSA Penalty
Subscription Price per Share, and (iv) the Shareholders (A) shall vote
their Shares to approve any capital increase necessary to permit the issuance
of such newly issued Shares; (B) take all necessary and appropriate
actions to cause MSC to adopt any decisions and take any actions that may be
necessary to permit such issuance, including an amendment of the Estatutos; and
(C) waive any Preemptive Rights they may have in connection
therewith.  MSC shall not issue
fractional interests in Shares under this Section 4.2(d).  If the Sumitomo Shareholders would otherwise
be entitled to a fractional share interest, MSC shall pay cash in lieu of such
fractional share interest.  The amount of
cash in lieu to be paid shall be determined by multiplying (A) the CSA
Penalty Subscription Price applied in making such conversion by (B) such
fractional share interest, and rounding the product to the nearest whole cent (centavo), with one-half cent (centavo)
being rounded upward.

Section 4.3             Post-Commercial
Operations Funding.

(a)           Third-Party Debt Financing;
Additional Post-Commercial Operations Funds.  If, after the Commercial Operations Date, the
Board determines that additional funds are necessary for MSC to meet its
operating expenses or its capital requirements, or to carry out any other
activities or implement any decision approved by the Board (in the aggregate,
the “Additional Post-Commercial Operations Funds”), MSC first shall use
commercially reasonable efforts to attempt to obtain such Additional Funds
through debt

 47
 

 

 

financing from
third parties without recourse to the Shareholders.  If the Board determines that such third-party
debt financing is not available on commercially reasonable terms or not in the
best interests of MSC and its Subsidiaries or such financing shall not fully
provide such Additional Post-Commercial Operations Funds, then the Board may
request Additional Post-Commercial Operations Funds from each Shareholder Group
in the form of loans pursuant to Section 4.4(a).  If the Board determines that such third-party
debt financing and such loans are not available on commercially reasonable
terms or not in the best interests of MSC and its Subsidiaries or such
financing and loans shall not fully provide such Additional Post-Commercial
Operations Funds, then the Board may request Additional Post-Commercial
Operations Funds from each Shareholder Group in the form of contributions to
capital of MSC pursuant to Section 4.4(b). 
In connection with any such request, and as directed by the Board, MSC
shall deliver a notice (the “Post-Commercial Operations Contribution Notice”)
to the Apex Shareholders and the Sumitomo Shareholders.

(b)           Optional Post-Commercial
Operations Contributions.  If the
Board requests Additional Post-Commercial Operations Funds from each
Shareholder Group pursuant to Section 4.3(a), each Shareholder Group may (but
shall not be obligated to) contribute its respective share of such funds, which
shall be in proportion to its respective Interest Ratio, in each case
determined as of the date immediately prior to the date MSC delivers the
Post-Commercial Operations Contribution Notice. 
Such contributions, if any, shall be made in accordance with Section
4.4.

Section 4.4             Additional
Funding Mechanics.  Additional
Pre-Commercial Operations Funds and Additional Post-Commercial Operations
Funds, if any, to be contributed by each Shareholder Group shall be made in
conformance with the following general principles.

(a)           Shareholder Loans.

(i)                                     Notices;
Terms.  In respect of any
Pre-Commercial Operations Contribution Notice delivered by MSC pursuant to
Section 4.2(b) or any Post-Commercial Operations Contribution Notice delivered
by MSC pursuant to Section 4.3(a), as applicable (a “Shareholder Loan Notice”),
pursuant to which MSC is requesting Additional Pre-Commercial Operations Funds
or Additional Post-Commercial Operations Funds, as applicable (the “Additional
Funds”) from each Shareholder Group in the form of loans (the “Shareholder
Loans”), such Shareholder Loan Notice shall include all relevant terms
relating to such Shareholder Loans, including (A) the date or dates on
which MSC wishes the Shareholder Loans to be advanced, (B) the aggregate
principal amount of the Shareholder Loans requested, (C) the principal
amount of the Shareholder Loans requested from each Shareholder Group, which shall
be in proportion to its respective Interest Ratio, in each case determined as
of the date immediately prior to the date MSC delivers the Shareholder Loan
Notice, (D) the obligor or obligors in respect of

 48
 

 

such Shareholder Loans, and (E) the
terms and conditions of such Shareholder Loans, which terms and conditions
shall be identical for each Shareholder Group (varying only to reflect the
varying principal amounts requested from each Shareholder Group). Such
Shareholder Loans shall: (1) bear interest at a fixed or variable market
rate of interest determined by the Board in good faith based on the tenor and
currency of the Shareholder Loans and other factors the Board determines
relevant; (2) be unsecured and subordinated to all senior secured third-party
debt, if and in the manner (including by way of pledge) required by the lenders
of such third-party debt; (3) be subject to prepayment at any time at MSC’s
option without premium or penalty; (4) be subject to the restrictions on
Sale or Pledge and other applicable terms and conditions of this Agreement,
which fact shall be reflected in all instruments or other documents
representing such Shareholder Loans, if any; (5) so long as the Financing
Documents (or any replacement therefor) shall be in effect, no event of default
shall occur under the Shareholder Loans in the event MSC fails to pay principal
or interest thereunder, and the only events of default under the Shareholder
Loans shall be those of the type set forth in Section 6 of the Defaulting
MSC Loan (or any replacement therefor); (6) have a term of 10 years unless
otherwise agreed by all Shareholders; and (7) include such other terms and
conditions as the Board may approve, taking into consideration the requirements
of any third-party debt of MSC and its Subsidiaries, cash flow requirements,
and other factors the Board determines relevant.

(ii)                                  Responses
to Shareholder Loan Notices.

(A)                              With
respect to a Shareholder Loan Notice delivered pursuant to Section 4.2(b), each
Shareholder Group shall deliver the Additional Funds required thereby in the
manner and in accordance with the time period set forth in such Shareholder
Loan Notice.

(B)                                With
respect to a Shareholder Loan Notice delivered pursuant to Section 4.3(a), in
accordance with the time period for responding set forth in such Shareholder
Loan Notices, each Shareholder Group shall deliver to MSC a written response
notice (a “Shareholder Loan Response Notice”) indicating whether such
Shareholder Group is willing to loan such Additional Funds to MSC on the terms
and conditions described in such Shareholder Loan Notice.

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(iii)                               Supplemental
Loans.  If (A) MSC requests
Shareholder Loans pursuant to Section 4.3(a) and the Apex Shareholders or the
Sumitomo Shareholders either fail to deliver a Shareholder Loan Response Notice
or deliver a Shareholder Loan Response Notice indicating that they shall not
loan the entire amount requested of them in the applicable Shareholder Loan
Notice, or, (B) if MSC requests Shareholder Loans pursuant to Section
4.2(b) or MSC requests Shareholder Loans pursuant to Section 4.3(a) and the
Apex Shareholders or the Sumitomo Shareholders fail to advance the entire
amount required or requested of them on the date set by MSC for such advance
(in any such case, the “Non-Lending Shareholder Group”), then MSC shall
promptly notify (a “Non-Lending Shareholder Notice”) the Apex
Shareholders and the Sumitomo Shareholders of same.  The “Qualified Shareholder Group”
shall be, (A) in the case of a Shareholder Loan Notice delivered pursuant
to Section 4.3(a), if the date set forth by MSC for such advance has not
occurred, the Shareholder Group that delivered a Shareholder Loan Response
Notice indicating that it would loan the entire amount requested of it in the
applicable Shareholder Loan Notice and, (B) in the case of a Shareholder
Loan Notice delivered pursuant to either Section 4.2(b) or Section 4.3(a), if
the date set forth by MSC for such advance has occurred, the Shareholder Group
that has advanced the entire amount required or requested of it.  Upon receipt of a Non-Lending Shareholder
Notice, the Qualified Shareholder Group shall notify MSC (within 10 days
of receipt thereof) of its election of one of the following options:

(A)                              such
Qualified Shareholder Group intends to loan to MSC an amount equal to the
amount of the advance required or requested of it plus all, but not less than
all, of the amount of the advance required or requested of the Non-Lending
Shareholder Group; or

(B)                                such
Qualified Shareholder Group has elected not to advance the amount required or
requested of it under the applicable Shareholder Loan Notice; or

(C)                                such
Qualified Shareholder Group has elected to propose an alternative funding
requirement to the program or budget item underlying the applicable Shareholder
Loan Notice (a “Loan Alternative Funding”).

In the event the Qualified Shareholder Group elects to propose a Loan
Alternative Funding, the Qualified Shareholder Group shall deliver a written
description of such alternative to MSC and the

 50
 

 

Shareholders and MSC shall deliver an alternative Shareholder Loan
Notice to the Shareholders with respect thereto (the “Alternative
Shareholder Loan Notice”); provided, that, any Alternative
Shareholder Loan Notice shall include all relevant terms relating to the Loan
Alternative Funding and shall otherwise be consistent with clauses (A) through
(E) and clauses (1) through (7) of Section 4.4(a)(i), mutatis
mutandis.  The Non-Lending
Shareholder Group shall have five Business Days from receipt of the Alternative
Shareholder Loan Notice to notify MSC and the Qualified Shareholder Group
whether such Non-Lending Shareholder Group intends to either loan to MSC the
entire amount requested of it pursuant to the Alternative Shareholder Loan
Notice or elects not to fund such requested loan amount.  If the Non-Lending Shareholder Group elects
to make such loan, then the Non-Lending Shareholder Group and the Qualified
Shareholder Group shall deliver the Additional Funds in the manner and in
accordance with the time period set forth in such Alternative Shareholder Loan
Notice.  If the Non-Lending Shareholder
Group elects not to fund the requested amount under the Alternative Shareholder
Loan Notice or otherwise fails to deliver the Additional Funds in the manner
and in accordance with the time period set forth in the Alternative Shareholder
Loan Notice, then the Qualified Shareholder Group may elect to either
(A) loan to MSC an amount equal to the amount of the advance requested of
it under either (1) the original Shareholder Loan Notice plus all, but not
less than all, of the amount of the advance requested of the Non-Lending
Shareholder Group thereunder or (2) the Alternative Shareholder Loan
Notice plus all, but not less than all, of the amount of the advance requested
of the Non-Lending Shareholder Group thereunder, or (B) not to advance any
amount requested of it under either shareholder notice.  Any amount loaned by the Qualified
Shareholder Group in the stead of the Non-Lending Shareholder Group in
accordance with this Section 4.4(a)(iii) shall be a “Supplemental Loan.”  The Supplemental Loan together with the
Shareholder Loan that such Supplemental Loan supplements shall be a “Consolidated
Loan.”

(iv)                              Contribution
of Consolidated Loans.  The Qualified
Shareholder Group that makes Supplemental Loans pursuant to and in accordance
with Section 4.4(a)(iii) in connection with a Shareholder Loan Notice delivered
pursuant to Section 4.3(a) may, at its option and at any time, in the name and
on behalf of the members of such Qualified Shareholder Group, contribute to MSC’s
capital all or part of the outstanding principal amount of, and accrued and
unpaid interest on, the applicable Consolidated Loan against the issuance to
members of such Qualified

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Shareholder
Group of a number of fully paid and nonassessable Shares determined by dividing
the sum of the principal amount and the amount of accrued and unpaid interest
being contributed by a price per Share equal to the Conversion Price determined
pursuant to Section 4.4(a)(v).  The
Qualified Shareholder Group that makes Supplemental Loans pursuant to and in
accordance with Section 4.4(a)(iii) in connection with a Shareholder Loan
Notice delivered pursuant to Section 4.2(b) may, at its option and at any time,
in the name and on behalf of the members of such Qualified Shareholder Group,
contribute to MSC’s capital all or part of the outstanding principal amount of,
and accrued and unpaid interest on, the applicable Consolidated Loan against
the issuance to the members of such Qualified Shareholder Group of, a number of
fully paid and nonassessable Shares determined by dividing (w) the product of
two times the sum of the principal amount and the amount of accrued and
unpaid interest being contributed by (x) a price per Share equal to the
Conversion Price determined pursuant to Section 4.4(a)(v).  The Qualified Shareholder Group desiring to
exercise its contribution right (y) shall deliver to MSC a written notice
(a “Consolidated Loan Contribution Notice”) indicating the Consolidated
Loan to be contributed and (z) shall follow the requirements for doing so
set forth in the terms and conditions of such Supplemental Loan.  The date on which the Qualified Shareholder
Group has delivered a Consolidated Loan Contribution Notice and satisfied all
such requirements for contribution is referred to as the “Conversion Date”
for that contribution.  The Shareholders
(A) shall vote their Shares to (1) approve any capital increase
necessary to permit the contribution in full of such Consolidated Loan,
(2) set the maximum term permitted by Law for the subscription of the
Shares (“New Shares”) to be issued upon such contribution,
(3) authorize any New Shares to be paid through the contribution to
capital of such Consolidated Loan,
and (4) consent to the payment for New Shares in kind with such
Consolidated Loan, valued in each case at the amount of the outstanding
principal amount of, and accrued and unpaid interest on, such Consolidated
Loan, without an expert appraisal thereof; (B) take all necessary and
appropriate actions to cause MSC to adopt any decisions and take any actions
that may be necessary to permit such contribution, including an amendment of
the Estatutos; and (C) waive any Preemptive Rights they may have in
connection therewith.

(v)                                 Conversion
Price.  For purposes of the
contribution of Consolidated Loans on the Conversion Date therefor, the “Conversion
Price” shall equal the Implied Equity of MSC divided by the total
number of issued and outstanding Shares immediately

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prior to such
contribution.  “Implied Equity of MSC”
means the sum of (A) Total Project Investment plus (B) the
total of all actual capital contributions made to MSC by all Shareholders and
other members of either Control Group from and after the date hereof to and
including the time immediately prior to such contribution.

(vi)                              No
Fractional Shares.  MSC shall not
issue fractional interests in Shares upon contribution of any Consolidated Loan
or in respect of any Shareholder Capital Contribution.  To the extent the Qualified Shareholder Group, or,
in the case of Section 4.4(b), the Qualified Contributor Group,
would otherwise be entitled to a fractional share interest, MSC shall pay cash
in lieu of such fractional share interest. 
The amount of cash in lieu to be paid shall be determined by multiplying
(A) the Conversion Price applied in making such conversion by
(B) such fractional share interest, and rounding the product to the
nearest whole cent (centavo), with
one-half cent (centavo) being rounded upward.

(b)           Capital Contributions.

(i)                                     Board
Determination; Notices; Terms.  In
respect of any Pre-Commercial Operations Contribution Notice delivered by MSC
pursuant to Section 4.2(b) or any Post-Commercial Operations Contribution
Notice delivered by MSC pursuant to Section 4.3(a), as applicable (a “Shareholder
Capital Contribution Notice”), pursuant to which MSC is requesting the
Additional Funds from each Shareholder Group in the form of contributions to
the capital of MSC (“Shareholder Capital Contributions”), such
Shareholder Capital Contribution Notice shall include all relevant terms
relating to such Shareholder Capital Contributions, including (A) the date
or dates on which MSC wishes the Shareholder Capital Contributions to be made,
(B) the aggregate amount of the Shareholder Capital Contributions requested,
(C) the amount of the Shareholder Capital Contributions requested from
each Shareholder Group, which shall be in proportion to its respective Interest
Ratio, in each case determined as of the date immediately prior to the date MSC
delivers the Shareholder Capital Contribution Notice, and (D) the terms
and conditions of such Shareholder Capital Contributions, which terms and
conditions shall be identical for each of the Shareholder Groups
(varying only to reflect the varying amounts requested from each Shareholder Group).

(ii)                                  Responses
to Shareholder Capital Contribution Notices.

(A)                              With respect to a
Shareholder Capital Contribution Notice delivered pursuant to Section 4.2(b),
each Shareholder

 53
 

 

 

Group shall deliver the Shareholder Capital Contribution required
thereby in the manner and in accordance with the time period set forth in such
Shareholder Capital Contribution Notice.

(B)                                With respect to a
Shareholder Capital Contribution Notice delivered pursuant to Section 4.3(a),
in accordance with the time period for responding set forth in such Shareholder
Capital Contribution Notices, each Shareholder Group shall deliver to MSC a
written response notice (a “Shareholder Capital Contribution Response Notice”)
indicating whether such Shareholder Group is willing to contribute such
Additional Funds to MSC on the terms and conditions described in such
Shareholder Capital Contribution Notice.

(iii)                               Supplemental
Capital Contributions.  If
(A) MSC requests Shareholder Capital Contributions pursuant to Section
4.3(a) and the Apex Shareholders or the Sumitomo Shareholders either fail to
deliver a Shareholder Capital Contribution Response Notice or deliver a
Shareholder Capital Contribution Response Notice indicating that they shall not
make the entire capital contribution requested of them in the applicable
Shareholder Capital Contribution Notice, or, (B) if MSC requests
Shareholder Capital Contributions pursuant to Section 4.2(b) or MSC requests
Shareholder Capital Contributions pursuant to Section 4.3(a) and the Apex
Shareholders or the Sumitomo Shareholders fail to make the entire capital
contribution required or requested of them on the date set by MSC for such
contribution (in any such case, the “Non-Contributing Shareholder Group”),
then MSC shall promptly notify (a “Non-Contributing Shareholder Notice”)
the Apex Shareholders and the Sumitomo Shareholders of same.  The “Qualified Contributor Group”
shall be, (A) in the case of a Shareholder Capital Contribution Notice
delivered pursuant to Section 4.3(a), if the date set forth by MSC for such
contribution has not occurred, the Shareholder Group that delivered a
Shareholder Capital Contribution Response Notice indicating that it would
contribute  the amount requested of it in
the applicable Shareholder Capital Contribution Notice and, (B) in the
case of a Shareholder Capital Contribution Notice delivered pursuant to either
Section 4.2(b) or Section 4.3(a), if the date set forth by MSC for such
contribution has occurred, the Shareholder Group that has contributed the
entire capital contribution required or requested of it.  Upon receipt of a Non-Contributing
Shareholder Notice, the Qualified Contributor Group shall notify MSC (within
10 days of receipt thereof) of its election of one of the following
options:

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(A)                              such Qualified
Contributor Group intends to make a capital contribution to MSC in an amount
equal to the amount of capital required or requested of it plus all, but not
less than all, of the amount of the capital required or requested of the
Non-Contributing Shareholder Group; or

(B)                                such Qualified
Contributor Group has elected not to contribute the amount required or
requested of it under the applicable Shareholder Capital Contribution Notice;
or

(C)                                such Qualified
Shareholder Group has elected to propose an alternative funding requirement to
the program or budget item underlying the applicable Shareholder Capital
Contribution Notice (a “Contribution Alternative Funding”).

In the event
the Qualified Contributor Group elects to propose a Contribution Alternative
Funding, the Qualified Contributor Group shall deliver a written description of
such alternative to MSC and the Shareholders and MSC shall deliver an
alternative Shareholder Capital Contribution Notice to the Shareholders with
respect thereto (the “Alternative Shareholder Capital Contribution Notice”);
provided, that, any Alternative Shareholder Capital Contribution Notice
shall include all relevant terms relating to the Contribution Alternative
Funding and shall otherwise be consistent with clauses (A) through (D) of
Section 4.4(b)(i), mutatis mutandis.  The Non-Contributing Shareholder Group shall
have five Business Days from receipt of the Alternative Shareholder Capital
Contribution Notice to notify MSC and the Qualified Contributor Group whether
such Non-Contributing Shareholder Group intends to either contribute to MSC the
entire amount requested of it pursuant to the Alternative Shareholder Capital
Contribution Notice or elects not to contribute such requested amount.  If the Non-Contributing Shareholder Group
elects to make such contribution, then the Non-Contributing Shareholder Group
and the Qualified Contributor Group shall deliver the Shareholder Capital
Contributions in the manner and in accordance with the time period set forth in
such Alternative Shareholder Capital Contribution Notice.  If the Non-Contributing Shareholder Group
elects not to fund the requested amount under the Alternative Shareholder
Capital Contribution Notice or otherwise fails to deliver the Shareholder
Capital Contributions in the manner and in accordance with the time period set
forth in the Alternative Shareholder Capital Contribution Notice, then the
Qualified Contributor Group may elect to either (A) contribute to MSC an
amount equal to the amount of the capital contribution requested

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of it under
either (1) the original Shareholder Capital Contribution Notice plus all,
but not less than all, of the amount of the capital contribution requested of
the Non-Contributing Shareholder Group thereunder or (2) the Alternative
Shareholder Capital Contribution Notice plus all, but not less than all, of the
amount of the capital contribution requested of the Non-Contributing
Shareholder Group thereunder, or (B) not to contribute any amount
requested of it under either shareholder notice.

(iv)                              Subscription
Price; Subscription.

(A)                              In
the case of a Shareholder Capital Contribution Notice delivered pursuant to
Section 4.2(b), where each Shareholder Group has delivered the Shareholder
Capital Contribution required thereby in the manner and in accordance with the
time period set forth in such Shareholder Capital Contribution Notice, and in
the case of a Shareholder Capital Contribution Notice delivered pursuant to
Section 4.3(a), the “Subscription Price” per Share shall be an amount
equal to the Implied Equity of MSC determined in accordance with Section
4.4(a)(v) divided by the number of issued and outstanding Shares
immediately prior to the making of such Shareholder Capital Contributions, and
subject to Section 4.4(a)(vi), against payment to MSC of the aggregate
Subscription Price per Share equal to the amount of the Shareholder Capital
Contributions to be made by the Apex Shareholders or the Sumitomo Shareholders,
as applicable, MSC shall issue to such Shareholders a number of fully paid and
nonassessable Shares equal to such aggregate amount divided by the
Subscription Price per Share.

(B)                                In
the case of a Shareholder Capital Contribution Notice delivered pursuant to
Section 4.2(b), where either the Apex Shareholders or the Sumitomo Shareholders
have not delivered the Shareholder Capital Contribution required thereby in the
manner and in accordance with the time period set forth in such Shareholder
Capital Contribution Notice, the “Penalty Subscription Price” per Share
shall be an amount equal to the Implied Equity of MSC determined in accordance
with Section 4.4(a)(v) divided by the product of two times the
number of issued and outstanding Shares immediately prior to the making of such
Shareholder Capital Contributions, and subject to Section 4.4(a)(vi), against
payment to MSC of the aggregate Penalty Subscription Price per Share equal to
the amount of the

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Shareholder
Capital Contributions made by the Apex Shareholders or the Sumitomo
Shareholders, as applicable, MSC shall issue to such Shareholders a number of
fully paid and nonassessable Shares equal to such aggregate amount divided
by the Penalty Subscription Price per Share.

(C)                                For
purposes this Section 4.4(b)(iv), the Shareholders (1) shall vote their
Shares to approve any capital increase necessary to permit the issuance of such
newly issued Shares; (2) take all necessary and appropriate actions to
cause MSC to adopt any decisions and take any actions that may be necessary to
permit such issuance, including an amendment of the Estatutos; and
(3) waive any Preemptive Rights they may have in connection therewith.

ARTICLE V

TRANSFERS

Section 5.1             General
Restrictions on Sales and Pledges; Legend; Effect of Sales and Pledges Not in
Accordance with This Article.

(a)           Except
as permitted under Section 5.2, the Interestholders agree that no
Interestholder may Sell or Pledge any of its Interests, without first complying
with the provisions of this ARTICLE V. 
The Interestholders intend for the provisions of this ARTICLE V to
govern Sales and Pledges of Interests and Indirect Interests, and, to the
extent, but only to the extent, necessary to effectuate the provisions of this
ARTICLE V, the Interestholders hereby waive any rights that they may have under
the Estatutos, Bolivian Law, and any other applicable Law that are inconsistent
with the terms of this ARTICLE V.

(b)           MSC shall include upon each certificate, instrument, or
other document, if any, representing the Interests owned by the Interestholders
a legend in substantially the form set forth below:

THE [NAME OF INTERESTS] REPRESENTED BY THIS [NAME OF DOCUMENT] ARE
SUBJECT TO THE TERMS AND CONDITIONS OF THE MSC SHAREHOLDERS AGREEMENT, DATED AS
OF SEPTEMBER 25, 2006, AMONG MINERA SAN CRISTÓBAL, S.A. AND ITS
SHAREHOLDERS, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE THEREWITH.

This Agreement also has
been deposited with MSC and MSC shall make a notation on the shareholder
registry (or equivalent record of holders of other Interests) that the

 57
 

 

 

Interests owned by the
Interestholders may not be Sold or Pledged except in accordance with the terms
and conditions of this Agreement.

(c)           The Special Purpose Interestholders
shall include upon each certificate, instrument, or other document, if any,
representing interests owned in such Entities a legend in substantially the
form set forth below:

THE [NAME OF INTERESTS] REPRESENTED BY THIS [NAME OF DOCUMENT] ARE
SUBJECT TO THE TERMS AND CONDITIONS OF THE MSC SHAREHOLDERS AGREEMENT, DATED AS
OF SEPTEMBER 25, 2006, AMONG MINERA SAN CRISTÓBAL, S.A. AND ITS
SHAREHOLDERS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE THEREWITH.

This Agreement also has
been deposited with each Special Purpose Interestholder and each Special Purpose
Interestholder shall make a notation on its shareholder registry (or equivalent
record of holders of other Interests) that the interests owned in such Entity
may not be Sold or Pledged except in accordance with the terms and conditions
of this Agreement.

(d)           The Interestholders
agree that any Sale or Pledge of Interests in violation of the provisions of
this ARTICLE V shall be null and void. 
MSC shall not record any such purported Sale or Pledge on its books or
treat any purported Transferee of such Interests as the owner thereof for any
purpose.

Section 5.2             Certain Restrictions on Sales
and Pledges.  The Interestholders
agree that:

(a)           No Sumitomo Interestholder may Sell or Pledge
any of its Interests, and no
Sumitomo Interestholder may permit any of its Affiliates to Sell or Pledge any
Sumitomo Indirect Interests in a Special Purpose Interestholder, other
than pursuant to:

(i)                                     any Sale of any of
its Interests or any Sumitomo Indirect Interests in a Special Purpose Interestholder to any member of the Sumitomo
Control Group; provided, that, in the case of a wholly-owned Subsidiary
of Sumitomo, such wholly-owned Subsidiary is not a Disqualified Person under
clause (a) of the definition thereof;

(ii)                                  any Sale of any of
its Interests or any Sumitomo Indirect Interests in a Special Purpose
Interestholder in accordance with the procedures, and subject to the
limitations, set forth in Section 5.3 or Section 5.4, as applicable;

(iii)                               any Sale or Pledge of
any of its Interests or any Sumitomo Indirect Interests in a Special Purpose
Interestholder to any member of the Apex Control Group, including pursuant to
Section 3.4;

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(iv)                              any Sale or Pledge of any
of its Interests or any Sumitomo Indirect Interests in a Special Purpose Interestholder to any secured party in respect
of any Indebtedness of any of MSC and its Subsidiaries;

(v)                                 any Sale or Pledge of
any of its Interests or any Sumitomo Indirect Interests in a Special Purpose Interestholder to any secured party in
respect of any Indebtedness of Sumitomo or any of its Subsidiaries under the
Financing Documents;

(vi)                              any Sale of any of its
Interests or any Sumitomo Indirect Interests in a Special Purpose Interestholder without regard to the
procedures or the limitations set forth in Section 5.3 or Section 5.4 to any Person
that is not a Disqualified Person, so long as the definitive agreement with
respect to such Sale is entered into during the two-year period immediately
following the occurrence of an Apex Change of Control; or

(vii)                           any Sale of its Interests
pursuant to Section 6.3.

(b)           No Apex
Interestholder may Sell or Pledge any of its Interests, and no Apex
Interestholder may permit any of its Affiliates to Sell or Pledge any Apex
Indirect Interests in a Special
Purpose Interestholder, other than pursuant to:

(i)                                     any Sale any of
its Interests or any Apex Indirect Interests in a Special Purpose Interestholder to any member of the Apex
Control Group; provided, that, in the case of a wholly-owned Subsidiary
of Apex, such wholly-owned Subsidiary is not a Disqualified Person under
clause (a) of the definition thereof;

(ii)                                  any Sale of any of
its Interests or any Apex Indirect Interests in a Special Purpose Interestholder in accordance with the
procedures, and subject to the limitations, set forth in Section 5.3 or Section
5.4, as applicable;

(iii)                               any Sale or Pledge of
any of its Interests or any Apex Indirect Interests in a Special Purpose Interestholder to any member of the
Sumitomo Control Group;

(iv)                              any Sale or Pledge of any
of its Interests or any Apex Indirect Interests in a Special Purpose Interestholder to any secured party in
respect of any Indebtedness of any of MSC and its Subsidiaries;

(v)                                 any Sale or Pledge of
any of its Interests or any Apex Indirect Interests in a Special Purpose Interestholder to any secured party in
respect of any Indebtedness of Apex or any of its Subsidiaries under the
Financing Documents;

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(vi)                              any Sale by the members
of the Apex Control Group that are Apex Interestholders of any of their
respective Interests to any Person that is not a Disqualified Person under
clause (a) of the definition thereof, if (A) immediately prior to
such Sale, the members of the Apex Control Group that are Apex Interestholders
have an aggregate Interest Ratio of more than 50%, and (B) immediately
following such Sale the members of the Apex Control Group that are Apex
Interestholders have an aggregate Interest Ratio of at least 50%; or

(vii)                           any Sale of its Interests
pursuant to Section 6.3.

(c)           In the case of any
Sale of Interests permitted under this Section 5.2, prior to the completion of
any such Sale, the Person to whom such Sale is proposed to be made (the “Prospective
Transferee”) shall execute and deliver to the Parties an instrument under
which the Prospective Transferee agrees to become a Party, to assume, perform,
and discharge all of the obligations of the Interestholder Selling its
Interests in respect of the Interests being Sold, and to receive, subject to Section 5.2(e), the
benefits and rights under, and otherwise be bound by all of the terms of this
Agreement and the other Transaction Documents, to the extent applicable with
respect to the Interestholder Selling its Interests.  Upon any Sale of Interests in accordance with
this Section 5.2, the Interestholder Selling any of its Interests hereunder
shall be released from its obligations under this Agreement in respect of the
Interests Sold arising from and after the completion of such Sale, except for
such obligations arising out of events or circumstances that occurred prior to
the completion of such Sale, whether accruing before, at, or after the
completion of such Sale.

(d)           In the case of any Sale of Interests pursuant to this
Section 5.2 (other than any Sale pursuant to Section 5.2(a)(i) or Section
5.2(b)(i)) or Section 6.3,
simultaneously with the completion of any such Sale, the Interestholder Selling
its Interests:

(i)                                     shall,
or shall cause one or more of the New Metals Quotaholders that is its Affiliate
(collectively with the Interestholder Selling its Interests, the “Affiliated
Quotaholders”) to, Sell to the Transferee (or any designated Affiliate
thereof) such part of such New Metals Quotaholders’ New Metals Quota as is
necessary such that the aggregate Interest Ratio of the Interestholder Selling
its Interests and its Control Group and the aggregate New Metals Interest Ratio
of the Affiliated Quotaholders are the same percentage;

(ii)                                  shall,
or shall cause one or more of the New Cayman Shareholders that is its Affiliate
(collectively with the Interestholder Selling its Interests, the “Affiliated
New Cayman Shareholders”) to, Sell to the Transferee (or any designated
Affiliate thereof) such part of such New Cayman Shareholders’ New Cayman Shares
as is necessary such that the aggregate Interest Ratio of the Interestholder
Selling its Interests and its Control Group and the

 60
 

 

 

aggregate New
Cayman Interest Ratio of the Affiliated New Cayman Shareholders are the same
percentage; and

(iii)                               shall,
or shall cause one or more of its Affiliates to, Sell to the Transferee (or any
designated Affiliate thereof) such part of its right, title, and interest in
the Transmission Line Loan Documents as is necessary such that the aggregate
Interest Ratio of the Interestholder Selling its Interests and its Control
Group and the aggregate outstanding principal amount payable pursuant to the
Transmission Line Loan Documents to the Interestholder Selling its Interests
and its Control Group, expressed as a percentage of the aggregate outstanding
principal amount payable pursuant to the Transmission Line Loan Documents to
all the holders thereof are the same percentage.

The Sale of all or part of any New Metals Quota pursuant to this
Section 5.2(d) shall be subject to and in accordance with the terms,
conditions, procedures, and limitations set forth in the New Metals Quotaholders
Agreement.  The Sale of all or part of
any New Cayman Shares pursuant to this Section 5.2(d) shall be subject to and
in accordance with the terms, conditions, procedures, and limitations set forth
in the New Cayman Shareholders Agreement. 
The Sale of all or part of the right, title, and interest in the
Transmission Line Loan Documents shall be subject to and in accordance with the
terms, conditions, procedures, and limitations set forth in the Transmission
Line Loan Documents.

(e)                                  (i)            If the proposed Sale of such
Interests or Indirect Interests to which Section 5.2(a)(vi), Section 5.3, or
Section 5.4 applies involves the Sale, directly or indirectly, of all, but not
less than all, of the Interests of the Interestholder Group to which the
Interestholder Selling its Interests belongs, then, unless the Parties agree
otherwise:

(A)                              if
the Interestholder Selling its Interests is an Apex Interestholder,  references to “Apex” in this Agreement shall
be deemed to refer to the Transferee or, if the Transferee is a wholly-owned
Subsidiary, directly or indirectly, of one or more Persons, each Person of
which the Transferee is its wholly-owned Subsidiary;

(B)                                if
the Interestholder Selling its Interests is a Sumitomo Interestholder,
references to “Sumitomo” in this Agreement shall be deemed to refer to the
Transferee or, if the Transferee is a wholly-owned Subsidiary, directly or
indirectly, of one or more Persons, each Person of which the Transferee is its
wholly-owned Subsidiary; and

 61
 

 

 

(C)                                the
Transferee shall have the same rights and benefits and the same obligations
under this Agreement as the
Interestholder Selling its Interests in respect of the Interests being Sold.

(ii)                                  If
any proposed Sale of such Interests or Indirect Interests to which Section
5.2(a)(vi), Section 5.2(b)(vi), Section 5.3, or Section 5.4 applies involves
the Sale, directly or indirectly, of less than all of the Interests of the
Interestholder Group to which the Interestholder Selling its Interests belongs,
then, the Parties shall negotiate in good faith such amendments to this
Agreement, the New Metals Quotaholders Agreement, the New Cayman Shareholders
Agreement, the Transmission Line Loan Documents, the Governing Documents of
MSC, New Metals, and New Caymans, and such other documents, agreements, and
instruments related thereto to modify them as appropriate (A) so as to
effect the intent of the parties hereto and thereto as closely as possible in a
mutually acceptable manner, (B) so that such proposed Sale can be effected
in accordance with the terms of this Agreement, and (C) so that the
Transferee has such rights and obligations hereunder and thereunder as the
parties hereto and thereto mutually agree are appropriate given the Interests
or Indirect Interests to be acquired in such proposed Sale.

Section 5.3             Sales
to Third Parties; Right of First Refusal. 
The Interestholders agree that:

(a)           If a Selling Interestholder desires
to Sell its Section 5.3 Offered Interests, or an Affiliate of a Selling
Interestholder desires to Sell its Indirect Interests in a Special Purpose
Interestholder, to one or more Persons other than a Permitted Transferee (a “Proposed
Third-Party Buyer”), the Selling Interestholder shall, or shall cause its
Affiliate to, first make a written offer to Sell the Section 5.3 Offered
Interests or the Indirect Interests, as applicable, to either (i) the Apex
Interestholders, if the Selling Interestholder is a Sumitomo Interestholder or
if such selling Affiliate is an Affiliate of a Sumitomo Interestholder or
(ii) the Sumitomo Interestholders, if the Selling Interestholder is an
Apex Interestholder or if such selling Affiliate is an Affiliate of an Apex
Interestholder (as applicable, the “Non-Selling Interestholders”), by
delivering to the Non-Selling Interestholders a written notice of its intention
to Sell the Section 5.3 Offered Interests or the Indirect Interests, as
applicable (the “Sale Notice”), which Sale Notice shall describe in reasonable detail the price
and other terms and conditions upon which the Selling Interestholder desires to
Sell the Section 5.3 Offered Interests or an Affiliate of the Selling
Interestholder desires to Sell its Indirect Interests, as applicable, to the
Proposed Third-Party Buyer and shall be accompanied by a copy of the bona fide offer or contract for sale with the Proposed
Third-Party Buyer (the “Offered Terms”).

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(b)           The Non-Selling Interestholders shall
have the right for a 60-day period (the “Section 5.3 Offer Period”)
after receipt of the Sale Notice to agree to purchase the Section 5.3 Offered
Interests or the Indirect Interests, as applicable, by delivering to the
Selling Interestholder a written notice accepting the Offered Terms.

(c)           If the Non-Selling Interestholders
agree to purchase the Section 5.3 Offered Interests or the Indirect Interests,
as applicable, in accordance with Section 5.3(b), the Section 5.3 Offered
Interests or the Indirect Interests, as applicable, shall be sold to such
Non-Selling Interestholders (on a pro rata basis,
based on their respective Interest Ratios, unless the Non-Selling
Interestholders agree otherwise) on the Offered Terms.  If the Non-Selling Interestholders do not
agree to purchase the Section 5.3 Offered Interests or the Indirect Interests,
as applicable, within the Section 5.3 Offer Period, the Selling Interestholder
may Sell all, but not less than all, of the Section 5.3 Offered Interests or
the Affiliate of the Selling Interestholder may Sell all, but not less than
all, of the Indirect Interests, as applicable, to the Proposed Third-Party
Buyer on the conditions that:

(i)                                     such
Sale to the Proposed Third-Party Buyer is on terms and conditions no less
favorable to the Selling Interestholder than the Offered Terms;

(ii)                                  such
Sale to the Proposed Third-Party Buyer is completed within 60 days after the
end of the Section 5.3 Offer Period (subject to delays reasonably beyond the
control of the Selling Interestholder (or its Affiliates) in obtaining required
approvals and consents of Governmental Authorities and any other Person, which
delays would not result in such Sale being completed more than 120 days after
the end of the Section 5.3 Offer Period);

(iii)                               in
connection with the Sale of Section 5.3 Offered Interests, the Proposed
Third-Party Buyer executes and delivers to the Parties an instrument under
which the Proposed Third-Party Buyer agrees to become a Party, to assume,
perform, and discharge all of the obligations of the Selling Interestholder in
respect of the Interests to be Sold to such Proposed Third-Party Buyer, and to
receive, subject to Section 5.2(e),
the benefits and rights under, and otherwise be bound by all of the terms of,
this Agreement and the other Transaction Documents, to the extent applicable
with respect to the Interestholder Selling its Interests (it being understood that upon such Sale
to such Proposed Third-Party Buyer pursuant to this Section 5.3, the Selling
Interestholder shall be released of its obligations under this Agreement in
respect of the Section 5.3 Offered Interests Sold arising from and after the
completion of such Sale, except for
such obligations arising out of events or circumstances that occurred prior to
the completion of such Sale,

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whether accruing before, at,
or after the completion of such Sale); and

(iv)                              the
Proposed Third-Party Buyer shall not be a
Disqualified Person.

If the Selling Interestholder fails to complete the Sale of such
Section 5.3 Offered Interests or the Affiliate of the Selling Interestholder
fails to complete the Sale of the Indirect Interests, as applicable, within
such 60-day period (as extended for up to an additional 60 days for delays as
provided above), the provisions of this Section 5.3 shall apply again to any
proposed Sale of such interests to which this Section 5.3 applies.

(d)           For purposes of this Agreement, “Selling
Interestholder” means (i) any Interestholder that is part of an
Interestholder Group that has an aggregate Interest Ratio of at least 25% and
not more than 50%, as determined on the date the Sale Notice is delivered
pursuant to Section 5.3(a), that desires to Sell all or any of its Interests
and (ii) any Interestholder that is part of an Interestholder Group that
has aggregate Interest Ratio of more than 50%, as determined on the date the
Sale Notice is delivered pursuant to Section 5.3(a), that desires to Sell all
of its Interests or so much of its Interests as would cause the Interestholder
Group to which it belongs to have an aggregate Interest Ratio of less than 50%,
as determined immediately after the completion of such Sale; “Section 5.3
Offered Interests” means all or any part of the Interests a Selling
Interestholder desires to Sell; and “Permitted Transferee” means any one
or more of the members of the Sumitomo Control Group or one or more of the
members of the Apex Control Group.

(e)           Except as otherwise permitted by this
ARTICLE V, the Sumitomo Shareholders shall ensure that any Interests that at
one time were issued or owned by any such Sumitomo Shareholder shall at all
times be owned directly by Sumitomo or a wholly-owned Subsidiary of Sumitomo
that is not a Disqualified Person under clause (a) of the definition
thereof.

(f)            Except as otherwise permitted by
this ARTICLE V, the Apex Shareholders shall ensure that any Interests that at
one time were issued or owned by any such Apex Shareholder (other than any
Interests held by New Sweden 1 on the date hereof) shall at all times be owned
directly by Apex or a wholly-owned Subsidiary of Apex that is not a
Disqualified Person under clause (a) of the definition thereof.

(g)           Notwithstanding anything to the
contrary in this Section 5.3, the Sale by any Sumitomo Interestholder of its
Interests or by any of its Affiliates
of their Sumitomo Indirect Interests may be consummated without regard
to the procedures or the limitations set forth in this Section 5.3 to any
Person that is not a Disqualified Person, so long as the definitive agreement
with respect to such Sale is entered into during the two-year period
immediately following the occurrence of an Apex Change of Control.

(h)           Any Sale or Pledge in violation of
the provisions of Section 5.3(e) or Section 5.3(f) shall be null and void ab initio and shall constitute a material breach of this
Agreement, and, in accordance with the Dispute Resolution Agreement, the
Parties shall

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be entitled to
specific performance, injunctive relief, or any other remedy at Law to enforce
the terms of such Section 5.3(e) or Section 5.3(f), as applicable.  In the event of any Sale or Pledge in
violation of the provisions of Section 5.3(e) or Section 5.3(f), without
limiting any other rights or remedies of the Parties, the Transferee or the
party then holding any Indirect Interest shall have no right to participate in
the management of the business and affairs of MSC or to become an
Interestholder, or to receive any distributions of any kind or other payment in
respect of any Interest or any other item an Interestholder would otherwise be
entitled.

Section 5.4             Sales
to Third Parties; Right of First Offer. 
The Interestholders agree that:

(a)           If any Interestholder that is part of
an Interestholder Group that has an aggregate Interest Ratio of less than 25%
(an “Offering Interestholder”) desires to Sell all or any part of its
Interests (the “Section 5.4 Offered Interests”), or an Affiliate of an
Offering Interestholder desires to Sell all or any part of its Indirect
Interests in a Special Purpose Interestholder to a Proposed Third-Party Buyer,
the Offering Interestholder shall, or shall cause its Affiliate to, first make
a written offer to Sell the Section 5.4 Offered Interests or the Indirect
Interests, as applicable, to either (i) the Apex Interestholders, if the
Offering Interestholder is a Sumitomo Interestholder or if such offering
Affiliate is an Affiliate of a Sumitomo Interestholder or (ii) the
Sumitomo Interestholders, if the Offering Interestholder is an Apex
Interestholder or if such offering Affiliate is an Affiliate of an Apex
Interestholder (as applicable, the “Non-Offering Interestholders”), by
delivering to the Non-Offering Interestholders a written notice of its
intention to Sell the Section 5.4 Offered Interests or the Indirect Interests,
as applicable (the “Offer Notice”), which Offer Notice shall describe in reasonable detail the price
and other terms and conditions upon which the Offering Interestholder would be
willing to Sell the Section 5.4 Offered Interests or the Affiliate of the
Offering Interestholder would be willing to Sell its Indirect Interests, as
applicable, to the Non-Offering Interestholders (the “Initial Offered Terms”).

(b)           The Non-Offering Interestholders
shall have the right for a 60-day period (the “Section 5.4 Offer Period”)
after receipt of the Offer Notice to either (i) agree to purchase the
Section 5.4 Offered Interests or the Indirect Interests, as applicable, by
delivering to the Offering Interestholder a written notice accepting the
Initial Offered Terms or (ii) make one or more written counter-offers for
the Section 5.4 Offered Interests or the Indirect Interests, as applicable, by
delivering to the Offering Interestholder a written notice describing in reasonable
detail the price and other terms and conditions upon which the Non-Offering
Interestholders would be willing to purchase the Section 5.4 Offered Interests
from the Offering Interestholder or the Indirect Interests from the Affiliate
of the Offering Interestholder (the “Counter-Offer Terms”).

(c)           If the Non-Offering Interestholders
agree to purchase the Section 5.4 Offered Interests or the Indirect Interests,
as applicable, in accordance with Section 5.4(b)(i), the Section 5.4 Offered
Interests or the Indirect Interests, as applicable, shall be sold to such
Non-Offering Interestholders (on a pro rata basis,
based on their respective Interest Ratios, unless the Non-Offering
Interestholders agree otherwise) on the Initial

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Offered
Terms.  If the Non-Offering
Interestholders do not agree to purchase the Section 5.4 Offered Interests or
the Indirect Interests, as applicable, in accordance with Section 5.4(b)(i) and
the Offering Interestholder does not accept the Counter-Offer Terms within the
Section 5.4 Offer Period, the Offering Interestholder may Sell all, but not
less than all, of the Section 5.4 Offered Interests or the Affiliate of the
Offering Interestholder may Sell all, but not less than all, of the Indirect
Interests, as applicable, to a Proposed Third-Party Buyer on the conditions
that:

(i)                                     such
Sale to the Proposed Third-Party Buyer is at a price at least equal to 105% of
the highest price specified in the Counter-Offer Terms in respect of the
Offered Interests or the Indirect Interests, as applicable, it being understood
that if no Non-Offering Interestholder (or its Affiliates) has made a written
counter-offer for the Section 5.4 Offered Interests or the Indirect Interests,
as applicable, in accordance with Section 5.4(b)(ii), then such Sale to the Proposed
Third-Party Buyer shall be at a price at least equal to the price in the
Initial Offered Terms;

(ii)                                  such
Sale to the Proposed Third-Party Buyer is on terms and conditions (other than
price) no less favorable to the Offering Interestholder or the Affiliate of the
Offering Interestholder, as applicable, than the Counter-Offer Terms, it being
understood that if no Non-Offering Interestholder has made a written
counter-offer for the Section 5.4 Offered Interests or the Indirect Interests,
as applicable, in accordance with Section 5.4(b)(ii), then such Sale to the
Proposed Third-Party Buyer shall be on terms and conditions (other than price)
no less favorable to the Offering Interestholder than the Initial Offered
Terms;

(iii)                               such
Sale to the Proposed Third-Party Buyer is completed within 60 days after the
end of the Section 5.4 Offer Period (subject to delays reasonably beyond the
control of the Offering Interestholder in obtaining required approvals and
consents of Governmental Authorities and any other Person, which delays would
not result in such Sale being completed more than 120 days after the end of the
Section 5.4 Offer Period);

(iv)                              in
connection with the Sale of Section 5.4 Offered Interests, the Proposed
Third-Party Buyer executes and delivers to the Parties an instrument under
which the Proposed Third-Party Buyer agrees to become a Party, to assume,
perform, and discharge all of the obligations of the Offering Interestholder in
respect of the Interests to be Sold to such Proposed Third-Party Buyer, and to
receive, subject to Section 5.2(e),
the benefits and rights under, and otherwise be bound by all of the terms of,
this Agreement and the other Transaction Documents, to the extent applicable
with respect

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to the
Interestholder Selling its Interests (it being understood that upon such Sale
to such Proposed Third-Party Buyer pursuant to this Section 5.4, the Offering
Interestholder shall be released of its obligations under this Agreement in
respect of the Section 5.4 Offered Interests Sold arising from and after the
completion of such Sale, except for such obligations arising out of events or circumstances
that occurred prior to the completion of such Sale, whether accruing before,
at, or after the completion of such Sale); and

(v)                                 the
Proposed Third-Party Buyer shall not be a
Disqualified Person.

If the Offering Interestholder fails to complete the Sale of such
Section 5.4 Offered Interests or the Affiliate of the Offering Interestholder
fails to complete the Sale of the Indirect Interests, as applicable, within
such 60-day period (as extended for up to an additional 60 days for delays as
provided above), the provisions of this Section 5.4 shall apply again to any
proposed Sale of such interests to which this Section 5.4 applies.

(d)           Notwithstanding anything to the
contrary in this Section 5.4, the Sale by any Sumitomo Interestholder of its
Interests or by any of its Affiliates
of their Sumitomo Indirect Interests may be consummated without regard
to the procedures or the limitations set forth in this Section 5.4 to any
Person is not a Disqualified Person, so long as the definitive agreement with
respect to such Sale is entered into during the two-year period immediately
following the occurrence of an Apex Change of Control.

ARTICLE
VI

DEFAULTS

Section 6.1             Default
Notice.  If any Shareholder or
Affiliate thereof shall have received notice of the default in the performance
of any payment obligation of any other Shareholder or Affiliate thereof under
any Financing Document, any document pursuant to which the Indebtedness
incurred by MSC, New Metals, or New Cayman under the Financing Documents is
refinanced or relating to such refinancing (each, a “Refinancing Document”),
or any replacement or restatement of any Financing Document or the transactions
contemplated thereby, with the same counterparties or otherwise (each, a “Restatement
Document”) (each, a “Payment Default”) from any collateral agent,
administrative agent, or other Person authorized to give notice of a Payment
Default under any Financing Document, Refinancing Document, or Restatement
Document, as applicable, and such Financing Document, Refinancing Document, or
Restatement Document provides a time period following the giving or the
receiving of such notice to cure such Payment Default, the Shareholder Group
whose Shareholder or Affiliate is not alleged to have made a Payment Default
(the “Non-Defaulting Shareholder Group”), may give to the Shareholder
Group whose Shareholder or Affiliate is alleged to have made a Payment Default,
a notice (“Default Notice”), which shall specify (a) that the
Non-Defaulting Shareholder Group intends to cure the Payment Default and
(b) the form in which the Non-Defaulting Shareholder Group requires the
amount it pays to cure the Payment Default be evidenced, being one of the
following:  (i) a loan to the
Defaulting Shareholder to be repaid by the Defaulting Shareholder on demand,
which shall bear interest at a rate per annum equal to LIBOR plus four percent,
and

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otherwise be due and payable on the terms of such note as set forth in
Exhibit B (a “Defaulting Shareholder Loan”), (ii) a loan to
MSC to be repaid by MSC within 10 years after the date the Payment Default is
cured, which shall bear interest at a rate per annum equal to LIBOR plus four
percent, and otherwise be due and payable, and convertible into or exchangeable
for Shares of MSC, on the terms of such note as set forth in Exhibit C (a “Defaulting
MSC Loan”), or (iii) a capital contribution to MSC (a “Defaulting
Capital Contribution”).  For purposes
of this ARTICLE VI, none of MSC, New Metals, New Cayman, and any Subsidiary
thereof shall be an Affiliate of any Shareholder.

Section 6.2             Procedure.

(a)           The Shareholder Group that receives a
Default Notice shall have a period of 10 Business Days from the date it
received the Default Notice (the “Cure Period”) to either (i) cure
the alleged Payment Default or (ii) provide the Non-Defaulting Shareholder
Group evidence showing to the reasonable satisfaction of the Non-Defaulting
Shareholder Group that the alleged Payment Default was cured or that there was
in fact no Payment Default. 
Notwithstanding the foregoing, if a Payment Default would cause MSC, New
Metals, New Cayman, or any Subsidiary thereof to be in default under the terms
of any Financing Document, Refinancing Document, or Restatement Document, then
the Cure Period shall be modified to be a number of days equal to three
Business Days less than the applicable cure period (or if there is more than
one applicable cure period, the shortest applicable cure period) under the
applicable Financing Document, Refinancing Document, or Restatement Document.

(b)           The Shareholder Group that receives a
Default Notice shall be deemed to have cured the Payment Default when, prior to
the end of the Cure Period, it has fulfilled its obligations to make all
payments under the Financing Document, Refinancing Document, or Restatement
Document, as applicable, then due.  A
Shareholder shall be considered a “Defaulting Shareholder” if it fails to
(i) cure the alleged Payment Default within the Cure Period or
(ii) provide the Non-Defaulting Shareholder Group evidence that the
alleged Payment Default was cured or that there was in fact no Payment Default.

(c)           If there is a Defaulting Shareholder,
the Payment Default is cured by the Non-Defaulting Shareholder Group, and
the Non-Defaulting Shareholder Group elected in its Default Notice to make a
Defaulting Shareholder Loan, the Defaulting Shareholder forthwith shall execute
and deliver to the Non-Defaulting Shareholder Group a promissory note in the
form of Exhibit B; provided, however, that the failure to
execute and deliver such note shall not affect the validity and enforceability
of the obligations owing by the Defaulting Shareholder to the Non-Defaulting
Shareholder Group pursuant to such Defaulting Shareholder Loan, the terms of
which in the absence of such note shall be deemed to be such terms as would
have been included in such note if such note had in fact been executed and
delivered as required hereby.

(d)           If there is a Defaulting Shareholder,
the Payment Default is cured by the Non-Defaulting Shareholder Group, and the
Non-Defaulting Shareholder Group elected in its Default Notice to make a
Defaulting MSC Loan, MSC forthwith shall execute and deliver to the
Non-Defaulting Shareholder Group a promissory note in the form of

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Exhibit C;
provided, however, that the failure to execute and deliver such
note shall not affect the validity and enforceability of the obligations owing
by MSC to the Non-Defaulting Shareholder Group pursuant to such Defaulting MSC
Loan, the terms of which in the absence of such note shall be deemed to be such
terms as would have been included in such note if such note had in fact been
executed and delivered as required hereby. 
The Non-Defaulting Shareholder Group may, at its option and at any time,
contribute to MSC’s capital all or part of the outstanding principal amount of,
and accrued and unpaid interest on, the Defaulting MSC Loan against the
issuance to such Non-Defaulting Shareholder Group of a number of fully paid and
nonassessable Shares determined by dividing (i) the sum of the principal
amount and the amount of accrued and unpaid interest being contributed by
(ii) a subscription price per Share equal to (A) the Implied Equity
of MSC determined in accordance with Section 4.4(a)(v) divided by
(B) the product of two times the number of issued and outstanding
Shares immediately prior to the Defaulting MSC Loan Conversion Date.  The Non-Defaulting Shareholder Group desiring
to exercise its contribution right (1) shall deliver to MSC a written
notice (a “Defaulting MSC Loan Contribution Notice”) indicating the
Defaulting MSC Loan to be contributed and (2) shall follow the
requirements for doing so set forth in the terms and conditions of such
Defaulting MSC Loan.  The date on which
the Non-Defaulting Shareholder Group has delivered a Defaulting MSC Loan
Contribution Notice and satisfied all such requirements for contribution is referred
to as the “Defaulting MSC Loan Conversion Date” for that
contribution.  The Shareholders
(A) shall vote their Shares to (1) approve any capital increase
necessary to permit the contribution in full of such Defaulting MSC Loan,
(2) set the maximum term permitted by Law for the subscription of the New
Shares to be issued upon such contribution, (3) authorize any New Shares
to be paid through the contribution to capital of such Defaulting MSC Loan, and (4) consent to the payment for
New Shares in kind with such Defaulting MSC Loan, valued in each case at the
amount of the outstanding principal amount of, and accrued and unpaid interest
on, such Defaulting MSC Loan, without an expert appraisal thereof;
(B) take all necessary and appropriate actions to cause MSC to adopt any
decisions and take any actions that may be necessary to permit such
contribution, including an amendment of the Estatutos; and (C) waive any
Preemptive Rights they may have in connection therewith.

(e)           If there is a Defaulting Shareholder,
the Payment Default is cured by the Non-Defaulting Shareholder Group, and
the Non-Defaulting Shareholder Group elected in its Default Notice to make a
Defaulting Capital Contribution, MSC promptly shall issue to the Non-Defaulting
Shareholder a number of fully paid and nonassessable Shares equal to the amount
of the payment made by the Non-Defaulting Shareholder Group to cure the Payment
Default divided by a subscription price per Share equal to the Implied
Equity of MSC determined in accordance with Section 4.4(a)(v) divided by
the product of two times the number of issued and outstanding Shares
immediately prior to the making of such Defaulting Capital Contribution.  For purposes this Section 6.2(e), the
Shareholders (i) shall vote their Shares to approve any capital increase
necessary to permit the issuance of such newly issued Shares; (ii) take
all necessary and appropriate actions to cause MSC to adopt any decisions and
take any actions that may be necessary

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to permit such
issuance, including an amendment of the Estatutos; and (iii) waive any
Preemptive Rights they may have in connection therewith.

(f)            MSC shall not issue fractional
interests in Shares under this Section 6.2. 
If the Non-Defaulting Shareholder Group would otherwise be entitled to a
fractional share interest, MSC shall pay cash in lieu of such fractional share
interest.  The amount of cash in lieu to
be paid shall be determined by multiplying (A) the subscription price
applied in making such conversion or contribution, as applicable, by
(B) such fractional share interest, and rounding the product to the
nearest whole cent (centavo), with
one-half cent (centavo) being rounded upward.

Section 6.3             Bankruptcy
of a Sponsor.

(a)           If a Bankruptcy of Apex shall have
occurred and is continuing and such Bankruptcy results in a default that is
curable under the terms of the applicable Financing Document, Refinancing
Document, or Restatement Document, then the Sumitomo Shareholders may elect, by
notice (a “Sumitomo Sponsor Default Cure Notice”) given to the Apex
Interestholders while such default exists and is curable, to cure such default
in accordance with the terms of the applicable Financing Document, Refinancing
Document, or Restatement Document and to purchase all, but not less than all,
of the Interests, the New Metals Interests, the New Cayman Interests, and the
right, title, and interest in the Transmission Line Loan Documents of the
members of the Apex Control Group that are Apex Interestholders or their
Affiliates in accordance with Section 6.3(c).

(b)           If a Bankruptcy of Sumitomo shall
have occurred and is continuing and such Bankruptcy results in a default that
is curable under the terms of the applicable Financing Document, Refinancing
Document, or Restatement Document, then the Apex Shareholders may elect, by
notice (an “Apex Sponsor Default Cure Notice”) given to the Sumitomo
Interestholders while such default exists and is curable, to cure such default
in accordance with the terms of the applicable Financing Document, Refinancing
Document, or Restatement Document and to purchase all, but not less than all,
of the Interests, the New Metals Interests, the New Cayman Interests, and the
right, title, and interest in the Transmission Line Loan Documents of the
members of the Sumitomo Control Group that are Sumitomo Interestholders or
their Affiliates in accordance with Section 6.3(c).

(c)           If a Sumitomo Sponsor Default Cure
Notice shall have been given pursuant to Section 6.3(a), the members of the
Apex Control Group that are Apex Interestholders shall sell, or cause to be
sold, all, but not less than all, of their Interests, their or their Affiliate’s
New Metals Interests and New Cayman Interests, and their or their Affiliate’s
right, title, and interest in the Transmission Line Loan Documents
(collectively, the “Apex Interests”) to the Sumitomo Shareholders for a
purchase price equal to the Fair Market Value of the Apex Interests, and one or
more of the Sumitomo Shareholders shall purchase the Apex Interests for such
purchase price.  If an Apex Sponsor
Default Cure Notice shall have been given pursuant to Section 6.3(b), the
members of the Sumitomo Control Group that are Sumitomo Interestholders shall
sell, or cause to be sold, all, but not less than all, of their Interests,
their or their Affiliate’s New

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Metals
Interests and New Cayman Interests, and their or their Affiliate’s right,
title, and interest in the Transmission Line Loan Documents (collectively, the “Sumitomo
Interests”) to the Apex Shareholders for a purchase price equal to the Fair
Market Value of the Sumitomo Interests, and the Apex Shareholders shall
purchase the Sumitomo Interests for such purchase price.  The purchase and sale of the Apex Interests
or the Sumitomo Interests, as applicable, shall be consummated as soon as
reasonably practicable, and in any event no later than 60 days, following the
determination of the Fair Market Value of the Apex Interests or the Fair Market
Value of the Sumitomo Interests, as applicable, in accordance with Section
6.3(d).  The Parties shall cooperate in
good faith with respect to all actions necessary and appropriate to effect such
consummation, including the execution of all reasonably requested documentation
and the making, delivering, and obtaining of all Government Approvals and
consents from, to, or with Governmental Authorities and other Persons necessary
or appropriate to such consummation. 
Upon the purchase and sale of the Apex Interests hereunder, the Deferred
Payments Agreement shall terminate and, if and to the extent required by the terms
of the Financing Documents, Refinancing Documents, or Restatement Documents,
all of the rights and obligations of Apex and its Affiliates (other than MSC,
New Metals, and New Cayman, if applicable) under such documents shall have been
assigned to and assumed by one or more of Sumitomo and its Affiliates.  Upon the purchase and sale of the Sumitomo
Interests hereunder, the Deferred Payments Agreement shall terminate and, if
and to the extent required by the terms of the Financing Documents, Refinancing
Documents, or Restatement Documents, all of the rights and obligations of
Sumitomo and its Affiliates (other than MSC, New Metals, and New Cayman, if
applicable) under such documents shall have been assigned to and assumed by one
or more of Apex and its Affiliates.  The
purchase price for the Apex Interests or the Sumitomo Interests, as applicable,
shall be paid in immediately available Dollar funds on the closing date of the
relevant purchase and sale.

(d)           For purposes of this Agreement, the “Fair
Market Value of the Apex Interests” means the price at which the Apex
Interests and the right, title, and interest to the Deferred Payments Agreement
of one or more of Apex and its Affiliates (calculated based on the assumption
that such agreement would not terminate as a result of the purchase and sale
hereunder) could be sold in an arm’s-length transaction to an unaffiliated, bona fide, third-party purchaser in an orderly sale without
regard to the existence of the default specified in Section 6.3(a), and the “Fair
Market Value of the Sumitomo Interests” means the difference of
(i) the price at which the Sumitomo Interests could be sold in an arm’s-length
transaction to an unaffiliated, bona fide,
third-party purchaser in an orderly sale without regard to the existence of the
default specified in Section 6.3(b) minus (ii) the price at which
the right, title, and interest to the Deferred Payments Agreement of one or
more of Apex and its Affiliates (assuming such agreement would not terminate as
a result of the purchase and sale hereunder) could be sold in an arm’s-length
transaction to an unaffiliated, bona fide,
third-party purchaser in an orderly sale without regard to the existence of the
default specified in Section 6.3(a).  The
Fair Market Value of the Apex Interests or the Fair Market Value of the Sumitomo
Interests, as applicable, shall be determined by a panel of two internationally
recognized investment banking firms (each, an “Independent Investment Banker”)
retained by the

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Shareholder
Groups, one of which shall be designated by the Sumitomo Shareholders and the
other of which shall be designated by the Apex Shareholders.  Such designations shall be made as promptly
as possible after delivery of the Sumitomo Sponsor Default Cure Notice or the
Apex Sponsor Default Cure Notice, as applicable, but in no event later than 15
days thereafter.  Each Shareholder Group
shall, and shall cause MSC and New Metals to, upon reasonable notice, afford
each Independent Investment Banker and its representatives full access during
normal business hours to the properties, books and records of MSC, New Metals,
New Cayman, and their respective Subsidiaries and such other information about
MSC, New Metals, New Cayman, and their respective Subsidiaries, and about the
relevant interests, the Transmission Line Loan Documents, and the Deferred
Payments Agreement as the Independent Investment Bankers and their
representatives shall from time to time reasonably request.  Each Independent Investment Banker shall
submit its written determination of the Fair Market Value of the Apex Interests
or the Fair Market Value of the Sumitomo Interests, as applicable, to such
Interestholders within 30 days after the date of its retention.  If the higher determination of the two
Independent Investment Bankers is not greater than 110% of the lower
determination, the Fair Market Value of the Apex Interests or the Fair Market
Value of the Sumitomo Interests, as applicable, shall be the average of such
two determinations.  If the higher
determination is greater than 110% of the lower determination, then such two
Independent Investment Bankers shall jointly select, within 15 days after the
date on which they are informed of the difference, a third Independent
Investment Banker to be retained by such Shareholder Groups.  Such third Independent Investment Banker
shall deliver its written opinion of the Fair Market Value of the Apex
Interests or the Fair Market Value of the Sumitomo Interests, as applicable,
within 30 days after its retention, and the Fair Market Value of the Apex
Interests or the Fair Market Value of the Sumitomo Interests, as applicable,
shall be the average of the two closest determinations or, if there are not two
closest determinations, the average of all three determinations.  One half of the fees and expenses of such
Independent Investment Bankers shall be paid by the Apex Shareholders and one
half of all the fees and expenses shall be paid by the Sumitomo Shareholders.

ARTICLE
VII

ADDITIONAL COVENANTS AND AGREEMENTS

Section 7.1             Amendment
of Estatutos; Further Assurances.

(a)           Each of the Parties agrees that, to
the extent that any provision of this Agreement conflicts with or is at a
variance with the Estatutos or the Governing Documents of MSC or any of its
Subsidiaries, this Agreement shall prevail and be the binding document among
the Parties to the extent allowed by applicable Law.  Each of the Shareholders also covenants and
agrees that (i) it shall vote or cause to be voted the Shares owned by it
to accomplish and give effect to the terms and conditions of this Agreement and
(ii) in the event of any conflict between the provisions of this Agreement
on the one hand and the Estatutos or any Governing Document on the other hand,
it shall vote or cause to be voted the Shares owned by it as provided in this
Agreement and cause the Estatutos and/or other Governing Documents, as
applicable, to be amended to resolve

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any such
conflict in favor of the provisions of this Agreement, to the extent permitted
by applicable Law.  Furthermore, the
Shareholders agree that if any Bolivian Law would require any Article, Section,
or clause of this Agreement to be included in the Estatutos in order to be
enforceable against them or MSC, they shall take all necessary action to amend
the Estatutos accordingly.

(b)           Each Party hereby agrees to furnish upon
request to each of the other Parties such further information, to execute and
deliver to such other Parties such other documents, and to do such other acts
and things, all as such other Parties may reasonably request for the purpose of
carrying out the intent and accomplish the purposes of this Agreement,
including voting or causing to be voted its Shares to accomplish and give
effect to the terms and conditions of this Agreement.

(c)           Each of the Shareholders, to the
fullest extent permitted by Bolivian Law, waives any rights that it may have
under Bolivian Law that is inconsistent with any provision of this Agreement
and, to the extent such rights cannot validly be waived, each such Shareholder
shall exercise such rights only to the extent consistent with this Agreement.

Section 7.2             Notice
to MSC.  MSC hereby acknowledges that
it has actual notice of the terms of this Agreement, consents hereto and hereby
covenants that it will at all times during the term of this Agreement be
governed by the terms and provisions hereof in carrying out its business and
affairs and, accordingly, shall give or cause to be given such notices, execute
or cause to be executed such documents and do or cause to be done all such
acts, matters and things as may from time to time be necessary or required to
carry out the terms and intent hereof, subject to the requirements of
applicable Law.

Section 7.3             Business
of MSC.  The business of MSC is
limited to financing, owning and operating the Project, marketing and selling
mineral concentrates, and engaging in the activities set forth in this
Agreement, the Material Project Documents, or the Financing Documents and in
any other act or activity in furtherance of or related to such object and
purpose that is not prohibited by Law.

Section 7.4             Offices.  The registered office of MSC shall be Minera
San Cristόbal, S.A., Calle Campos 265, La Paz, Bolivia, or such place or
places as the Board may from time to time determine.  The registered and principal offices of each
of MSC’s Subsidiaries shall be at such place or places as their respective
boards may from time to time determine. 
Written notice of any change in such offices shall be given to each
Shareholder by the applicable Board.

Section 7.5             Access
to Information.

(a)           MSC shall promptly furnish the following
to each Shareholder Group:

(i)                                     As
soon as available and in any event within 60 days after the end of each of the
first three quarterly fiscal periods of each fiscal year of MSC, an unaudited
consolidated balance sheet of MSC and its Subsidiaries as of the end of such
quarter and the related unaudited

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consolidated
statement of MSC’s income and of cash flows for such quarter and for the
portion of MSC’s fiscal year ended at the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding quarter and the
corresponding portion of MSC’s previous fiscal year; and

(ii)                                  As
soon as available and in any event within 90 days after the end of each fiscal
year of MSC, an audited consolidated balance sheet of MSC and its Subsidiaries
as of the end of such fiscal year and the related consolidated statement of MSC’s
income and of cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by
MSC’s auditors.

(b)           MSC shall promptly furnish to the
Apex Shareholders so long as one or more of the Apex Shareholders are entitled
to nominate one or more Directors pursuant to Section 2.2(c) and to the
Sumitomo Shareholders so long as one or more of the Sumitomo Shareholders are
entitled to nominate one or more Directors pursuant to Section 2.2(c), copies
of:

(i)                                     all
management reports and all agenda and other associated documents relating to
any meeting of the Board as are made available to any Director;

(ii)                                  all
agenda and other associated documents relating to any meeting of the
Shareholders as are made available to all of the Shareholders for purposes of
such meeting; and

(iii)                               such
other financial statements or other financial or operating data relating to
MSC, any of its Subsidiaries, or the Project as are made available to any
Director, and any such information as the Shareholder may reasonably request.

Section 7.6             Confidentiality.  Each Party shall keep confidential, shall
cause its Affiliates to keep confidential, and shall instruct its officers,
directors, employees, and advisors to keep confidential, all information and
documents received from MSC and its Subsidiaries and shall not use such
information and documents for any purpose other than those connected with the
activities of MSC and its Subsidiaries, except (i) as required by
applicable securities or other Laws or stock exchange rules or administrative
process, (ii) as necessary to obtain the necessary Government Approvals for the
Project or to obtain financing for the Project from potential lenders and
providers of credit support; (iii) as necessary to comply with a court or
administrative order (provided, that

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such Party shall furnish only the portion of such MSC Confidential
Information (as defined below) which is legally required to be provided and
shall exercise all reasonable efforts to obtain assurances that confidential
treatment will be accorded such information and shall give notice to MSC and
the Shareholders as promptly as practicable of its obligation to disclose any
such information); (iv) as necessary in connection with any litigation or
arbitration arising out of or related to the Project or this Agreement
(provided, that such Party shall furnish only the portion of such MSC Confidential
Information that is directly relevant to the litigation or arbitration and
shall exercise all reasonable efforts to obtain assurances that confidential
treatment will be accorded such information); (v) as necessary to respond to an
environmental emergency or other emergency that may materially and adversely
affect MSC, its Subsidiaries or the Project (provided, that such Party shall
disclose only the portion of such MSC Confidential Information that is
necessary in response to the environmental emergency or other emergency and
that it shall notify each other Party as promptly as possible after any such
disclosure of MSC Confidential Information); (vi) for information (A) that was
in the possession of a Party or its Affiliates prior to receipt thereof from
any member of the Apex Control Group, MSC or its Subsidiaries or (B) that has
become known to such Party or its Affiliates independently of any disclosure by
any member of the Apex Control Group, MSC or its Subsidiaries and which has not
been wrongfully disclosed to or obtained by such Party or its Affiliates; (vii)
for information that is or becomes generally available to the public other than
as a result of a breach of this Section 9.6; and (viii) in connection with the
Sale of all or a part of its Interests to a third party in accordance with the
terms of this Agreement; provided that such third party has provided a written
undertaking to keep all MSC Confidential Information  confidential in accordance with the terms of
this Agreement and for the benefit of the Parties or otherwise in form and
substance reasonably acceptable to the other Parties (such information, subject
to clauses (i) through (viii), “MSC Confidential Information”).  The obligations of the Parties under this
Section 7.6 shall remain in full force and effect for three years following the
termination of this Agreement.

Section 7.7             Distribution
of Available Cash.

(a)           The Shareholders hereby agree that
each fiscal year, promptly following MSC’s annual audit for the previous fiscal
year (starting with the annual audit for the year in which the Commercial
Operations Date falls), subject to any limitations imposed by the Financing
Documents, required accounting practice, and applicable Law, Available Cash
shall be distributed quarterly to the following Persons, in the following order
of priority, and in the following amounts:

(i)                                     First,
100% of any such Available Cash to Service Company in an amount equal to and
for the payment of the Subordinated Management Fee;

(ii)                                  Second,
100% of any such Available Cash remaining after making the payment pursuant to
Section 7.7(a)(i) to the holder or holders of
Defaulting MSC Loans, on a pro rata basis
in accordance with the then-outstanding principal amounts thereof, in payment
or prepayment thereof, as applicable, until such time as all Defaulting MSC
Loans have been paid in full;

(iii)                               Third,
100% of any such Available Cash remaining after making all the payments
pursuant to Section 7.7(a)(i) and Section 7.7(a)(ii) to the holder or holders of Consolidated Loans, on a pro rata basis in accordance with the then-outstanding
principal amounts thereof,

 75
 

 

 

in payment or prepayment thereof, as
applicable, until such time as all Consolidated Loans have been paid in full;

(iv)                              Fourth,
100% of any such Available Cash remaining after making all the payments
pursuant to Section 7.7(a)(i), Section 7.7(a)(ii), and Section 7.7(a)(iii) to
the holder or holders of MSC
Subordinated Debt, on a pro rata basis
in accordance with the then-outstanding principal amounts thereof, in payment
or prepayment thereof, as applicable and without duplication, until such time
as all MSC Subordinated Debt has been paid in full;

(v)                                 Fifth,
100% of any such Available Cash remaining after making all the payments
pursuant to Section 7.7(a)(i), Section 7.7(a)(ii), Section 7.7(a)(iii), and
Section 7.7(a)(iv) to the holder or holders
of Shareholder Loans, on a pro rata basis
in accordance with the then-outstanding principal amounts thereof, in payment
or prepayment thereof, as applicable and without duplication, until such time
as all Shareholder Loans have been paid in full; and

(vi)                              Sixth,
100% of any such Available Cash remaining after making all the payments
pursuant to Section 7.7(a)(i), Section 7.7(a)(ii), Section 7.7(a)(iii),  Section 7.7(a)(iv), and Section 7.7(a)(v) to
the Shareholders, on a pro rata basis
in accordance with their then-outstanding Shares, as cash dividends in an
aggregate amount equal to, but not greater than, the maximum amount permitted
to be distributed as a dividend pursuant to applicable Law.

(b)           Subject to any contrary determination
made in accordance with Section 2.3(a)(xiv), if applicable, the Shareholders
hereby agree to vote their Shares in favor of, and to instruct any Directors or
alternate directors appointed by them to vote in favor of, any and all actions
that are necessary or appropriate actions in order to cause MSC and its
Subsidiaries to adopt any decisions and take any actions that may be necessary
to permit the foregoing actions pursuant to this Section 7.7.

Section 7.8             Compliance
with Law.  MSC shall comply in all
material respects with applicable Laws in the conduct of its business,
including compliance with (and taking reasonable precautions to assure
compliance by its Subsidiaries, if any, with) the U.S. Foreign Corrupt
Practices Act (Section 30-A of the U.S. Securities Exchange Act of 1934) and
any similar applicable Laws of Japan, Sweden, Luxembourg, Bolivia, Cayman
Islands and Switzerland (such Laws, collectively, the “FCPA”).

Section 7.9             Sumitomo
Exploration.

(a)           The Parties acknowledge and agree
that, so long as the Sumitomo Shareholders have an aggregate Interest Ratio of
at least a 35%, the members of the Sumitomo Control Group shall have the right,
during the term of this Agreement and in accordance with the terms of this
Section 7.9, to explore MSC properties located outside

 76
 

 

 

the zone
designated as the “Buffer Zone” (“Open Properties”), as such “Buffer
Zone” is described on the map attached hereto as Schedule B.

(b)           If one or more of the members of the
Sumitomo Control Group elects to explore an Open Property, then the Sumitomo
Shareholders shall deliver a written notice to MSC and the Apex Shareholders,
which notice shall specify the Open Property (the “Selected Open Property”)
the Sumitomo Control Group desires to explore and the member of the Sumitomo
Control Group that will conduct the exploration (the “Designated SCG Member”).  Upon receipt thereof, MSC shall as promptly
as practicable make a determination as to whether the Selected Open Property is
subject to any restrictions under applicable Law, the Financing Documents, or
any Governmental Authority that would prohibit the Designated SCG Member’s
exploration of the Selected Open Property. 
All costs and expenses incurred by MSC in connection with making such
determination shall be paid or reimbursed by the Sumitomo Interestholders
within 30 days after the receipt of an invoice therefor accompanied by
appropriate supporting documentation.  If
such a restriction exists, MSC shall provide the Sumitomo Shareholders and the
Apex Shareholders written notice, including a reasonably detailed explanation,
of such restriction and the Designated SCG Member shall be prohibited from
exploring such Selected Open Property under the terms of this Section 7.9.  If no such restrictions exist, MSC shall
deliver a written notice to the Sumitomo Shareholders that indicates whether
MSC elects either (i) to participate in the exploration of the Selected
Open Property or (ii) not to participate in the exploration of the
Selected Open Property at that time. 
Notwithstanding anything to the contrary in ARTICLE II, no election
shall be made by MSC without the prior written approval of at least one Apex
Member.

(c)           If MSC elects to participate in the
exploration of a Selected Open Property, then, subject to applicable Financing
Documents, the Estatutos, and applicable Law, the Shareholders shall cause
their respective Directors to amend, or otherwise vote their respective Shares
in favor of amending, the then applicable Program and Budget, as necessary to
provide for such exploration.  MSC shall
then, in accordance with the terms of this Agreement, develop the exploration
program and budgets and manage the exploration of the Selected Open Property.

(d)           If MSC elects not to participate in
the exploration of a Selected Open Property, then MSC shall enter into a lease
(or such other appropriate agreement) (the “Lease Agreement”) with the
Designated SCG Member whereby MSC shall grant appropriate rights to the
Selected Open Property to the Designated SCG Member for exploration.  The Lease Agreement shall be on arm’s-length
terms and have terms and conditions mutually satisfactory to the parties
thereto (including an appropriate royalty payment to MSC with respect
thereto).  Upon execution and delivery of
the Lease Agreement, the Designated SCG Member shall have the right to explore
the Selected Open Property on the terms and conditions set forth therein and in
this Agreement and shall deliver to the Apex Shareholders and MSC in writing
information regarding its exploration activities and expenditures (a “Periodic
Exploration Report”) on a current basis, but in any event no less
frequently than once each calendar quarter. 
In addition to

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Periodic
Exploration Reports, the Sumitomo Shareholders shall, or shall cause the
Designated SCG Member to, promptly deliver to MSC and the Apex Shareholders a
copy of the final feasibility study for a mining operation on the Selected Open
Property (a “Final Feasibility Study”).

(e)           At any time until 60 days after the
date MSC and the Apex Shareholders receive a Final Feasibility Study in respect
of the Selected Open Property (the “Apex Election Period”), the Apex
Shareholders shall have the right to elect to acquire up to a 65% interest in
the Selected Open Property by delivering a written notice (an “Apex Election
Notice”) to MSC and the Sumitomo Shareholders on or prior to the end of the
Apex Election Period.  If the Apex
Shareholders do not elect to acquire a 65% interest in the Selected Open Property
by delivering the Apex Election Notice on or prior to the end of the Apex
Election Period, then the Lease Agreement shall remain in full and effect in
accordance with its terms and the right of the Apex Shareholders to acquire
such interest shall terminate.

(f)            If the Apex Shareholders elect to
acquire a 65% interest in the Selected Open Property, subject to the Financing
Documents and applicable Law, the Shareholders shall vote their respective
Shares to cause the Estatutos to be amended and take such other action,
including causing their respective Directors to amend the then applicable
Program and Budget, in each case as necessary to provide for the acquisition of
all the Designated SCG Member’s right, title, and interest in the Selected Open
Property and the Lease Agreement by MSC. 
The purchase price payable by MSC in connection with such acquisition
shall be the total SCG Historical Costs incurred by the Designated SCG Member
with respect to the Selected Open Property until the date of such acquisition.  In connection with the completion of such
acquisition, each Shareholder Group shall contribute its respective share of
the funds required to enable MSC to pay such purchase price, which shall be in
proportion to its respective Interest Ratio, in each case determined as of the
date immediately prior to the date of such acquisition.  MSC shall then, in accordance with the terms
of this Agreement, develop the exploration program and budgets and manage the
exploration of the Selected Open Property.

(g)           If the Apex Shareholders elect to
acquire a 65% interest in the Selected Open Property and MSC for any reason is
not able to acquire all the Designated SCG Member’s right, title, and interest
in the Selected Open Property and the Lease Agreement, then (i) the
Designated SCG Member shall contribute the Lease Agreement, Final Feasibility
Study and its other assets and liabilities relating to the Selected Open
Property to a joint venture with a member of the Apex Control Group (the “Designated
Apex Member”) in exchange for a 35% interest in such joint venture, and
(ii) the Designated Apex Member shall acquire a 65% interest in such joint
venture in exchange for making contributions thereto in cash equal to 100% of
all costs incurred by the joint venture after its establishment until such time
as the Designated Apex Member’s contributions equal an amount which, when
divided by a number equal to the sum of (i) the Designated Apex Member’s
said contributions plus (ii) the SCG Historical Costs incurred by the
Designated SCG Member in respect of the Selected Open Property,

 78
 

 

 

equals
65%.  The Designated Apex Member and the
Designated SCG Member shall further (i) jointly determine a mutually
acceptable structure for the joint venture and (ii) enter into
documentation relating thereto providing for (A) rights of first refusal
with respect to each party’s transfer of all or part of its interest therein,
(B) the contribution by each party of its pro rata
share of future operating and capital costs of the Selected Open Property after
the contributions of the Designated Apex Member described in the preceding
sentence, (C) dilution, so that if either party fails to contribute its
proportionate share of capital contributions, the other party shall have the
right to contribute the non-contributing party’s share of such capital
contributions against the issuance of additional beneficial interests (in
shares, quotas, membership, or partnership interest or other comparable
designation) to the contributing party to reflect the adjusted proportionate
holdings resulting from such contribution(s) (and non-contribution, as
applicable), (D) loss of rights so that at such time a party’s beneficial
interest in the joint venture falls below 25% as a result of clause (C),
such party shall have no further rights with respect to the management of the
joint venture or the Selected Open Property except the right to have a director
on the joint venture until the party’s beneficial interest falls below 20% and
such other rights afforded by applicable Law, and (E) provisions, on such
terms as the parties may mutually agree, similar to ARTICLE II,
Section 3.2, Section 3.3, Section 5.1 and Section 7.7 of
this Agreement.

ARTICLE
VIII

TERM AND TERMINATION

Section 8.1             Term.  The term of this Agreement shall commence
upon the date this Agreement is executed and delivered by all of the Parties.

Section 8.2             Termination.  Except as provided in Section 8.3, this
Agreement shall terminate automatically as to all Parties upon the earlier of
(a) the mutual agreement of all Interestholders, and (b) the
conclusion of the liquidation or dissolution of MSC, as determined in
accordance with the Estatutos and Bolivian Law. 
Except as otherwise provided herein, this Agreement shall terminate
automatically as to any individual Party upon such Party ceasing to be an
Interestholder in accordance with the terms hereof.

Section 8.3             Survival.  The provisions of ARTICLE I, ARTICLE IX, and
Section 2.6, Section 7.6, and this Section 8.3 shall survive the termination of
this Agreement to the full extent necessary for their enforcement and the
protection of the Parties in whose favor they run, and each Party shall remain
liable for any breach of this Agreement by such Party prior to such
termination.  No termination of this
Agreement with respect to all or any of the Parties shall affect any obligation
or liability of any Party arising before or as a result of circumstances in
existence before such termination.

 79
 

 

 

ARTICLE
IX

MISCELLANEOUS

Section 9.1             Entire
Agreement.  This Agreement contains,
and is intended as, a complete statement of all of the terms of the agreements
among the Parties with respect to the matters provided for herein, and
supersedes and discharges any previous agreements and understandings between
the Parties with respect to those matters.

Section 9.2             Governing
Law.  This Agreement shall be
governed by and construed in accordance with the Laws of the State of New York,
including Section 5-1401 of the New York General Obligations Law, as applied to
contracts made and performed within the State of New York, without regard to
any choice or conflicts of law provision or rule that would cause the
application of the Laws of any jurisdiction other than the State of New
York.  This Agreement has been negotiated
and executed by the Parties in English. 
In the event any translation of this Agreement is prepared for
convenience or any other purpose, the provisions of the English version shall
govern.  Certain Schedules and/or
Exhibits to this Agreement are being executed in both English and Spanish.  If any doubt, misunderstanding or dispute
arises in their interpretation, the English version shall govern.

Section 9.3             Dispute
Resolution.  Any controversy, claim,
or dispute among the Parties that arises out of or relates to this Agreement, including
any claim or controversy relating to the interpretation, breach, termination,
or invalidity of any provision hereof, shall be exclusively and finally settled
pursuant to and in accordance with the Dispute Resolution Agreement.

Section 9.4             Limitation
on Damages.  No Party shall be liable
for any punitive, multiple, or other exemplary damage, or any indirect,
special, incidental, or consequential loss or damage, lost profits, loss of
use, or lost revenues suffered by any other Party arising from or relating to a
Party’s performance, non-performance, breach of, or default under a covenant,
warranty, representation, term, or condition of this Agreement.  Each Party waives and relinquishes claims for
such punitive, multiple, exemplary, indirect, special, incidental, or
consequential losses or damages, lost profits, loss of use, or lost
revenues.  The limitations on liability
and damages set forth in this Section 9.4 apply to all causes of action that
may be asserted hereunder, whether sounding in breach of contract, breach of
warranty, tort, product liability, negligence, or otherwise.

Section 9.5             Headings.  The article and section headings of this
Agreement are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement.

Section 9.6             Notices.  All notices and other communications
hereunder shall be in writing and shall be delivered personally, telecopied (if
receipt of which is confirmed by the Person to whom sent), or sent by
internationally recognized delivery service to the Parties at the following
addresses (or to such other Person or address for a Party as specified by such
Party by like notice) (notice shall be deemed given and received upon receipt,
if delivered personally, by delivery service or by telecopy, or on the third
Business Day following mailing, if mailed, except that notice of a change of
address shall not be deemed given until actually received):

 80
 

 

 

(a)           If to any Sumitomo Interestholder, to
Sumitomo at:

Sumitomo
Corporation

8-11, Harumi, 1-chome,

Chuo-ku, Tokyo, 104-8610 Japan

Attention:  General Manager, Non-Ferrous
Metals
                                & Raw
Materials Dept.

Telecopier:  +81-3-5166-6423

(b)           If to any Apex Interestholder, to
Apex at:

c/o Apex Silver
Mines Corporation

1700 Lincoln Street, Suite 3050

Denver, Colorado 80237  U.S.A.

Attention:  President

Telecopier:  +1 (303) 839-5907

(c)           If to MSC, to it at:

Minera San Cristόbal, S.A.

Calle Campos 265

La Paz, Bolivia

Attention:  President

Telecopier:  +591-2-243-3737

with a copy to
Apex at:

c/o Apex Silver
Mines Corporation

1700 Lincoln Street, Suite 3050

Denver, Colorado 80237  U.S.A.

Attention:  President

Telecopier:  +1 (303) 839-5907

Section 9.7             Severability.  If at any time any covenant or provision
contained herein is deemed by a court or other body of competent jurisdiction
(including an arbitral tribunal convened in accordance with the Dispute
Resolution Agreement) to be invalid or unenforceable, such covenant or
provision shall be considered divisible and such covenant or provision shall be
deemed immediately amended and reformed to include only such part of such
covenant or provision as such court or other body has held to be valid and
enforceable; and the Parties agree that such covenant or provision, as so
amended and reformed, shall be valid and binding as though the invalid or
unenforceable portion had not been included herein.

Section 9.8             Amendment;
Waiver.  No provision of this
Agreement may be amended or modified except by an instrument or instruments in
writing signed by all of the Parties and designated as an amendment or
modification, as applicable.  No waiver
by any Party of any provision of this Agreement shall be valid unless in
writing and signed by the Party making such waiver and designated as a
waiver.  No failure or delay by any Party
in exercising any right,

 81
 

 

 

power, or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof or the exercise of any other right,
power, or remedy preclude any further exercise thereof or the exercise of any
other right, power, or remedy.  No waiver
of any provision hereof shall be construed as a waiver of any other provision.

Section 9.9             Assignment
and Binding Effect.  All of the terms
and provisions of this Agreement shall be binding on, and are for the sole
benefit of, the Parties and their respective successors and permitted assigns,
but neither this Agreement nor any of the rights, benefits, or obligations
hereunder shall be assigned or delegated by any of the Parties hereto without
the prior written consent of all of the Parties, except in accordance with
Section 5.2, Section 5.3, or Section 5.4, and they shall not be construed as
conferring and are not intended to confer any rights, benefits, or obligations
on any other Person.

Section 9.10           No
Benefit to Others.  Except as
expressly set forth herein, the representations, warranties, covenants, and
agreements contained in this Agreement are for the sole benefit of the Parties
and their respective successors and permitted assigns, and they shall not be
construed as conferring and are not intended to confer any rights, remedies,
obligations, or liabilities on any other Person, unless such Person is
expressly stated herein to be entitled to any such right, remedy, obligation,
or liability.

Section 9.11           Counterparts.  This Agreement may be executed by the Parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.

Section 9.12           Interpretation.

(a)           As used herein, except as otherwise
indicated herein or as the context may otherwise require: (i) the words “include,”
“includes,” and “including” are deemed to be followed by “without limitation”
whether or not they are in fact followed by such words or words of like import;
(ii) the words “hereof,” “herein,” “hereunder,” and comparable terms refer
to the entirety of this Agreement, including the Exhibits and Schedules hereto,
and not to any particular article, section, or other subdivision hereof or Exhibit
or Schedule hereto; (iii) any pronoun shall include the corresponding
masculine, feminine, and neuter forms; (iv) the singular includes the
plural and vice versa; (v) references to any agreement or other document
are to such agreement or document as amended, modified, supplemented, and
restated now or hereafter from time to time; (vi) references to any
statute or regulation are to it as amended, modified, supplemented, and
restated now or hereafter from time to time, and to any corresponding provisions
of successor statutes or regulations; (vii) references to “Article,” “Section,”
or another subdivision or to a “Schedule” or “Exhibit” are to an article,
section, or subdivision hereof or a “Schedule” or “Exhibit” hereto; and
(viii) except as otherwise expressly provided in this Agreement,
references to any Person or Entity include such Person’s or Entity’s successors
and permitted assigns.

(b)           Any reference herein to a “day” or
number of “days” (without the explicit qualification of “Business”) shall be
deemed to refer to a calendar day or number of calendar days.  If any action or notice is to be taken or
given on or by a particular

 82
 

 

 

calendar day,
and such calendar day is not a Business Day, then such action or notice may be
taken or given on the next succeeding Business Day.

(c)           Any financial or accounting terms
that are not otherwise defined herein shall have the meanings given thereto
under GAAP.  For purposes of each
reference herein to an amount in Dollars in circumstances where the actual item
is expressed in any other currency shall be considered a reference to the
Dollar equivalent of such other currency on the relevant date of determination
of such amount at the relevant noon buying rate in the City of New York for
cable transfers in foreign currencies, as announced by the Federal Reserve Bank
of New York for customs purposes (the “Reference Exchange Rate”).

Section 9.13           Rules
of Construction.  The Parties agree
that they have been represented by counsel during the negotiation, preparation,
and execution of this Agreement and, therefore, waive the application of any
Law or rule of construction providing that ambiguities in an agreement or other
document shall be construed against the Party drafting such agreement or
document.

Section 9.14           No Partnership.  No provision of this Agreement creates a
partnership or joint venture between or among the Parties or makes any Party
the agent of any other Party for any purpose. 
No Party has the authority or power to bind, to contract in the name of,
or to create any liability for any other Party in any way or for any purpose.

[Remainder
of page intentionally left blank]

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IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the date first written above.

 

	
  

  	
  APEX SILVER MINES SWEDEN AB

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marcel DeGuire

  
	
   

  	
   

  	
  Marcel DeGuire

  
	
   

  	
  Its:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  APEX LUXEMBOURG S.À R.L 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerald Malys

  
	
   

  	
   

  	
  Gerald Malys

  
	
   

  	
  Its:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  GOTLEX LAGERAKTIEBOLAG nr. 451,

  organization number 556702-1083

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerald Malys

  
	
   

  	
   

  	
  Gerald Malys

  
	
   

  	
  Its:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  MINERA SAN CRISTÓBAL, S.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey Clevenger

  
	
   

  	
   

  	
  Jeffrey Clevenger

  
	
   

  	
  Its:

  	
  DirectorExhibit
10.4

Execution
Version

OPTION
AGREEMENT

Entered
into as of September 25, 2006

between

APEX SILVER MINES LIMITED

and

SUMITOMO CORPORATION

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
   

  	
  2

  	
   

  
	
  Section 1.1

  	
   

  	
  Defined Terms

  	
   

  	
  2

  	
   

  
	
  Section 1.2

  	
   

  	
  Definitions from Purchase and Sale Agreement

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II GENERAL

  	
   

  	
  6

  	
   

  
	
  Section 2.1

  	
   

  	
  Active and Reserve Assets

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III ACTIVE ASSET OPTION

  	
   

  	
  7

  	
   

  
	
  Section 3.1

  	
   

  	
  Grant of Active Asset Option

  	
   

  	
  7

  	
   

  
	
  Section 3.2

  	
   

  	
  Active Asset Option Term

  	
   

  	
  7

  	
   

  
	
  Section 3.3

  	
   

  	
  Exercise of Active Asset Option

  	
   

  	
  7

  	
   

  
	
  Section 3.4

  	
   

  	
  Payment with respect to each Optioned Active Asset

  	
   

  	
  8

  	
   

  
	
  Section 3.5

  	
   

  	
  Failure to Exercise Active Asset Option

  	
   

  	
  9

  	
   

  
	
  Section 3.6

  	
   

  	
  Cessation of an Active Asset; Third-Party Sale

  	
   

  	
  9

  	
   

  
	
  Section 3.7

  	
   

  	
  Access to Records

  	
   

  	
  10

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV RESERVE ASSET OPTION

  	
   

  	
  11

  	
   

  
	
  Section 4.1

  	
   

  	
  Grant of Reserve Asset Option

  	
   

  	
  11

  	
   

  
	
  Section 4.2

  	
   

  	
  Reserve Asset Option Term

  	
   

  	
  11

  	
   

  
	
  Section 4.3

  	
   

  	
  Exercise of Option

  	
   

  	
  11

  	
   

  
	
  Section 4.4

  	
   

  	
  Payment for Optioned Reserve Assets

  	
   

  	
  12

  	
   

  
	
  Section 4.5

  	
   

  	
  Failure to Exercise Reserve Asset Option

  	
   

  	
  13

  	
   

  
	
  Section 4.6

  	
   

  	
  Cessation of a Reserve Asset; Third-Party Sale

  	
   

  	
  13

  	
   

  
	
  Section 4.7

  	
   

  	
  Access to Records

  	
   

  	
  14

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V TERM AND TERMINATION

  	
   

  	
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  Section 5.1

  	
   

  	
  Term

  	
   

  	
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  ARTICLE VI FAILURE TO MAKE PAYMENT

  	
   

  	
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  ARTICLE VII ADDITIONAL PROVISIONS

  	
   

  	
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  Section 7.1

  	
   

  	
  Entire Agreement

  	
   

  	
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  Section 7.2

  	
   

  	
  Confidentiality

  	
   

  	
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  Section 7.4

  	
   

  	
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  Section 7.5

  	
   

  	
  Headings

  	
   

  	
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  Section 7.6

  	
   

  	
  Notices

  	
   

  	
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  Severability

  	
   

  	
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  Section 7.8

  	
   

  	
  Amendment; Waiver

  	
   

  	
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  Section 7.9

  	
   

  	
  Assignment and Binding Effect

  	
   

  	
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  Section 7.10

  	
   

  	
  No Benefit to Others

  	
   

  	
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  Counterparts

  	
   

  	
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  Section 7.13

  	
   

  	
  Interpretation

  	
   

  	
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  Rules of Construction

  	
   

  	
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Appendix A          Active Assets

Appendix B           Reserve
Assets

 

 ii

 

OPTION AGREEMENT

This Option Agreement is entered into as of September
25, 2006 (the “Effective Date”), by and between:

APEX SILVER MINES LIMITED,
an exempted company limited by shares duly incorporated and validly existing
under the Laws of the Cayman Islands, British West Indies (“Apex”), with
its registered office at the offices of Walkers SPV Limited, P.O. Box 908GT,
Walker House, Mary Street, George Town, Grand Cayman, Cayman Islands, British
West Indies; and 

SUMITOMO CORPORATION,
a corporation duly organized and validly existing under the Laws of Japan (“Sumitomo”),
with its headquarters at 1-8-11, Harumi, Chuo-ku, Tokyo 104-8610,
Japan.

Apex and Sumitomo are sometimes referred to herein
individually as a “Party” and collectively as the “Parties.”  Capitalized terms used and not otherwise
defined in this Agreement have the respective meanings ascribed thereto in
ARTICLE I.

RECITALS

A.            Pursuant to
the Purchase and Sale Agreement, dated as of the date hereof (the “Purchase
and Sale Agreement”), Sumitomo, among other things, acquired (1) 100%
of the issued and outstanding share capital of New Sweden 1, which on the
Closing Date owned 35% of the issued and outstanding share capital of Minera
San Cristóbal S.A., a sociedad
anónima organized
under the Laws of Bolivia (“MSC”), (2) 100% of the issued and
outstanding share capital of New Sweden 2, which on the Closing Date owned 35%
of the issued and outstanding quotas of Apex Metals Marketing GmbH, a Gesellschaft mit beschränkter Haftung
organized under the Laws of Switzerland (“New Metals”), and (3) 35%
of the issued and outstanding share capital of Apex Silver Finance Ltd., an exempted company limited by shares
incorporated under the Laws of the Cayman Islands, British West Indies (“New
Cayman”) (collectively, the “Acquisition”).

B.            In connection with the Acquisition, Sumitomo desires to
obtain, and Apex is willing to grant to Sumitomo, an option to acquire up to a
35% interest (but not less than 20%) in certain mineral exploration assets of
Apex (or its Subsidiaries) pursuant to the terms and conditions set forth
below.

agreement

In consideration of the
mutual promises, covenants, and agreements set forth herein, the Purchase and
Sale Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

 1
 

 

 

ARTICLE I

DEFINITIONS

Section 1.1                Defined Terms.  For purposes of this Agreement, the following
terms have the following meanings:

“Acquisition” has the meaning specified in the
recitals.

“Active Asset” means Apex’s (or its
Subsidiary’s) Rights with respect to an Exploration Property set forth in
Appendix A attached hereto.

“Active Asset Cessation/Sale Notice” has the
meaning specified in Section 3.6(a). 

“Active Asset Option” has the meaning specified
in Section 3.1.

“Active Asset Option Notice” has the meaning
specified in Section 3.3(a).

“Active Asset Option Term” has
the meaning specified in Section 3.2.

“Active Asset Payment” has the meaning
specified in Section 3.4(a).

“Active Offered Terms” has the meaning
specified in Section 3.6(c).

“Active Retained Interest” has the meaning
specified in Section 3.6(b).

“Active Third-Party Sale” has the meaning
specified in Section 3.6(a).

“Affiliate” means, with respect to any Person,
any other Person that directly, or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with,
the Person in question.

“Agreement” means this Option Agreement
(including the Appendices attached hereto).

“Apex” has the meaning specified in the
preamble.

“Asset Development Documents” means all
material documents, agreements, accounting records, and financial statements in
Apex’s possession related to an Exploration Property.

“Business Day” means any day other than Saturday,
Sunday, and a day on which banks in New York, New York, U.S.A. or Tokyo, Japan
are required or permitted to close.

“Confidential Information” has the meaning
specified in Section 7.2.

“Definitive Exploration Property Agreements”
has the meaning specified in Section 3.3(b).

 2
 

 

 

“Development Costs” means costs paid to third
parties incurred after the acquisition of an Exploration Property to evaluate
the feasibility of developing and conducting mining operations on such
property, provided that Development Costs shall not include any Holdings Costs.

“Dispute Resolution Agreement” means that
certain Dispute Resolution Agreement, dated as of the date hereof, by and among
Apex, Apex Sweden, Apex Luxembourg, Service Company, Sumitomo, New
Sweden 1, New Sweden 2, MSC, New Metals, and New Cayman.

“Dollar” or “Dollars” means the lawful
currency of the United States of America.

“Effective Date” has the meaning specified in
the preamble.

“Exploration Costs” means all costs and
expenses incurred in conducting exploration and prospecting activities on or in
connection with an asset including the preparation of feasibility studies, the
active pursuit of required Government Approvals and the performance of required
environmental protection or reclamation obligations, the building, maintenance,
and repair of roads, drill site preparation, drilling, tracking, sampling,
trenching, digging test pits, shaft sinking, acquiring, diverting, and/or
transporting water necessary for exploration, logging of drill holes and drill
core, completion and evaluation of geological, geophysical, geochemical, or
other exploration data, and preparation of interpretive reports, and surveying
and laboratory costs and charges (including assays or metallurgical analyses
and tests).

“Exploration Entity” means an Entity as may be
permitted to be formed in any given jurisdiction, formed to pursue the
development of a given Exploration Property.

“Exploration Property” has the meaning
specified in Section 2.1(a).

“GAAP” means generally accepted accounting
principles as used in the United States of America.

“Holding Costs” means the periodic and other
ordinary and necessary costs of owning, leasing, licensing, maintaining, or
otherwise holding an Exploration Property or the Rights associated therewith
including property taxes, annual minimum lease, license, or royalty payments,
insurance, costs for providing security for persons and equipment on such
property, the costs of routine land, buildings, and equipment maintenance, and
interest on debt incurred to acquire such Exploration Property or Rights.

“Holding Costs Payment” has the meaning
specified in Section 3.6(b).

“Interest” has the meaning specified in Section
3.1.

“Interest Ratio” has the meaning specified in
the MSC Shareholder Agreement.

 3
 

 

 

“Moody’s” means Moody’s Investors Service, Inc.
and any successor thereto, so long as such successor is a “nationally
recognized statistical rating organization” registered with the Securities and
Exchange Commission of the United States of America.

“MSC” has the meaning specified in the
recitals.

“MSC Shareholders Agreement” means that certain
MSC Shareholders Agreement, dated as of the Closing Date, among Apex Sweden,
Apex Luxembourg, New Sweden 1 and MSC.

“Optioned Active Asset” has the meaning
specified in Section 3.3(a).

“Optioned Asset Historical Cost” means the
documented or supported aggregate historical costs incurred by Apex with
respect to the Optioned Active Asset(s) or the Optioned Reserve Asset(s), as
applicable.  Such historical costs shall
include Exploration Costs, Holding Costs, and all other related costs,
including reasonably allocated overhead costs related to such asset.

“Optioned Reserve Asset” has the meaning
specified in Section 4.3(b).

“Party” or “Parties” has the meaning
specified in the preamble.

“Payment Date” has the meaning specified in
Section 6.1.

“Purchase and Sale Agreement” has the meaning
specified in the recitals.

“Qualified Third Party” means an Entity the non-credit-enhanced
long-term senior unsecured debt of which is rated at least the lesser of
(i) BBB- by S&P or Baa3 by Moody’s, and (ii) the credit
rating of the non-credit-enhanced long-term senior unsecured
debt of Sumitomo as provided by S&P or Moody’s as of the date of the
transfer, sale, or other disposition by Sumitomo (or its Subsidiary) of its
direct or indirect equity interests in an Exploration Entity to such Entity.

“Reserve Asset” means Apex’s (or its
Subsidiary’s) Rights with respect to an Exploration Property set forth in
Appendix B attached hereto or deemed to be a Reserve Asset in accordance
with the terms hereof.

“Reserve Asset Cessation/Sale Notice” has the
meaning specified in Section 4.6(a). 

“Reserve Asset Option”
has the meaning specified in Section 4.1. 

“Reserve Asset Option Notice” has the meaning
specified in Section 4.3(b).

“Reserve Asset Option Term” has the meaning
specified in Section 4.2. 

“Reserve Asset Trigger Notice” has the meaning
specified in Section 4.3(a).

 4
 

 

 

“Reserve Definitive Exploration Property Agreements”
has the meaning specified in Section 4.3(c).

“Reserve Offered Terms” has the meaning
specified in Section 4.6(c). 

“Reserve Retained Interest” has the meaning
specified in Section 4.6(b).

“Reserve Third-Party Sale” has the
meaning specified in Section 4.6(a).

“Review Documents” has the meaning specified in
Section 3.2.

“Rights” has the meaning specified in Section
2.1(a).

“S&P” means Standard & Poor’s Ratings
Services, a division of The McGraw-Hill Companies, Inc and any successor
thereto so long as such successor is a nationally recognized statistical rating
organization registered with the Securities and Exchange Commission of the
United States of America.

“Subsidiary” means with respect to any Person
(other than MSC, New Metals and New Cayman as same apply to Apex):

(a)           a corporation a majority in voting
power of whose share capital with voting power, under ordinary circumstances,
to elect directors is, at the date of determination thereof, directly or
indirectly, owned by such Person, by a Subsidiary of such Person, or by such
Person and one or more Subsidiaries of such Person,

(b)           a partnership or limited liability
company in which such Person or a Subsidiary of such Person is, at the date of
determination thereof, (i) in the case of a partnership, a general partner
of such partnership with the power affirmatively to direct the policies and
management of such partnership or (ii) in the case of a limited liability
company, the managing member or, in the absence of a managing member, a member
with the power affirmatively to direct the policies and management of such
limited liability company, or

(c)           any Entity (other than a corporation,
partnership, or limited liability company) in which such Person, a Subsidiary
of such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination, has (i) the power to
elect or direct the election of a majority of the members of the governing body
of such Person or (ii) in the absence of such a governing body, at least a
majority ownership interest.

“Sumitomo” has the meaning specified in the
preamble.

“Sumitomo Interestholders” has the meaning
specified in the MSC Shareholder Agreement.

 5
 

 

 

“Term” has the meaning specified in Section
5.1(a).

“US$” means Dollars.

Section 1.2                Definitions from Purchase and
Sale Agreement.  Undefined capitalized terms used herein have
the respective meanings set forth in the Purchase and Sale Agreement.

ARTICLE II

GENERAL

Section 2.1                Active
and Reserve Assets.

(a)           Appendices A and B attached
hereto set forth the ownership rights (the “Rights”) of Apex (or its
Subsidiaries) with respect to each Active Asset or Reserve Asset set forth
therein (each an “Exploration Property”).  Apex represents and warrants that it, or its
Subsidiary, own such Rights.  Sumitomo
acknowledges that the Rights may be subject to transfer restrictions or other
limitations (i.e. rights of first refusal) and in connection therewith,
Sumitomo’s rights under this Agreement are subject thereto.  Subject to Section 3.6 and Section 4.6, Apex
further covenants, represents and warrants that, to the extent within the
control of Apex, neither Apex nor any applicable Affiliate of Apex shall grant
any acquisition rights to third-parties with respect to the Rights or the
Exploration Properties other than Sumitomo during the Term. 
Notwithstanding anything herein to the contrary, in no event shall the
option rights granted hereunder apply to any property right or Contract to
which Apex (or any of its Subsidiaries) is a party or any of its rights or
interests thereunder if, and for so long as, the grant of such rights shall
constitute or result in (i) the abandonment, invalidation, or
enforceability of any right or interest of Apex (or its Subsidiaries) therein
or (ii) a breach or termination pursuant to the terms of, or a default
under, any such property right or Contract; provided, however,
that such grant shall apply immediately at such time as the condition causing
such abandonment, invalidation, or unenforceability shall be remedied, and to
the extent severable, shall apply immediately to any portion of such property
right or Contract that does not result in the consequences specified in clause
(i) or (ii) of this Section 2.1(a).

(b)           Apex shall have the right at
any time, and from time to time prior to the commencement of an Active Asset
Option Term relating to a specified Active Asset, to reclassify such Active
Asset as a Reserve Asset and vice versa
and Appendices A and B shall be amended accordingly by Apex without further
action of the Parties under Section 7.8; provided, however, that
no such reclassification shall be made on or after 18 months after the
Effective Date or with respect to an asset if an Active Asset Option Notice or
a Reserve Asset Option Notice, as applicable, has been delivered with respect
to such asset in accordance with the terms of this Agreement.

 6
 

 

 

ARTICLE
III

ACTIVE ASSET OPTION

 

Section 3.1                Grant
of Active Asset Option. 
Apex hereby grants to Sumitomo the option (the “Active Asset Option”)
to acquire from time to time during the Term and on the terms and conditions
set forth in this ARTICLE III, an undivided interest of not less than 20% but
not more than 35% (an “Interest”) in one or more of the Active Assets.

Section 3.2                Active
Asset Option Term.  The “Active Asset Option Term” for any
Active Asset shall commence on the date that Sumitomo receives the Asset
Development Documents for such Active Asset and shall terminate at 11:59 P.M.
(Denver, Colorado, U.S.A. time) on the date that is 60 days after the date
Sumitomo receives the Asset Development Documents for such Active Asset.  Apex shall deliver the Asset Development
Documents relating to all of the Active Assets to Sumitomo no later than 22
months after the Effective Date.  In the
event that Apex (or its Subsidiaries) comes in possession of an Asset
Development Document not previously in its possession after the commencement of
the Active Asset Option Term, or in the event Apex (or its Subsidiaries)
creates an Asset Development Document after the commencement of the Active
Asset Option Term, Apex shall promptly deliver such document to Sumitomo, but
the existence of such document shall not extend the Active Asset Option
Term.  In addition, Sumitomo acknowledges
and agrees that some Asset Development Documents may be made available to
Sumitomo for review but not physically delivered (“Review Documents”).  Apex shall provide Sumitomo prompt written
notice of the existence of Review Documents and the location thereof, but the
receipt of such notice and the existence of such Review Documents shall not
extend the Active Asset Option Term.

Section 3.3                Exercise of Active Asset
Option.

(a)           If Sumitomo
elects to exercise any Active Asset Option, Sumitomo shall deliver a written
notice (the “Active Asset Option Notice”) to Apex prior to the
expiration of such Active Asset Option Term relating to such Active Asset.  The Active Asset Option Notice shall set
forth the Active Asset in which Sumitomo elects to acquire an Interest (the “Optioned
Active Asset”) and the amount of the Interest Sumitomo wishes to acquire,
which in no case shall be less than 20% nor more than 35%, in each such case an
Optioned Active Asset.

(b)           Commencing upon receipt by Apex of
the Active Asset Option Notice, Apex and Sumitomo shall (i) jointly
determine a mutually acceptable structure for the acquisition of Interests in
the Optioned Active Assets, and (ii) enter into acquisition documents with
respect thereto that are on terms and conditions reasonably acceptable to the
Parties (including, among other documents, a shareholders or joint venture
agreement providing for the contribution by each party of its pro rata share of future operating and
capital costs of the Optioned Active Assets) (the “Definitive Exploration
Property Agreements”).  The
Definitive Exploration Property Agreements shall include provisions for
(A) rights of first refusal with respect to a Party’s transfer of all or
part of its interest therein, (B) the contribution by each party of its pro rata share of future operating and
capital costs of the Optioned Active Assets, (C) dilution, so that if
either Party fails to contribute its proportionate share, the other Party shall
have the right to contribute the

 7
 

 

non-contributing party’s share against
the issuance of additional beneficial interests (in shares, quotas, membership,
or partnership interest or other comparable designation) to the contributing
Party to reflect the adjusted proportionate holdings resulting from such
contribution(s) (and non-contribution, as applicable), (D) loss of
rights so that at such time a Party’s beneficial interest in an Exploration
Entity falls below 25% as a result of clause (C) of this Section 3.3(b),
such Party shall have no further rights with respect to the management of such
Exploration Entity or the Optioned Active Asset it is developing except the
right to have a director on the Board of Exploration Entity until the Party's
beneficial interest falls below 20%, and (E) provisions, on such terms as
the Parties may mutually agree, similar to ARTICLE II, Section 3.2, Section
3.3, Section 5.1 and Section 7.7 of the MSC Shareholders Agreement.  Apex shall cause any of its Subsidiaries
which have rights in the applicable Optioned Active Asset to enter into the
Definitive Exploration Property Agreements to the extent reasonably required
for Sumitomo to effectively acquire its Interest in the Optioned Active
Asset.  Notwithstanding the foregoing,
Sumitomo may at any time prior to the execution of the Definitive Exploration
Property Agreements elect, by written notice to Apex, not to acquire an interest
in one or more Optioned Active Assets to which the Definitive Exploration
Property Agreements relate, in which event (X) such Optioned Active Assets
shall cease to be subject to this Agreement, and (Y) Sumitomo shall
reimburse Apex for reasonable out-of-pocket expenses incurred by
Apex in connection with the negotiation of the Definitive Exploration Property
Agreement including attorney’s and other consultant fees.

Section 3.4                Payment with respect to each
Optioned Active Asset.

(a)           In
consideration for each Optioned Active Asset, Sumitomo shall, in each
applicable Definitive Exploration Property Agreement, agree to contribute to
each Exploration Entity operating the respective Optioned Active Asset the
Dollar amount, in cash, equal to 100% of all costs incurred by the Exploration
Entity since its establishment until such time Sumitomo’s contributions to such
entity shall equal an amount which, when divided by a number equal to the sum
of (i) Sumitomo’s said contributions plus (ii) the Optioned
Asset Historical Cost incurred up to the effective date of such Definitive
Exploration Property Agreement, equals the same percentage as the Interest in
such Optioned Active Asset that Sumitomo is acquiring (the “Active Asset
Payment”).

(b)           Sumitomo and Apex hereby acknowledge and agree that
if Sumitomo (or its Subsidiary) transfers, sells, or otherwise disposes of its
direct or indirect equity interests in an Exploration Entity prior to payment
in full of the Active Asset Payment as set forth in Section 3.4(a), then
Sumitomo (or its Subsidiary) shall, within five Business Days of the date on
which Sumitomo or its Subsidiaries ceases to own such equity interest, pay Apex
(or its Subsidiary) an amount, in cash, equal to the outstanding unpaid amount
of the Active Asset Payment which payment shall satisfy the obligation under
Section 3.4(a).  Notwithstanding the
foregoing and subject to any applicable rights of first refusal, if Sumitomo or
its Subsidiary transfers, sells or otherwise disposes of all, but not less than
all, of its direct or indirect equity interests in such Exploration Entity to a

 8
 

 

Qualified Third Party, and if such Qualified
Third Party expressly assumes all of Sumitomo’s obligations under this
Agreement in a writing delivered to Apex (or its Subsidiary), then Sumitomo
shall be released of its obligations with respect to the applicable Active
Asset arising from and after the completion of such transfer, except for such
obligations arising out of events or circumstances that occurred prior to the
completion of such transfer, whether occurring before, at, or after the
completion of such transfer, and only to the extent such obligations have been
assumed by the Qualified Third Party.  

Section 3.5                Failure
to Exercise Active Asset Option

.  In the event that Sumitomo does
not elect to exercise an Active Asset Option with respect to a specific Active
Asset during the Active Asset Option Period relating to such Active Asset in
accordance with the terms and conditions of this ARTICLE III, then Sumitomo’s
rights with respect to such Active Asset as set forth in this ARTICLE III shall
terminate and have no further force or effect, and, notwithstanding anything to
the contrary in this Agreement, the Parties hereto shall have no liability,
responsibility, or obligation, whatsoever, to the each other in respect of this
ARTICLE III with respect to such Active Asset.

Section 3.6                Cessation
of an Active Asset; Third-Party Sale.

 

(a)           If, prior to
the end of the Term and prior to Sumitomo’s submission of an Active Asset Option
Notice with respect to any Active Asset, Apex either (i) elects to cease
the exploration or development of an Active Asset still subject to the Active
Asset Option or (ii) agrees (subject to this Agreement) to sell an
interest in an Active Asset still subject to the Active Asset Option to an
unaffiliated third party (an “Active Third-Party Sale”), then,
promptly after such decision or agreement, Apex shall provide Sumitomo written
notice of same (the “Active Asset Cessation/Sale Notice”) together with the
Asset Development Documents relating to such Active Asset, to the extent not
already delivered.  Sumitomo shall have
the right to acquire all or part of the subject Active Asset on the terms and
conditions set forth in Section 3.6(b) and Section 3.6(c).  

(b)           If the Active Asset Cessation/Sale Notice states
that Apex intends to cease the exploration or development of an Active Asset
still subject to the Active Asset Option, then Apex shall indicate in the
Active Asset Cessation/Sale Notice the percentage interest of the interest in
such Active Asset that Apex shall have the right to retain (the “Active
Retained Interest”); provided, however, that such Active
Retained Interest shall not exceed 35% of the interest in such Active
Asset.  Sumitomo shall have 60 days from
the date of receipt of the Active Asset Cessation/Sale Notice and the related
Asset Development Documents to elect to either (i) acquire the Active
Asset, other than the Active Retained Interest therein, on the terms,
conditions, and procedures set forth in Section 3.3(b), or (ii) request
that such Active Asset be deemed a Reserve Asset.  Any such election shall be made by written
notice to Apex specifying whether Sumitomo is electing to acquire such Acquired
Asset or to deem it a Reserve Asset.  In
addition:

 9
 

 

 

(I)            If Sumitomo elects to acquire the
applicable percentage interest of such Active Asset, then the purchase price
for such interest shall be the Dollar amount, in cash, equal to the product of
(i) the percentage interest of such Active Asset to be acquired by
Sumitomo and (ii) Optioned Asset Historical Costs incurred by Apex for
such Active Asset up to the date of Sumitomo’s payment of such purchase
price.  

(II)           If Sumitomo elects to deem any such
Active Asset a Reserve Asset, such Active Asset shall thereafter be treated as
a Reserve Asset subject to the provisions of ARTICLE IV.  Sumitomo shall be responsible for all Holding
Costs with respect to such asset from the date such asset is designated a
Reserve Asset until the earlier of (A) the termination of this Agreement
or (B) the date on which Sumitomo acquires an Interest in such asset in
accordance with the terms hereof (the “Holding Costs Payment”).  In connection therewith, Apex, on a monthly
basis, shall provide Sumitomo an invoice that sets forth the amount payable by
Sumitomo with respect such Holding Costs along with reasonable supporting
documentation thereof.  All amounts
invoiced shall be payable by Sumitomo no later than five Business Days after
invoice receipt.  Payment of any such
Holding Costs that are outstanding (including any interest accrued thereon and
whether invoiced or not) shall be a condition to the closing of Sumitomo’s
acquisition of an Interest in such asset, to the extent Sumitomo elects to
acquire an Interest in accordance with ARTICLE IV.

(c)           If the Active
Asset Cessation/Sale Notice states that Apex intends to enter into an Active
Third-Party Sale, then Apex shall indicate in the Active Asset
Cessation/Sale Notice the terms and conditions on which such Active Asset is
proposed to be sold to a third party (the “Active Offered Terms”)
(including the percentage interest to be sold, sale price, and applicable time
period in which the transaction shall close). 
Sumitomo shall have 30 Business Days from the date of receipt of the
Active Asset Cessation/Sale Notice and the related Asset Development Documents
to elect to acquire such interest in the applicable Active Asset on the Active
Offered Terms.  Apex may sell such Active
Asset to a third-party on the Active Offered Terms within 120 days of the
end of such 30 Business Day period or within 120 days of Sumitomo’s failure to
consummate the transaction on the Active Offered Terms (including applicable
required time periods with respect thereto) after having made an election to do
so.  In the event Apex does not complete
such a sale to a third party on the Active Offered Terms, the Active Asset
shall, at the election of Apex, be deemed either an Active Asset or a Reserve
Asset.

Section 3.7                Access to Records.  Commencing on the Effective Date until the
end of the Term (except with respect to those Active Assets with respect to
which the Active Asset Option has terminated), Apex shall afford to Sumitomo
and its business, accounting, legal, engineering and other representatives, as
well as their respective officers and employees, reasonable access, upon
reasonable notice, to its documents, agreements, accounting records, and

 10
 

 

financial statements applicable to, and to
the physical properties comprising, the Active Assets and shall permit Sumitomo
and such representatives to make such tests, including soil and other field
tests, of such Active Assets as Sumitomo may reasonably request.  

ARTICLE IV

RESERVE
ASSET OPTION

Section 4.1                Grant
of Reserve Asset Option.  Apex hereby grants to Sumitomo the option
(the “Reserve Asset Option”) to acquire, from time-to-time
during the Term and on the terms and conditions set forth in this ARTICLE IV,
an Interest in one or more of the Reserve Assets.  

Section 4.2                Reserve
Asset Option Term.  The “Reserve Asset Option Term” with
respect to any Reserve Asset shall commence on the date (after delivery of the
applicable Reserve Asset Trigger Notice) Sumitomo receives the Asset
Development Documents (taking into account any Asset Development Documents
provided or reviewed by Sumitomo in accordance with Section 4.3 prior to such
date) with respect to such Reserve Asset and shall terminate at 11:59 p.m.
(Denver, Colorado time) on the date that is 60 days after Sumitomo receives
such documents.  In the event that Apex
(or its Subsidiaries) comes in possession of an Asset Development Document not
previously in its possession after the commencement of the Reserve Asset Option
Term, or in the event Apex (or its Subsidiaries) creates an Asset Development Document
after the commencement of the Reserve Asset Option Term, Apex shall promptly
deliver such document to Sumitomo, but the existence of such document shall not
extend the Reserve Asset Option Term.  In
addition, Sumitomo acknowledges and agrees that Apex may provide Sumitomo with
Review Documents.  Apex shall provide
Sumitomo prompt written notice of the existence of Review Documents and the
location thereof, but the receipt of such notice and the existence of such
Review Documents shall not extend the Reserve Asset Option Term.

Section 4.3                Exercise of Option.

(a)           Apex shall provide Sumitomo
written notice promptly after Apex has expended in excess of US$200,000 (as
determined from the Effective Date) in Development and/or Exploration Costs
with respect to a Reserve Asset, and Sumitomo may at any time during the Term
provide a written notice to Apex requesting that Apex deliver to Sumitomo all
Asset Development Documents relating to a specified Reserve Asset (either such
notice being a “Reserve Asset Trigger Notice”).  Apex shall provide Sumitomo with all Asset
Development Documents relating to such Reserve Asset as soon as practicable
after delivery of the Reserve Asset Trigger Notice. For clarity, Sumitomo may request to review
documents related to any of the Reserve Assets at any time during the Term of
this agreement, whether or not a Reserve Asset Trigger Notice has been
delivered by Apex, for the purpose of determining Sumitomo’s desire to present
a Reserve Asset Option Notice under the terms of this Section 4.3(a).

 11
 

 

 

(b)           At any time
prior to the end of any Reserve Asset Option Term, Sumitomo may elect to
exercise the Reserve Asset Option with respect to the Reserve Asset that is the
subject of a Reserve Asset Trigger Notice by delivering a written notice (the “Reserve
Asset Option Notice”) stating Sumitomo’s intent to acquire an Interest in
the applicable Reserve Asset (an “Optioned Reserve Asset”).  The Reserve Asset Option Notice shall set
forth the Reserve Asset in which Sumitomo elects to acquire an Interest and the
amount of the Interest Sumitomo wishes to acquire, which in no case shall be
less than 20% nor more than 35%, in each such case an Optioned Reserve Asset.

(c)           Commencing upon receipt by Apex of
the Reserve Asset Option Notice, Apex and Sumitomo shall (i) jointly
determine a mutually acceptable structure for the acquisition of the Interest
in the Optioned Reserve Asset, and (ii) enter into acquisition documents
with respect thereto that are on terms and conditions reasonably acceptable to
the Parties (including, among other documents, a shareholders or joint venture
agreement providing for the contribution by each party of its pro rata share of the future operating and
capital costs of the Optional Reserve Asset) (the “Reserve Definitive Exploration
Property Agreements”).  The Reserve
Definitive Exploration Property Agreements shall include provisions for
(A) rights of first refusal with respect to a Parties transfer of all or
part of their interest therein, (B) the contribution by each party of its pro rata share of future operating and
capital costs of the Optioned Reserve Assets, (C) if either Party
fails to contribute its proportionate share, the other Party shall have the
right to contribute the non-contributing party’s share against the
issuance of additional beneficial interests (in shares, quotas, membership or
partnership interest, or other comparable designation) to the contributing
Party to reflect the adjusted proportionate holdings resulting from such
contribution(s) (and non-contribution, as applicable), (D) at such time a
Party’s beneficial interest in an Exploration Entity falls below 25% as a
result of clause (C) of this Section 4.3(c), such Party shall have no
further rights with respect to the management of such Exploration Entity or the
Exploration Property it is developing except the right to have a director on
the Board of the Exploration Entity until the Party's beneficial interest in
the Exploration Entity falls below 20%, and (E) provisions, on such terms
as the Parties may mutually agree, similar to ARTICLE II,
Section 3.2, Section 3.3, Section 5.1 and Section 7.7 of
the MSC Shareholders Agreement.  Apex shall cause any of its
Subsidiaries having rights in the applicable Optioned Reserve Asset to enter
into the Reserve Definitive Exploration Property Agreements to the extent
reasonably required for Sumitomo to effectively acquire its Interest in the
Optioned Reserve Asset.  Notwithstanding
the foregoing, Sumitomo may at any time prior to the execution of the Reserve
Definitive Exploration Property Agreement elect, by written notice to Apex, not
to acquire an interest in one or more of the Optioned Reserve Assets to which
the Reserve Definitive Exploration Property Agreement relates in which event
such Reserve Asset shall cease to be the subject to this Agreement.

Section 4.4                Payment
for Optioned Reserve Assets.  In consideration for each Optioned Reserve
Asset, Sumitomo shall pay to Apex, at the closing of the acquisition of the
Interest in such Optioned Reserve Asset, the Dollar amount in cash, equal to
the percentage

 12
 

 

Interest of such Optioned Reserve Asset that
Sumitomo is acquiring times the Optioned Asset Historical Costs with respect to
such Optioned Reserve Asset that have been incurred up to the date of
Sumitomo’s said payment.

Section 4.5                Failure to Exercise Reserve
Asset Option.  In the
event that Sumitomo elects not to exercise any Reserve Asset Option, or fails
to timely deliver a Reserve Asset Option Notice, with respect to a Reserve
Asset for which a Reserve Asset Option Notice has been delivered, then
Sumitomo’s rights as set forth in this ARTICLE IV with respect to such Reserve
Asset shall terminate and have no further force or effect, and, notwithstanding
anything to the contrary in this Agreement, the Parties hereto shall have no
liability, responsibility, or obligation, whatsoever, to each other in respect
of this ARTICLE IV with respect to such Reserve Asset.

Section 4.6                Cessation of a Reserve Asset;
Third-Party Sale.  

(a)           Except with
respect to an Optioned Reserve Asset or a Reserve Asset for which a Reserve
Asset Trigger Notice has been delivered, if, during the Term, Apex either
(i) makes a permanent election not to pursue development of a Reserve
Asset or (ii) agrees (subject to this Agreement) to sell an interest in a
Reserve Asset to an unaffiliated third party (a “Reserve Third-Party
Sale”), then, promptly after such decision or agreement, Apex shall provide
Sumitomo written notice of same (the “Reserve Asset Cessation/Sale Notice”)
together with the Asset Development Documents relating to such Reserve Asset,
to the extent not already delivered. 
Sumitomo shall have the right to acquire all or part of the subject
Reserve Asset on the terms and conditions set forth in Section 4.6(b) and
Section 4.6(c).  

(b)           If the
Reserve Asset Cessation/Sale Notice states that Apex has permanently elected
not to pursue development of a Reserve Asset, then Apex shall indicate in the
Reserve Asset Cessation/Sale Notice the percentage interest of such Reserve
Asset that Apex shall have the right to retain (the “Reserve Retained
Interest”); provided, however, that such Reserve Retained
Interest shall not exceed 35% of the interest in such Reserve Asset.  Sumitomo shall have 60 days from the date of
receipt of the Reserve Asset Cessation/Sale Notice and the related Asset
Development Documents to elect to acquire the applicable Reserve Asset other
than the Reserve Retained Interest therein on the terms, conditions, and
procedures set forth in Section 4.3(c). 
The purchase price for such interest shall be the Dollar amount, in
cash, equal to (i) the percentage interest of such Reserve Asset to be
acquired by Sumitomo multiplied by (ii) the total amount of all Optioned
Asset Historical Costs incurred by Apex for such Reserve Asset up to
the date of payment of such purchase price. 

(c)           If the Reserve Asset Cessation/Sale Notice states
that Apex intends to enter into a Reserve Third-Party Sale, then Apex
shall indicate in the Reserve Asset Cessation/Sale Notice the terms and conditions
on which such Reserve Asset is proposed to be sold to a third party (the “Reserve
Offered Terms”) (including the percentage interest to be sold, sale price,
and applicable time period in which the transaction shall

 13
 

 

close). 
Sumitomo shall have 60 days from the date of receipt of the Reserve
Asset Cessation/Sale Notice and the related Asset Development Documents to
elect to acquire such interest in the applicable Reserve Asset on the Reserve
Offered Terms.  Apex may sell such
Reserve Asset to a third party on the Reserve Offered Terms within 120 days of
the end of such 60-day period or within 120 days of Sumitomo’s failure to
consummate the transaction on the Reserve Offered Terms (including applicable
required time periods with respect thereto) after having made an election to do
so.  In the event Apex does not complete
such a sale to a third party on the Reserve Offered Terms, the Reserve Asset
shall thereafter continue to be treated as a Reserve Asset subject to the
provisions of ARTICLE IV.

Section 4.7                Access to Records.  During the Term of this Agreement, Apex shall
afford to Sumitomo and its business, accounting, legal, engineering and other
representatives, as well as their respective officers and employees, reasonable
access, upon reasonable notice, to its documents, agreements, accounting
records, and financial statements related to, and to the physical properties
comprising, the Reserve Assets and shall permit Sumitomo and such
representatives to make such tests, including soil and other field tests, of
such Active Assets as Sumitomo may reasonably request.

ARTICLE V

TERM AND TERMINATION

Section 5.1                Term.  

(a)           Unless
otherwise agreed in writing by the Parties, the Parties obligations under this
Agreement shall commence on the Effective Date and shall terminate, along with
this Agreement, upon the date that is the earlier of (i) two years after
the Effective Date, or (ii) the date on which the aggregate Interest
Ratios of the Sumitomo Interestholders in MSC is less than 20% (the “Term”).

(b)           Subject to
Section 5.2(a) and notwithstanding the foregoing, the Term shall be tolled
solely under the following circumstances:  (i) if the Asset
Development Documents related to any Active Asset have not been delivered to
(or reviewed by) Sumitomo on or before the date that is 60 days prior to the
end of the Term, or the Section 3.3 negotiation period with respect to such
Active Asset has not expired by the end of the Term, the Term shall be tolled
with respect to such Active Asset for the duration of the applicable Active
Asset Option Term pursuant to Section 3.2 and any negotiation period with
respect thereto pursuant to Section 3.3(a); and (ii) if a Reserve Asset
Trigger Notice has been delivered to or by Sumitomo with respect to a Reserve
Asset, and the Asset Development Documents related to such Reserve Asset
have not been delivered to (or reviewed by) Sumitomo on or before the date that
is 60 days prior to the end of the Term, or the Section 4.3 negotiation period
with respect to such Reserve Asset has not expired by the end of the Term, the
Term shall be tolled with respect to such Reserve Asset for the duration of the
applicable Reserve Asset Option Term

 14
 

 

pursuant to
Section 4.2 and any negotiation period with respect thereto pursuant to Section
4.3.

Section 5.2                Effect of Termination.

(a)           If
(i) this Agreement is terminated pursuant to  Section 5.1(a)(i) and (ii) at such time
of termination, an Active Asset Option Notice or an Reserve Asset Option
Notice, as applicable, has been delivered to Apex, but the acquisition process
set forth in ARTICLE III or ARTICLE IV, as applicable, has not been completed
in accordance with the terms hereof, then, solely with respect to such optioned
asset, this Agreement shall continue until consummation of the acquisition of such
asset.

(b)           If
(i) this Agreement is terminated pursuant to Section 5.1(a)(ii) and
(ii) at such time of termination, 
an Active Asset Option Notice or an Reserve Asset Option Notice, as
applicable, has been delivered to Apex, but the acquisition process set forth
in ARTICLE III or ARTICLE IV, as applicable, has not been completed in
accordance with the terms hereof, then this Agreement shall terminate and
Sumitomo shall have no further rights with respect to such asset.

ARTICLE
VI

FAILURE TO MAKE PAYMENT

Section 6.1                Failure to Make Holding Cost
Payment.  If Sumitomo fails to make  a Holding Costs Payment within 30 days of the
date (the “Payment Date”) such payment is due and payable, Sumitomo
shall forfeit its interest and its rights to the Active Asset or Reserve Asset
to which the Holding Costs Payment applies without further notice from Apex.

ARTICLE VII

ADDITIONAL PROVISIONS

Section 7.1                Entire Agreement.  This Agreement (together with the Purchase
and Sale Agreement and the other Transaction Documents) contain, and are
intended as, a complete statement of all of the terms of the agreements among
the Parties with respect to the matters provided for herein and therein, and
supersede and discharge any previous agreements and understandings between the
Parties with respect to those matters.

Section 7.2                Confidentiality.  Each Party shall keep confidential, shall
cause its Affiliates to keep confidential, and shall instruct its officers,
directors, employees, and advisors to keep confidential, all information received
from the other Party with respect to any Asset Development Document or Review
Document along with any due diligence investigation conducted relating to an
Active Asset or Reserve Asset and the consummation of the transactions
contemplated by this Agreement or otherwise, except (i) as required by
applicable securities or other Laws or stock exchange rules or administrative
process, and (ii) for information that is or becomes generally available
to the public other than as a result of a breach of this Section 7.2 (such
information, subject to clauses (i) and (ii), “Confidential Information”).  Except to the

 15
 

 

extent deemed necessary or advisable by
counsel to maintain compliance with, or to prevent violation of, applicable
securities or other Laws or stock exchange rules, each Party shall keep the
existence of and the provisions of this Agreement and the other Transaction
Documents confidential and shall disclose their contents only (1) to those
lenders, investors, partners, shareholders, directors, officers, employees, and
agents who need to know such information for purposes of its businesses and the
transactions contemplated hereby, and (2) to Governmental Authorities and
third parties for purposes of obtaining approvals for the transactions contemplated
hereby.  All Confidential Information
shall be treated as information covered by the Confidentiality Agreement, which
shall remain in full force and effect and shall not be modified or superseded
in any way by this Agreement.  With
respect to an Active Asset or Reserve Asset for which Sumitomo (or its
Affiliates) receives Asset Development Documents or Review Documents but does
not acquire an Interest in such asset, Sumitomo (or its Affiliates)
(i) shall promptly return to Apex all copies of such Asset Development
Documents or Review Documents in the possession or Sumitomo (or its
Affiliates), and, unless specifically prohibited by court order, Sumitomo (or
its Affiliates) will destroy all copies of any analyses, compilations, studies
or other documents prepared by it or for its use containing or reflecting any
such Asset Development Document or Review Document, and (ii) shall be
prohibited from using any information in such Asset Development Document or
Review Document for its (or its Affiliates) future benefit without the prior
written consent of Apex.

Section 7.3                Governing Law; Language.  This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York, including
Section 5-1401 of the New York General Obligations Law, as applied to
contracts made and performed within the State of New York, without regard to
any choice or conflicts of law provision or rule that would cause the
application of the Laws of any jurisdiction other than the State of New York.  This Agreement has been negotiated and
executed by the Parties in English.  In
the event any translation of this Agreement is prepared for convenience or any
other purpose, the provisions of the English version shall govern.  If any doubt, misunderstanding, or dispute arises
in their interpretation, the English version shall govern.

Section 7.4                Dispute Resolution.  Any controversy,
claim, or dispute between the Parties that arises out of or relates to this
Agreement, including any claim or controversy relating to payment obligations
hereunder or the interpretation, breach, termination, or invalidity of any
provision hereof, shall be exclusively and finally settled pursuant to and in
accordance with the Dispute Resolution Agreement.

Section 7.5                Headings.  The article and section headings of this
Agreement are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement.

Section 7.6                Notices.  All notices
and other communications hereunder shall be in writing
and shall be delivered
personally, telecopied (if receipt of which is confirmed by the Person to whom
sent), sent by internationally recognized overnight delivery service to the
Parties at the following addresses (or to such other Person or address for a
Party as specified by such

 16
 

 

Party by like notice) (notice shall be deemed given and received
upon receipt, if delivered personally, by overnight delivery service or by
telecopy, except that notice of a change of address shall not be deemed given and received until actually received):

(a)           If
to Apex, to it at:

Apex Silver Mines Limited

c/o Apex Silver Mines Corporation

1700 Lincoln Street, Suite 3050

Denver, Colorado  80203 U.S.A.

Attention:  Vice President of Exploration

Telecopier: +1 (303) 839-5907

(b)           If to Sumitomo, to it at:

Sumitomo
Corporation

8-11, Harumi, 1-chome,

Chuo-ku, Tokyo, 104-8610 Japan

Attention:  General Manager, Non-Ferrous
Metals
                                & Raw Materials Dept.

Telecopier:  +81-3-5166-6423

Section 7.7                Severability.  If at any time any covenant or provision contained
herein is deemed in a final ruling of a court or other body of competent
jurisdiction (including an arbitral tribunal convened in accordance with the
Dispute Resolution Agreement) to be invalid or unenforceable, such covenant or
provision shall be considered divisible and such covenant or provision shall be
deemed immediately amended and reformed to include only such portion of such
covenant or provision as such court or other body has held to be valid and
enforceable (provided such amended and reformed provision shall be amended,
reformed and construed in a manner that reflects and carries out the provisions
and the intent of the Parties); and the Parties agree that such covenant or
provision, as so amended and reformed, shall be valid and binding as though the
invalid or unenforceable portion had not been included herein. 

Section 7.8                Amendment;
Waiver.  Except as provided in Section 2.1(b), no
provision of this Agreement may be amended or modified except by an instrument
or instruments in writing signed by the Parties and designated as an amendment
or modification.  No waiver by any Party
of any provision of this Agreement shall be valid unless in writing and signed
by the Party making such waiver and designated as a waiver.  No failure or delay by any Party in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or the exercise of
any other right, power, or remedy preclude any further exercise thereof or the
exercise of any other right, power, or remedy. 
No waiver of any provision hereof shall be construed as a waiver of any
other provision.

Section 7.9                Assignment
and Binding Effect.  No Party may assign any of its rights or
delegate any of its obligations under this Agreement without (a) the prior
written consent of the

 17
 

 

other Party, and (b) the complete
written assumption by the assignee of all of the obligations of the assignor
under this Agreement.  All of the terms and provisions of this
Agreement shall be binding on, and shall inure to the benefit of, the
respective successors and permitted assigns of the Parties.

Section 7.10              No Benefit to Others.  Except as expressly set forth herein, the
representations, warranties, covenants, and agreements contained in this Agreement
are for the sole benefit of the Parties and their respective successors and
permitted assigns, and they shall not be construed as conferring and are not
intended to confer any rights, remedies, obligations, or liabilities on any
other Person, unless such Person is expressly stated herein to be entitled to
any such right, remedy, obligation, or liability. 

Section 7.11              No Consequential Damages.  No Party shall be liable
for any punitive, multiple, or other exemplary damage or loss, or any indirect,
special, incidental, or consequential loss or damage, lost profits, loss of
use, or lost revenues suffered by any other Party arising from or relating to a
Party’s performance, non-performance, breach of, or default under a
covenant, warranty, representation, term, or condition of this Agreement.  Each Party waives and relinquishes claims for
such punitive, multiple, exemplary, indirect, special, incidental, or
consequential losses or damages, lost profits, loss of use, or lost
revenues.  The limitations on liability
and damages set forth in this Section 7.11 apply to all causes of action that
may be asserted hereunder, whether sounding in breach of contract, breach of
warranty, tort, product liability, negligence, or otherwise.

Section 7.12              Counterparts.  This Agreement may be executed by the Parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.

Section 7.13              Interpretation.

(a)           As used herein,
except as otherwise indicated herein or as the context may otherwise require:
(i) the words “include,” “includes,” and “including” are deemed to be
followed by “without limitation” whether or not they are in fact followed by
such words or words of like import; (ii) the words “hereof,” “herein,”
“hereunder,” and comparable terms refer to the entirety of this Agreement,
including the Appendices hereto, and not to any particular article, section, or
other subdivision hereof or Appendix hereto; (iii) any pronoun shall
include the corresponding masculine, feminine, and neuter forms; (iv) the
singular includes the plural and vice versa; (v) references to any
agreement or other document are to such agreement or document as amended,
modified, supplemented, and restated now or hereafter from time to time;
(vi) references to any statute or regulation are to it as amended,
modified, supplemented, and restated now or hereafter from time to time, and to
any corresponding provisions of successor statutes or regulations;
(vii) except as otherwise expressly provided in this Agreement, references
to “Article,” “Section,” “preamble,” “recital,” or another subdivision or to an
“Appendix” are to an article, section, preamble, recital or subdivision hereof
or an “Appendix” hereto; and

 18
 

 

(viii) references
to any Person or Entity include such Person’s or Entity’s respective successors
and permitted assigns.

(b)           Any reference herein to a “day” or number of “days”
(without the explicit qualification of “Business”) shall be deemed to refer to
a calendar day or number of calendar days. 
If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then such action or
notice may be taken or given on the next succeeding Business Day.

(c)           Any financial
or accounting terms that are not otherwise defined herein shall have the
meanings given thereto under GAAP.

Section 7.14              Rules
of Construction.  The Parties agree that they have been
represented by counsel during the negotiation, preparation, and execution of
this Agreement and, therefore, waive the application of any Law or rule of
construction providing that ambiguities in an agreement or other document shall
be construed against the Party drafting such agreement or document.

[Remainder
of page intentionally left blank]

 19

 

IN WITNESS
WHEREOF, the Parties have executed this Agreement as of the date first written
above.

 

	
  

  	
  APEX SILVER MINES LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey Clevenger

  	
   

  
	
   

  	
   

  	
  Jeffrey Clevenger

  
	
   

  	
  Its:

  	
  President & CEO

  
					

 

 

 

	
  

  	
  SUMITOMO CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mitsuhiko Yamada

  	
   

  
	
   

  	
   

  	
  Mitsuhiko Yamada

  
	
   

  	
  Its:

  	
  Executive Officer and General Manager, 

  
	
   

  	
   

  	
  Mineral Resources Division 1

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