Document:

ex10_2.htm

Exhibit 10.2

REAL PROPERTY PURCHASE AND SALE AGREEMENT

AND ESCROW INSTRUCTIONS

THIS REAL PROPERTY PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS (“Agreement”) is made by and between AMBASSADORS GROUP, INC., a Delaware corporation (“Seller”), NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association, and/or its assigns (“Buyer”), and FIRST AMERICAN TITLE INSURANCE COMPANY (“Escrow Agent” or “Title Company”).

 

Seller is the owner of the following (collectively, the “Property”):

 

A.           Fee simple title to the real property consisting of approximately eleven and 7/100 (11.07) acres, and generally located  at 2001 S. Flint Road, in Spokane County, Washington, as more particularly described on the attached Exhibit A (“Real Property”);

 

B.           All structures and improvements on the Real Property together with all warranties relating thereto to the extent transferable, if any (collectively, the “Improvements”);

 

C.           Any and all rights and easements appurtenant to the Real Property;

 

D.           The tangible personal property owned by Seller and used in the operation of the Real Property and Improvements, together with all warranties relating thereto, as more particularly set forth in the attached Exhibit B (“Personal Property”);

 

E.           All licenses, permits, land use designations, approvals, various waivers or consents applicable to the Real Property (collectively, the “Permits”), to the extent transferable, issued or subject to the laws of the United States, the State of Washington, Spokane County, or the City of Spokane, other authority, department, commission board, bureau, agency, unit, or instrumentality, (collectively, the “Governmental Authorities” and each, a “Governmental Authority”); and

 

F.           All site plans, surveys, soil and substrata studies, environmental reports, engineering plans and studies, floor plans, landscape plans and other plans, diagrams, or studies of any kind with respect to the Real Property or Improvements.

 

Buyer desires to purchase and Seller desires to sell the Property, upon the terms and conditions hereinafter outlined.

 

NOW, THEREFORE, it is mutually agreed by and between the parties as follows:

 

1. Agreement

 

.  Seller agrees to sell and convey the Property to Buyer, and Buyer agrees to purchase and accept the Property from Seller, upon the terms and conditions set forth in this Agreement.

 

2. Earnest Money

 

 Within three (3) Business Days following the date that is the day the last of Seller and Buyer execute this Agreement (“Mutual Execution”), Buyer shall deliver to Escrow Agent the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) (the “Earnest Money”) in the form of an executed promissory note attached hereto as Exhibit C (the “Earnest Money Note”), to be applied for the account of Buyer as a credit against the Purchase Price (as defined in Section 3, below) following conversion of the Earnest Money Note to cash in accordance with this Section 2.  Provided that this Agreement has not been terminated prior to the expiration of the Feasibility Period (as defined in Section 4.1, below) and Buyer delivers to Seller the Approval Notice (as defined in Section 4.8, below), within two (2) Business Days following the expiration of the Feasibility Period, Buyer shall replace the Earnest Money Note held by Escrow Agent with cash and the Earnest Money Note shall be canceled and returned to Buyer.  Escrow Agent hereby agrees to hold and disburse all Earnest Money as provided for in this Agreement.  Once converted to cash, the Earnest Money will, at the option of Buyer, be invested in an interest-bearing account. When Escrow Agent disburses the Earnest Money as provided for in this Agreement, any and all interest that has accrued thereon shall be disbursed to the party entitled to the Earnest Money. After Buyer delivers its Approval Notice, the Earnest Money will be nonrefundable to Buyer except as otherwise provided in this Agreement. As used in this Agreement, the term “Business Day” means any day other than: (i) a Saturday, (ii) a Sunday, or (iii) days on which branches of national banks located in Spokane, Washington are closed.

 

  

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3. Purchase Price

 

The purchase price for the Property is Eight Million Seven Hundred Fifty Thousand Dollars ($8,750,000.00) (“Purchase Price”), together with Buyer’s share of closing costs and prorations, as set forth in this Agreement. At Closing (as defined in Section 6.1, below), the Earnest Money will be credited to the Purchase Price and the remainder of the Purchase Price and any fees and closing costs which Buyer is obligated to pay pursuant to this Agreement will be paid in Current Funds.  As used in this Agreement, the term “Current Funds” means wire transfers, certified funds, or a cashier’s check in a form acceptable to Escrow Agent that would permit Escrow Agent to immediately disburse such funds.  The parties acknowledge and agree that Fifty Thousand Dollars ($50,000.00) of the Purchase Price will be allocated to Personal Property at Closing.

 

4. Due Diligence Inspections and Title Review

 

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4.1 Feasibility Period

 

. As used in this Agreement, the term “Feasibility Period” means that period of time commencing on Mutual Execution and expiring at 5:00 p.m., local time in Spokane, Washington, sixty (60) days thereafter, or upon earlier termination of this Agreement.

 

4.2 Review of Diligence Materials

 

To the extent not previously provided to Buyer, Seller shall within five (5) Business Days following Mutual Execution (or, in the case of the items set forth in subclauses (g), (j), (k), (l), (m) and (n), as promptly as practicable following Mutual Execution) make available for Buyer’s inspection copies of all items that relate to the Property (to the extent the same are in Seller’s possession or control),  including, without limitation, the following: (a) all airport impact studies; (b) a completed seller disclosure statement, as required by Revised Code of Washington 64.06; (c) operating/financial statements regarding Seller’s ownership of the Property for calendar years 2012, 2013 and 2014 year-to-date; (d) existing environmental assessment reports; (e) surveys; (f) all as-built construction plans; (g) copies of approved building permits; (h) copies of all contracts affecting the Property, including, without limitation, copies of all service contracts, equipment/furniture leases and maintenance agreements; (i) utility bills for the past six (6) months and a list of all utility deposits or bonds; (j) zoning documents; (k) planning and/or engineering plans, studies or reports; (l) soils investigation reports; (m) seismic studies; (n) any Permits; (o) valuation notices and invoices for real property taxes, personal property taxes, special assessments and any other fees, dues and taxes applicable to the Property for the past three (3) years; (p) copies of any pending or threatened Claims (as defined in Section 4.3, below) or actions relating to the Property; (q) governmental notices regarding uncured violations of laws or regulations; and (r) any contracts and any other binding legal agreements, leases (including the files, amendments, riders, licenses and guarantees, if any) and similar agreements (collectively, the “Current Diligence Materials”). Prior to the expiration of the Feasibility Period, Buyer may, in Buyer’s sole and absolute discretion and at Buyer’s sole cost and expense, obtain the following: (i) a Phase I environmental report relating to the Property (an “Environmental Report”); (ii) a survey of the Property (“Survey”); and/or (iii) except as otherwise provided in this Agreement, any additional studies, reports or surveys that Buyer may elect, in Buyer’s sole and absolute discretion (collectively, the “Additional Studies”). The Current Diligence Materials, the Environmental Reports, the Survey, and the Additional Studies are collectively referred to as the “Diligence Materials” in this Agreement.  Seller shall cooperate in good faith with Buyer in connection with Buyer’s inspection, review and procurement of the Diligence Materials.

 

  

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4.3 Entry on Property

 

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(a) Inspections

 

 Up to and through the Closing Date, if this Agreement has not been terminated, Buyer, and Buyer’s agents, employees and subcontractors, will have the right during normal business hours (upon not less than twenty-four (24) hours prior written notice to Seller, with notice to be given by any permissible method delineated in Section 15.3 of this Agreement) to enter the Property to conduct such surveys, inspections, investigations and/or studies (collectively, “Inspections”) with respect to the Property as Buyer may elect.  Buyer may not, however, obtain a Phase II environmental inspection or conduct any intrusive, destructive or invasive testing, including soil borings, and sampling of materials as part of any Environmental Reports, without first obtaining the prior written consent of Seller, which consent shall be in Seller’s sole and absolute discretion, provided however, that if the results of any initial Environmental Report recommend additional, invasive or destructive testing, either as part of an environmental Phase II or otherwise, and Seller refuses to consent to such additional testing, then Seller shall be obligated to reimburse Buyer for the costs Buyer incurs in connection with obtaining all Environmental Reports, but only if Buyer elects to terminate the transaction contemplated by this Agreement prior to the expiration of the Feasibility Period.  Seller shall cooperate in good faith with Buyer in connection with Buyer’s physical inspection of the Property.

 

(b) Insurance

 

Prior to conducting any Inspections, Buyer shall provide Seller with certificate(s) of insurance evidencing: (i) worker’s compensation and employer’s liability insurance in accordance with the laws of the State of Washington, (ii) commercial general liability, and (iii) commercial auto insurance, to the extent of leased or owned vehicles. The commercial general liability policy shall (y) include insurance against assumed or contractual liability under this Agreement, with respect to all of Buyer’s activities in, or about the Property, in form reasonably acceptable to Seller, naming Seller as an additional insured; and (z) provide limits for bodily injury and property damage of not less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate.  To the extent Buyer or its representatives, agents or consultants (collectively, “Consultants”) own or lease vehicles, the commercial auto policy shall provide coverage for all owned, leased, hired and non-owned automobiles with a combined single limit for bodily injury and property damage of at least One Million Dollars ($1,000,000) per accident. The required limits may be satisfied through a combination of primary and umbrella policies. Umbrella policies must follow form of the underlying policies.

 

          (c) Indemnification

 

 Buyer shall indemnify, defend and hold Seller, its officers, directors, employees, agents and affiliates and the Property free and harmless from and against any and all debts, duties, obligations, liabilities, suits, claims, demands, causes of actions, damage, losses, costs and expenses (including, without limitation, reasonable legal expenses and attorneys’ fees with respect to the same or to enforce this indemnity) (collectively, “Claims”) incurred by reason of or in connection with such entry or such surveys, inspections, investigations or studies; provided, however, that Buyer’s indemnification obligation will not extend to any Claims or liabilities arising out of the discovery of any preexisting conditions of the Property.  Buyer agrees to repair any and all damage caused to the Property due to Buyer’s (or its employees or Consultants’) entry thereon and to otherwise restore the Property to its original condition existing prior to such entry. The obligations of Buyer under this Section 4.3 will survive Closing or earlier termination of this Agreement.

 

  

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4.4 No Liens or Interference

 

 Buyer shall not permit, and shall indemnify, defend and hold harmless Seller for, from and against any and all Claims incurred by reason of or in connection with, any construction, mechanics or materialmen’s liens or any other liens that attach to the Property or any portion thereof by reason of the performance of any work or the purchase of any materials by Buyer or any other party in connection with Buyer’s inspection of the Property. The provisions of this Section will survive Closing or earlier termination of this Agreement.

 

4.5 Review of Title

 

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(a) Title Report

 

 Within three (3) Business Days of Mutual Execution, Seller shall cause the Title Company to deliver a commitment for the Title Policy (as defined in Section 4.6, below) to Buyer. The commitment shall be accompanied by copies of all documents referred to in Schedule B of the commitment (the commitment and the documents are collectively referred to in this Agreement as the “Title Report”).

 

(b) Objections

 

 Buyer shall review the Title Report and may, on or prior to the date that is twenty (20) days from the date that Buyer receives a complete Title Report (the “Title Review Period”), provide Seller and Title Company with written notice of the title exceptions that are objectionable to Buyer, in Buyer’s sole and absolute discretion (each such objectionable matter or exception considered a “Disapproved Matter”). If Buyer timely notifies Seller and Title Company of any Disapproved Matter(s) on or prior to the expiration of the Title Review Period, Seller shall, within ten (10) days following Seller’s receipt of Buyer’s written notice of Disapproved Matter(s) (the “Seller Title Response Period”), notify Buyer and Escrow Agent that: (i) Seller will remove or correct such Disapproved Matter as of or before the Closing, or (ii) Seller will not remove or correct any or certain Disapproved Matter(s). If Seller does not respond within the Seller Title Response Period, Seller shall be deemed to have elected option (ii) above. If Seller elects, within its sole discretion, not to eliminate those objections with reference to such Disapproved Matter(s), in form and substance acceptable to Buyer, in Buyer’s sole and absolute discretion, Buyer may either (y) terminate this Agreement by delivery of written notice to Seller and Escrow Agent, or (z) give written notice to Seller and Escrow Agent, agreeing to accept title to the Property subject to such Disapproved Matters, in which case such Disapproved Matters shall be Permitted Exceptions (as defined in Section 4.5(d), below). If Buyer fails to deliver written notice in accordance with (y) or (z) above, Buyer shall be deemed to have elected option (y) above, in which case this Agreement shall terminate on the day that is five (5) Business Days after at the expiration of the Seller Title Response Period.

 

(c) Supplements; Amendments

 

  If the Title Company issues a supplement or amendment to the Title Report showing additional title exceptions (each, an “Amended Report”), Buyer will have ten (10) days from the date of receipt of each Amended Report and a copy of each document referred to in the Amended Report in which to give notice of its acceptance of or objection to additional Disapproved Matter(s). If Buyer provides Seller and Escrow Agent with notice of the basis of objection of the status of Seller’s title as shown on the Amended Report, Seller will have the option to cure such Disapproved Matters within five (5) days thereafter or prior to Closing, whichever is sooner. If Seller elects, within its sole discretion, not to timely eliminate the additional Disapproved Matters on or before Closing, in form and substance acceptable to Buyer, in its sole and absolute discretion, Buyer may either (i) terminate this Agreement by delivery of written notice to Seller and Escrow Agent, or (ii) give written notice to Seller and Escrow Agent, agreeing to accept title to the Property subject to such additional Disapproved Matters. If Buyer fails to deliver written notice in accordance with (i) or (ii) above, Buyer shall be deemed to have elected option (i) above, in which case this Agreement shall terminate on the day that is the earlier to occur of (y) five (5) days after the date of receipt of the latest Amended Report, or (z) the scheduled Closing Date.

 

  

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(d) Failure to Provide Written Acceptance

 

  Any title matter that Buyer accepts in writing will be a “Permitted Exception.” Notwithstanding the foregoing, Buyer will not be required to disapprove or object to, and Seller covenants to remove as an encumbrance against title to the Property on or prior to Closing, any deeds of trust, monetary liens or monetary encumbrances (except for real property taxes and assessments not delinquent), and any exceptions for claims of liens for labor or materials furnished or supplied to the Property or any portion of the Property. If Buyer does not provide written acceptance of an exception to title as disclosed by the Title Report or an Amended Report within the applicable time period, Buyer will be deemed to have objected to such matter. If this Agreement is terminated due to Seller’s failure or inability to cure any Disapproved Matters under this Section 4.5, Escrow Agent shall immediately remit the Earnest Money to Buyer, together with any other funds, documents or instruments that Buyer has deposited with Escrow Agent, and neither party will have any further obligation to the other, except those obligations that expressly survive the termination of this Agreement.

 

4.6 Title Policy

 

At the Closing, Seller shall convey to Buyer marketable and insurable fee simple title to the Real Property, subject only to the Permitted Exceptions, by duly executed and acknowledged statutory warranty deed in the form attached as Exhibit D (“Deed”).   Evidence of delivery of marketable and insurable fee simple title will be the issuance by Title Company to Buyer of an ALTA extended owner’s policy of title insurance (or if Buyer does not elect, in Buyer’s sole discretion, to obtain an ALTA extended owner’s policy, then the issuance of a standard ALTA owner’s policy of title insurance) in the amount of the Purchase Price, insuring fee simple title to the Real Property in Buyer, subject only to Permitted Exceptions (“Title Policy”).

 

4.7 Contracts; Sale-Leaseback Lease

 

 Prior to the expiration of the Feasibility Period, Buyer shall notify Seller of any contracts affecting the Property which Buyer will agree to assume at Closing, as determined by Buyer in Buyer’s sole and absolute discretion.  Seller must, on or before Closing, terminate any such contracts not expressly agreed to be assumed by Buyer, and Seller shall give notices of termination for all contracts not agreed to be assumed by Buyer no later than the Closing.  During the Feasibility Period, the parties shall use commercially reasonable efforts to negotiate a customary form lease to be entered into by the parties at Closing for purposes of providing Seller with additional time to relocate its business and vacate the Improvements and the Real Property (the “Sale-Leaseback Lease”), provided that the failure of the parties to agree upon a form Sale-Leaseback Lease prior to the expiration of the Feasibility Period shall in no way be construed to be a condition requiring satisfaction prior to the parties being obligated to close the transaction contemplated by this Agreement, and if the parties cannot timely agree upon a form Sale-Leaseback Lease, Seller shall, subject to its unilateral right to extend the Closing Date (as described in Section 6.1), be obligated to vacate the Property prior to Closing.  Other than the Sale-Leaseback Lease, Seller shall terminate any and all leases affecting the Property, if any, as of the Closing Date.

 

  

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4.8 Right to Terminate Prior to Expiration of Feasibility Period

 

 Notwithstanding anything contained in this Agreement to the contrary, Seller acknowledges and understands that Buyer may, prior to the expiration of the Feasibility Period, notify Seller in writing that Buyer elects to terminate this Agreement as a result of any matter or no matter as determined by Buyer, in Buyer’s sole and absolute discretion. Seller acknowledges that Buyer has the right to so terminate this Agreement, regardless of whether Seller would be willing or able to cure any matter to which Buyer has objected. If Buyer elects, in its sole and absolute discretion, to proceed with this transaction, Buyer shall send a written approval notice to Seller and Escrow Agent on or before the expiration of the Feasibility Period (the “Approval Notice”).  If Buyer fails to send an Approval Notice to Seller and Escrow Agent by the expiration of the Feasibility Period, Buyer will be deemed to have elected to terminate this Agreement.  Buyer may also terminate this Agreement by sending written notice of termination to Seller on or before the expiration of the Feasibility Period.  If this Agreement is terminated as provided in this Section, Escrow Agent shall immediately remit the Earnest Money to Buyer and neither party will have any further obligation to the other, except those obligations that expressly survive the termination of this Agreement. After the Approval Notice is sent by Buyer, the Earnest Money will not be refundable to Buyer unless (i) Seller defaults under the terms and conditions of this Agreement, (ii) a condition to Closing for the benefit of Buyer is not satisfied or waived in writing by Buyer, or (iii) any other event occurs which entitles Buyer to the Earnest Money pursuant to the terms of this Agreement.

 

5. Conditions Precedent

 

.  Notwithstanding any provision of this Agreement to the contrary, Buyer’s obligation to close under this Agreement shall be subject to and conditioned upon the fulfillment of each and all of the following conditions precedent:

 

5.1           All of the documents required to be delivered by Seller to Buyer or Escrow Agent at Closing pursuant to the terms and conditions hereof shall have been delivered;

 

5.2           Each of the representations of Seller set forth in Section 7 shall be true in all respects as of the Closing Date;

 

5.3           At Closing, and subject only to Buyer’s payment of the applicable additional premium, if any, the Title Company shall be irrevocably committed to issue the Title Policy in the form described herein;

 

5.4           Buyer has timely delivered the Approval Notice;

 

5.5           Neither the Property, Seller, nor Buyer shall be subject to any court or other similar action preventing, restraining, enjoining, or otherwise prohibiting the consummation of the transaction contemplated by this Agreement;

 

5.6           The due performance by Seller of each and every undertaking and agreement to be performed by Seller hereunder;

 

5.7           No Condemnation Event (as defined in Section 11, below) shall have occurred with respect to the Property following Buyer’s delivery of the Approval Notice; and

 

5.8           There has been no spill of Hazardous Substances on the Property that occurred after the expiration of the Feasibility Period.

 

If any condition specified in this Section 5 is not satisfied on or before Closing, Buyer may, at its option, (i) waive such condition on or before the Closing Date and proceed to Closing, (ii) terminate this Agreement by written notice thereof to Seller and receive a refund of the Earnest Money, or (iii) if the failure of the condition is due to a breach by Seller hereunder, pursue any of its remedies under Section 13 of this Agreement. By Closing the transaction contemplated hereby, Buyer shall be conclusively deemed to have waived the benefit of any remaining unfulfilled conditions set forth in this Agreement, except for any obligation of Seller which specifically survives the Closing under the terms of this Agreement.

 

  

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6. Closing

 

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6.1 Closing Date and Location

 

  The consummation of the transaction contemplated in this Agreement (“Closing”) shall occur at the offices of Escrow Agent on the day (“Closing Date”) that is sixty (60) days following the date on which Buyer delivers the Approval Notice, or at such earlier time and place as may be agreed to by the parties in writing.  Notwithstanding anything in this Agreement to the contrary, if the parties are unable to agree upon a form Sale-Leaseback Lease prior to the expiration of the Feasibility Period, then Seller shall have the unilateral right to extend the Closing Date to a date that is no later than March 31, 2015 (the “Outside Closing Date”), provided however, that in order for Seller to properly avail itself of such extension right Seller must provide Buyer with written notice at least thirty (30) days prior to the Closing Date of Seller’s intention to so extend the Closing Date to a date that is no later than the Outside Closing Date.

 

6.2 Closing Costs and Prorations

 

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(a) Closing Fees

 

  At Closing, Seller and Buyer shall each pay one-half (1/2) of the escrow fees.  Any recording fees, Spokane County transfer tax, real estate excise tax, or similar property transfer taxes and fees will be the sole responsibility of Seller.  Buyer shall be solely responsible for and shall pay any sales and use taxes applicable to the Personal Property.  Each party must pay its own attorneys’ fees incurred with respect to this transaction.

 

(b) Title Policy

 

 For the Title Policy, Seller shall pay the cost of an ALTA standard owner’s title policy, and Buyer shall pay the additional cost necessary for any ALTA extended policy Buyer elects to acquire. Buyer shall also pay the cost of any and all endorsements to the Title Policy unless provided by Seller to clear a Disapproved Matter, in which case Seller shall be responsible for the cost of such endorsements.

 

(c) Taxes and Fees

 

 Real estate taxes for the year of Closing and annual municipal or special district assessments (on the basis of the actual fiscal tax years for which such taxes are assessed), lienable water and sewer rentals, license, or permit and inspection fees, if any, will be apportioned as of the Closing Date between Buyer and Seller. If the tax bill for the real estate tax year in which the Closing occurs has not been issued on or before the day prior to the Closing Date, the apportionment of taxes will be computed based upon the most recent tax bill available, and then reconciled after Closing based on the actual taxes due. If, on the day prior to the Closing Date, bills for the real estate taxes imposed upon the Property for the real estate tax year in which Closing occurs have been issued but have not been paid, such taxes shall be paid at the time of Closing.

 

(d) Other Apportionments

 

 Amounts payable, or prepaid, under the contracts assumed by Buyer and other Property operation and maintenance expenses and other recurring costs will be apportioned as of the Closing Date.  Seller shall pay all sums due in connection with the termination of any contracts not expressly assumed by Buyer, and any and all leases.  Seller shall be entitled to a refund of any deposits posted by Seller in connection with any contracts assumed by Buyer.

 

  

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(e) Utility Readings

 

 Seller shall use reasonable efforts to obtain readings of the utility meters on the Property to a date no sooner than two (2) Business Days prior to the Closing Date. At or prior to Closing, Seller shall pay all charges based upon such meter readings. However, if after reasonable efforts Seller is unable to obtain readings of any meters prior to Closing, Closing will be completed without such readings and upon the obtaining of such readings after Closing, Seller shall promptly pay the pre-Closing charges as reasonably determined by Seller and Buyer based upon post-Closing readings.

 

(f) Preliminary Closing Adjustment

 

Seller and Buyer shall cooperate with Escrow Agent to prepare a preliminary closing statement (“Closing Statement”) at least two (2) Business Days prior to the Closing Date. All apportionments and prorations provided for in this Section 6.2 to be made as of the Closing Date will be made, on a per diem basis, as of 11:59 p.m. on the Closing Date.  The preliminary Closing Statement and the apportionments or prorations reflected therein will be based upon actual figures to the extent available. If any of the apportionments or prorations cannot be calculated accurately based on actual figures on the Closing Date, then (other than with respect to determination of real estate taxes that will be computed as set forth in subsection 6.2(c)) they will be calculated based on Seller’s and Buyer’s good faith estimates thereof, subject to reconciliation as provided in the following Section.

 

(g) Post-Closing Reconciliation

 

 If there is an error on the preliminary Closing Statement or, if after the actual figures are available as to any items that were estimated on the preliminary Closing Statement (including, without limitation, real estate taxes), it is determined that any actual proration or apportionment varies from the amount thereof reflected on the final Closing Statement, the proration or apportionment will be adjusted based on the actual figures as soon as feasible. Either party owing the other party a sum of money based on such subsequent proration(s) shall promptly pay said sum to the other party.

 

(h) Other Costs and Survival

 

 All other costs not addressed within this Section 6.2 shall be paid in accordance with the custom in Spokane County. The provisions of this Section 6.2 shall survive Closing.

 

6.3 Deliveries at Closing

 

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(a) Deliveries by Seller

 

At Closing, Seller shall execute and deliver all documents reasonably necessary to effect and complete the Closing, including, but not limited to, the following:

 

(1) The Deed.

 

(2) A non-foreign affidavit for purposes of compliance with Section 1445(b)(2) of the Internal Revenue Code of 1986, as amended (“Code”), and the regulations adopted thereunder.

 

(3) A counterpart original of the Bill of Sale for the Personal Property, in the form attached to this Agreement as Exhibit E.

 

  

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(4) A counterpart original of the Assignment and Assumption Agreement in the form attached to this Agreement as Exhibit F for the Permits, and the contracts Buyer agreed to assume pursuant to Section 4.7, if any.

 

(5) A counterpart original of the Sale-Leaseback Lease, if agreed upon by the parties prior to the expiration of the Feasibility Period.

 

(6) Any and all original contracts and Permits affecting the Property being assigned to Buyer, if any.

 

(7) All keys and/or means to operate all locks and alarms on or in the Real Property or Improvements.

 

(8) An owner’s affidavit and such other documentation as Escrow Agent may reasonably require in order for the Title Policy to provide mechanics lien coverage, or may otherwise be required to close the escrow and consummate the purchase of the Property in accordance with the terms of this Agreement.

 

(b) Deliveries by Buyer

 

.  On the Closing Date, Buyer shall execute and deliver all documents reasonably necessary to effect and complete the Closing, including, but not limited to, the following:

 

(1) The amounts required under Sections 3 and 6.2 in Current Funds.

 

(2) A counterpart original of the Bill of Sale for the Personal Property, in the form attached to this Agreement as Exhibit E.

 

(3) A counterpart original of the Assignment and Assumption Agreement in the form attached to this Agreement as Exhibit F.

 

(4) A counterpart original of the Sale-Leaseback Lease, if agreed upon by the parties prior to the expiration of the Feasibility Period.

 

(5) Such documentation as Escrow Agent may reasonably require, or may otherwise be required to close the escrow and consummate the purchase of the Property in accordance with the terms of this Agreement.

 

(c) Actions of Escrow Agent

 

.  When the foregoing provisions of this Section have been consummated, at the Closing the Escrow Agent shall:

 

(1) Prepare the Closing Statement and obtain signed copies from Seller and Buyer.

 

(2) Record the Deed.

 

(3) Deliver the balance of the Purchase Price in Current Funds to Seller, net of Seller’s costs, fees, and prorates.

 

(4) Issue and deliver the Title Policy to Buyer.

 

(5) Deliver the above referenced documents to the applicable party.

 

  

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7. Representations and Warranties of Seller

 

In addition to the representations and warranties contained in other sections of this Agreement, Seller makes the representations and warranties to Buyer set forth in this Section 7.  Each representation and warranty: (i) is material and relied upon by Buyer; (ii) is true in all respects as of Mutual Execution; (iii) will be true in all respects on the Closing Date; and (iv) will survive Closing for a period of twelve (12) months.  For purposes of this Section 7, the phrase “Seller’s knowledge” and similar phrases shall mean and refer to the actual knowledge of Lisa Netz and Ben Erickson without investigation.

 

7.1 Binding Agreements/Authority/Conflicts

 

 This Agreement and all exhibits and documents to be delivered by Seller pursuant to Section 6.3(a) of this Agreement have been duly executed and delivered by Seller and constitute the valid and binding obligations of Seller, enforceable in accordance with their terms. Seller has all necessary authority, and has taken all action necessary to enter into this Agreement, to consummate the transactions contemplated hereby, and to perform its obligations hereunder. The execution, delivery, and performance of this Agreement by Seller will not conflict with or constitute a breach or default under (i) the organizational documents of Seller; (ii) any material instrument, contract, or other agreement to which Seller is a party which affects the Property; or (iii) any statute or any regulation, order, judgment, or decree of any court or Governmental Authority.

 

7.2 Non-foreign Status

 

 Pursuant to § 1445 of the Code, Seller is not a foreign person or nonresident alien as defined within that Code section.  Seller understands that the Buyer may disclose this warranty to the Internal Revenue Service.

 

7.3 Proceedings and Litigation

 

 There are no existing suits, claims, proceedings or actions with respect to any aspect of the Property nor, to Seller’s knowledge, have any such actions, suits, proceedings or claims been threatened or asserted.

 

7.4 Condemnation; Access

 

There is no pending or, to Seller’s knowledge, threatened condemnation affecting the Property. There is no pending or, to Seller’s knowledge, threatened proceeding that would adversely affect access to the Property.

 

7.5 Seller Sole Owner

 

Seller is the sole fee owner of the Personal Property and has good and marketable title thereto.

 

7.6 No Contracts or other Sale Commitments

 

 Except for this Agreement, with respect to the Property, Seller is not a party to any other contract or agreement providing for the sale or other conveyance of any of the Property, or any portion thereof.

 

7.7 Seller’s Performance

 

Seller is not in default under any contract, lease or other agreement affecting the Property to which Seller is a party, and no event, condition or occurrence exists which, after notice or lapse of time, or both, would constitute such a default by Seller of any of the foregoing. Seller has furnished or made available to Buyer true and correct copies of all documents required to be delivered by Seller to Buyer pursuant to this Agreement.

 

7.8 No Liens on Personal Property

 

 As of the Closing Date, the Personal Property will be free and clear of all liens, encumbrances, claims, rights, demands, easements, leases, agreements, assessments, covenants, conditions, and restrictions of any kind or character (including, without limitation, liens or claims for mortgages, or other title retention agreements, deeds of trust, security agreements, and pledges) except for the Permitted Exceptions.

 

7.9 Governmental Consents

 

 No violations are or have been recorded in respect of any Permits and no proceedings are pending or otherwise threatened, concerning the revocation or limitation of any such Permit. There is no governmental or public action pending or threatened in writing, or, to Seller’s knowledge, otherwise threatened that would limit or affect operation of the Property.

 

  

-10-

  

7.10 Governmental Compliance

 

Seller has not received written notice of any violation of any statute, law, ordinance or regulation of any Governmental Authority that would require remedial action by Seller or would require repairs or alterations to the Property or any portion of the Property. To Seller’s knowledge, the Property is not in violation of any statute, law, ordinance or regulation of any Governmental Authority.

 

7.11 Environmental/Hazardous Substances

 

 To Seller’s knowledge, and except for normal quantities of cleaning and maintenance materials commonly used in connection with the operation and maintenance of properties similar to the Property, no Hazardous Substances (defined below) have been discharged or stored on, under or about the Property. To Seller’s knowledge, Seller has not received written notice of violation, administrative complaint, judicial complaint, or other notice (i) alleging that conditions on the Property are or have been in violation of any Environmental Law, (ii) informing Seller that the Property is subject to investigation or inquiry regarding the presence of Hazardous Substances on or about the Property, or (iii) alleging the potential violation of any Environmental Law.

 

As used in this Agreement, the term “Environmental Law” means any federal, state or local law, statute, ordinance, or regulation pertaining to health, industrial hygiene, or environmental conditions, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901, et seq.; the Toxic Substances Control Act of 1976, 15 U.S.C. § 2601, et seq.; the Superfund Amendments and Reauthorization Act of 1986, Title III, 42 U.S.C. § 1101, et seq.; the Clean Air Act, 41 U.S.C. § 7401, et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251, et seq.; The Safe Drinking Water Act, 41 U.S.C. § 300f, et seq.; the Solid Waste Disposal Act, 42 U.S.C. § 3251, et seq.; and any other federal, state or local law, statute, ordinance, or regulation now in effect or hereinafter enacted which pertains to health, industrial hygiene, or the regulation or protection of the environment, including without limitation, ambient air, soil, groundwater, surface water, or land use.

 

As used in this Agreement, the term “Hazardous Substance” means any chemical, material, waste, substance, controlled substance, pollutant, object, condition, contaminant, living organisms or any combination thereof which may or could pose a risk of injury or threat to health or the environment, including, without limitation: (i) those substances included within the definitions of “hazardous substance”, “hazardous waste”, “hazardous material”, “toxic substance”, “solid waste”, or “pollutant or contaminant” in or otherwise regulated by, any Environmental Law; (ii) those substances listed in the United States Department of Transportation Hazardous Materials Table (49 C.F.R. 17.101, including appendices and amendments thereto), or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 C.F.R. Part 302 and amendments thereto); (iii) such other substances, materials, or wastes which are or become regulated or classified as hazardous or toxic under any Environmental Law; and (iv) any material, waste, or substance which is (A) petroleum or refined petroleum products; (B) asbestos in any form; (C) polychlorinated biphenyls; (D) flammable explosives; (E) radioactive materials; (F) radon; (G) lead; or (H) Mold. As used in this Agreement, the term “Mold” means any mold, mildew or fungi (living or dead) or their mycotoxins, spores or other byproducts present in a quantity, of a type, or in such manner, as to pose a potential risk to human health or a potential violation of any Environmental Laws or to indicate significant impairment to the structure where the mold, mildew, fungi or their mycotoxins, spores or other byproducts exist.

 

  

-11-

  

7.12 Bankruptcy or Insolvency

 

Seller is not insolvent, and Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller’s creditors, (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of Seller’s assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller’s assets, (v) admitted in writing its inability to pay its debts as they become due, or (vi) made an offer of settlement, extension or composition to its creditors generally.

 

7.13 Anti-Terrorism Laws

 

 Neither Seller nor any of its shareholders, officers or directors, is a “Prohibited Person” or “Specifically Designated National and Blocked Person” under the Anti-Terrorism Laws (hereinafter defined). As used herein, the term “Anti-Terrorism Laws” means any and all present and future judicial decisions, statutes, ruling, rules, regulations, permits, certificates, orders and ordinances of any Governmental Authority relating to terrorism or money laundering including, without limiting the generality of the foregoing, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Pub. L. No. 107-56); the Trading with the Enemy Act (50 U.S.C.A. App. 1 et seq.); the International Emergency Economic Powers Act (50 U.S.C.A. § 1701-06); Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (relating to “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism”) and the United States Treasury Department’s Office of Foreign Assets Control list of “Specifically Designated National and Blocked Persons” (as published from time to time in various mediums).

 

7.14 Brokers

 

.Except as set forth in Section 14, no real estate broker or any other commission agent(s) are owed fees or commissions with respect to the sale(s) transaction contemplated in this Agreemen

 

8. Covenants of Seller

 

.

 

8.1 Normal Operations

 

 From and after Mutual Execution, Seller shall not: (i) execute, modify, terminate or approve any contracts or commitments of any kind affecting the Property or any interest therein without Buyer’s written approval, which may be granted or withheld in Buyer’s sole and absolute discretion, except that Seller shall be entitled to enter into a new contract without Buyer’s written approval in an emergency situation, provided that such contract is at a market rate and is terminable without cause and without penalty on not more than thirty (30) days’ notice; (ii) execute any leases affecting the Property; or (iii) encumber the Property with any liens, encumbrances or other instruments which appear on title or which secure a monetary obligation. Until possession is delivered to Buyer, Seller agrees, at its sole cost and expense, to maintain and keep the Property in not less than the same order and condition as on Mutual Execution, and to operate the Property in the same manner as prior to Mutual Execution as if Seller were retaining the Property.

 

8.2 Insurance

 

 Until the Closing Date, Seller shall maintain substantially the same liability, casualty, and all other insurance on the Property, if any, as is in effect as of the date of Mutual Execution.

 

8.3 Indemnification

 

 Except as specifically stated herein, Seller hereby agrees to indemnify, protect, defend, save and hold Buyer and, as the case may be, its partners, trustees, managers, members, officers, employees and agents (“Buyer Indemnified Parties”) harmless from and against any and all Claims made by a third party not affiliated with Seller against any Buyer Indemnified Parties (i) arising from leases, contracts or other agreements entered into during Seller’s ownership of the Property and resulting from an occurrence prior to the Closing; (ii) arising from the ownership, operation, maintenance and management of the Property during Seller’s ownership and resulting from an occurrence prior to the Closing; and (iii) resulting from a breach by Seller of representations and warranties expressly made by Seller in this Agreement.  The provisions of this Section 8.3 will survive Closing or the earlier termination of this Agreement.

 

  

-12-

  

8.4 Continuing Representations and Warranties

 

 Until the Closing Date, promptly upon the occurrence of, or upon Seller becoming aware of an impending or threatened occurrence of, any event which would cause or constitute a material breach of this Agreement, or which would have caused or constituted a breach had such event occurred prior to the date hereof, of any of the representations or warranties of Seller contained in or referred to in this Agreement or in any exhibit to this Agreement, Seller shall give detailed written notice thereof to Buyer and shall use its reasonable efforts to prevent or promptly remedy the same.

 

9. Buyer’s Representations and Warranties

 

 In addition to the representations and warranties contained in other sections of this Agreement, Buyer makes the representations and warranties to Seller set forth in this Section 9.  Each representation and warranty: (i) is material and relied upon by Seller; (ii) is true in all respects as of Mutual Execution; (iii) unless noticed by Buyer to Seller, will be true in all respects on the Closing Date; and (iv) will survive Closing for a period of twelve (12) months.

 

9.1 Authority/Binding Agreements

 

  This Agreement and all exhibits and documents to be delivered by Buyer pursuant to this Agreement have been duly executed and delivered by Buyer and constitute the valid and binding obligations of Buyer, enforceable in accordance with their terms. Buyer has the legal right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, and the execution, delivery and performance of this Agreement have been duly authorized and no other action by Buyer is requisite to the valid and binding execution, delivery and performance of this Agreement. The execution, delivery and performance of this Agreement by Buyer will not conflict with or constitute a breach or default under (i) the organizational documents of Buyer, (ii) any material instrument, contract or other agreement to which Buyer is a party; or (iii) any statute or any regulation, order, judgment or decree of any court of Governmental Authority.

 

9.2 Anti-Terrorism Laws

 

 Neither Buyer nor any of its shareholders, officers or directors, is a “Prohibited Person” or “Specifically Designated National and Blocked Person” under the Anti-Terrorism Laws.

 

9.3 Brokers

 

  Except as set forth in Section 14, no real estate broker or any other commission agent(s) are owed fees or commissions with respect to the sale(s) transaction contemplated in this Agreement.

 

10. AS IS  Except for the representations and warranties of Seller set forth in this Agreement, the Deed and in any document executed and delivered by Seller in connection with the transactions contemplated in this Agreement, Buyer is purchasing the Property AS IS, WHERE IS, AND WITH ALL FAULTS and, except as specifically stated herein, without any representations or warranties of any kind whatsoever, express or implied, by Seller, including any representations regarding the use, condition or value of the Property or any implied warranties of merchantability, habitability and/or fitness for a particular purpose.

 

11. Damage or Destruction; Condemnation

 

 Risk of loss resulting from any condemnation or eminent domain proceeding that is commenced or has been threatened before the Closing, and risk of loss to the Property due to fire, flood, or any other cause before Closing, will remain with Seller.  If before Closing the Property or any portion thereof is damaged in an amount aggregating in excess of Two Hundred Fifty Thousand Dollars ($250,000), or if the Property or any portion thereof is subjected to a threat of condemnation or becomes the subject of any proceedings, judicial, administrative, or otherwise, with respect to the taking by eminent domain or condemnation, then Buyer may terminate this Agreement by written notice to Seller sent within fifteen (15) days after Buyer learns of the damage or taking, in which event the Earnest Money will be returned to Buyer, and no party will have any further obligation to the other, except those obligations that expressly survive the termination of this Agreement.  If the Closing Date is within the fifteen (15) day period, then Closing will be extended to the next Business Day following the end of the fifteen (15) day period.  If no such election is made by Buyer, (i) this Agreement will remain in full force and effect, (ii) the purchase of the Property, less any interest taken by eminent domain or condemnation, will be effected with no further adjustment, (iii) upon Closing, Seller shall assign to Buyer all of the right, title, and interest of Seller in and to any awards that have been or may thereafter be made for such taking, and (iv) Seller shall assign to Buyer any insurance proceeds that may thereafter be made for such damage or destruction, giving Buyer a credit at Closing for any deductible under the relevant insurance policies.

 

  

-13-

  

12. Default by Buyer; Liquidated Damages

 SHOULD THE PURCHASE AND SALE TRANSACTION CONTEMPLATED IN THIS AGREEMENT FAIL TO BE CONSUMMATED ACCORDING TO THE TERMS OF THIS AGREEMENT SOLELY BY REASON OF ANY DEFAULT OF BUYER, SELLER WILL BE RELIEVED OF ANY OBLIGATION TO SELL THE PROPERTY TO BUYER, SELLER WILL NOT HAVE ANY RIGHT TO SEEK OR OBTAIN SPECIFIC ENFORCEMENT OF THIS AGREEMENT, AND, AS SELLER’S SOLE AND EXCLUSIVE REMEDY AT LAW OR IN EQUITY FOR SUCH DEFAULT, THE EARNEST MONEY WILL BE IMMEDIATELY DISBURSED AND RETAINED BY SELLER AS LIQUIDATED DAMAGES AND AS CONSIDERATION FOR SELLER KEEPING THE PROPERTY OFF OF THE MARKET FOR SALE TO OTHERS.  BUYER AND SELLER AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES THAT SELLER MIGHT SUFFER IN THE EVENT OF BUYER’S DEFAULT HEREUNDER. BUYER AND SELLER AGREE THAT THE AMOUNT OF LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES.

 

	
 

Seller’s Initials:  /s/ PBL

 

	
 

Buyer’s Initials:  /s/ PSD

13. Default by Seller; Remedies

 

If Seller is unable to convey title, subject to and in accordance with this Agreement, Buyer may, at its election (i) obtain a prompt refund of the Earnest Money and be promptly reimbursed by Seller of all of Buyer’s actual documented out-of-pocket costs it incurs with respect to its pursuit of the Property in an aggregate amount not to exceed Fifty Thousand Dollars ($50,000); or (ii) bring an action for specific performance. Buyer’s remedies are non-cumulative and the exercise of one remedy by Buyer will preclude the exercise of any other remedy.

 

14. Brokerage

 

 Seller has engaged Gary Griff of Cushman & Wakefield, Inc. as Seller’s broker in this transaction (“Seller’s Broker”).  Buyer has engaged Chris Siemens of Windermere Real Estate/City Group LLC (“Buyer’s Broker”).  Seller will be solely responsible for any commission or other sum due or owing to Seller’s Broker and Buyer’s Broker at Closing pursuant to the Listing Agreement between Seller and Seller’s Broker dated September 11, 2013, which commission shall be equally split between Seller’s Broker and Buyer’s Broker.  Seller and Buyer hereby agree to indemnify and hold each other harmless for, from and against any and all Claims incurred by reason of or in connection with any claim for fees, compensation, or other charges relating in any way to the transaction contemplated in this Agreement, or the consummation thereof, which may be made by any other person, firm, or entity as the result of any acts or the acts of Seller or Buyer or their respective representatives.

 

  

-14-

  

15. Miscellaneous

 

.

 

15.1 Attorneys’ Fees

 

 Should any party hereto bring any action against any other party related in any way to this Agreement, the substantially prevailing party will be awarded its or their reasonable attorneys’ fees and costs incurred for prosecution, defense, consultation, hiring of experts or advice in connection with such action, and any such attorneys’ fees or costs executing upon or appealing any judgment.

 

15.2 Escrow Agent

 

 Escrow Agent hereby accepts its designation as Escrow Agent under this Agreement and agrees to hold and disburse the Earnest Money as provided in this Agreement. The provisions hereof will constitute joint instructions to the Escrow Agent to consummate the purchase in accordance with the terms and provisions hereof; provided, however, that the parties shall execute such additional escrow instructions, not inconsistent with the provisions hereof, as may be deemed reasonably necessary to carry out the intentions of the parties as expressed herein. The provisions of this Section will survive the Closing or termination of this Agreement.

 

15.3 Notices

 

All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt of an electronic confirmation thereof, (ii) upon email transmission, provided a copy of any notice given by email transmission is also subsequently mailed to the receiving party in accordance with the terms of this Section 15.3, (iii) one (1) Business Day after having been deposited for overnight delivery with any reputable overnight courier service, or (iv) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

	
If to Buyer:

	
Northwest Farm Credit Services, FLCA

Attn:  Stacy D. Lavin, Esq.

1700 S. Assembly Street

P.O. Box 2515

Spokane, WA 99220-2515

Fax:  509.340.5702

Email: Stacy.Lavin@northwestfcs.com

	  	  
	
with a copy to:

	
Lukins & Annis, P.S.

Attn: Tyler J. Black, Esq.

717 W. Sprague Avenue, Suite 1600

Spokane, Washington  99201

Fax:  509.363.2487

Email:  tblack@lukins.com

 

	
If to Seller:

	
Ambassadors Group, Inc.

Attn:  Lisa Netz

Dwight D. Eisenhower Building

2001 S. Flint Road

Spokane, WA 99224

Fax:  509.590.4349

Email: lisa.netz@peopletopeople.com

 

 

	
And to:

	
Ambassadors Group, Inc.

Attn:  Marie Rice

Dwight D. Eisenhower Building

2001 S. Flint Road

Spokane, WA 99224

Fax:  509.590.4349

Email:  marie.rice@peopletopeople.com

 

	
with a copy to:

	
Bartlit Beck Herman Palenchar & Scott LLP

Attn:  Thomas R. Stephens, Esq.

1899 Wynkoop Street, Suite 800

Denver, Colorado 80202

Fax:  303.592.3140

Email:  thomas.stephens@bartlit-beck.com

	
If to Escrow Agent:

	
First American Title Insurance Company

Attn: Dawn McClenahan

40 E. Spokane Falls Boulevard

Spokane, WA 99202

Fax:  509.690.8931

Email: dmcclenahan@firstam.com

	  	  

 

  

-15-

  

15.4 Governing Law/Venue

 

The laws of the State of Washington govern the enforcement, and interpretation of this Agreement.  The venue for any action related to this Agreement shall be in Spokane County, Washington.

 

15.5 Integration; Modification; Waive

 

 This Agreement, exhibits, and closing documents executed and delivered pursuant to this Agreement constitute the complete and final expression of the agreement of the parties relating to the Property. This Agreement cannot be modified, or any of the terms hereof waived, except by an instrument in writing (referring specifically to this Agreement) executed by the parties.

 

15.6 Counterpart Execution

 

This Agreement may be executed in several counterparts, and delivered via facsimile or other electronically transmitted means, each of which will be fully effective as an original and all of which together will constitute one and the same instrument.

 

15.7 Headings; Construction

 

 The headings used throughout this Agreement have been inserted for convenience of reference only and do not constitute matters to be construed in interpreting this Agreement. Words of any gender used in this Agreement will be construed to include any other gender, and words in the singular number will be construed to include the plural, and vice versa, unless the context requires otherwise. The words “herein,” “hereof,” “hereunder,” and other similar compounds of the word “here” when used in this Agreement refer to the entire Agreement and not to any particular provision or section.

 

15.8 Deadlines and Dates

 

 Any deadline, unless otherwise set forth in this Agreement, will expire at 5:00 p.m., local time in Spokane, Washington. Should any deadline or date in this Agreement fall on a day other than a Business Day, such deadline or date will be extended until 5:00 p.m., local time in Spokane, Washington, on the next Business Day; provided that, if a Closing would be scheduled to occur on a Saturday, Sunday or holiday or the first Business Day after a Saturday, Sunday or holiday, that Closing shall be delayed until the second Business Day after such Saturday, Sunday or holiday. The time periods in this Agreement shall be computed by excluding the first day of such period and including the last day of such period.

 

  

-16-

  

15.9 Severability

 

 If for any reason any provision of this Agreement, or the applicability of any such provision to a specific situation, is determined by a tribunal of competent jurisdiction to be legally invalid or unenforceable, the validity of the remainder of the Agreement will not be affected and such provision will be modified or deemed modified to the minimum extent necessary to make such provision valid and enforceable with applicable law and, in its modified form, such provision will then be enforceable and enforced.

 

15.10 Time of the Essence

 

 Time is of the essence of this Agreement and of the obligations of the parties to purchase and sell the Property, it being acknowledged and agreed by and between the parties that any delay in effecting a closing pursuant to this Agreement may result in loss or damage to the party in full compliance with its obligations hereunder.

 

15.11 Binding Effect

 

 This Agreement is binding upon and inures to the benefit of Seller and Buyer, and their respective successors and permitted assigns.

 

15.12 Further Acts

 

 In addition to the acts recited in this Agreement to be performed by Seller and Buyer, Seller and Buyer agree to perform or cause to be performed at the Closing or after the Closing any and all such further acts as may be reasonably necessary to consummate the transactions contemplated in this Agreement.

 

15.13 Assignment

 

 Neither party may assign its right or obligations under this Agreement without first obtaining the prior written consent of the other party, which consent may be granted or withheld in the non-requesting party’s sole and absolute discretion.

 

15.14 1031 Exchange

 

 The parties agree to cooperate with each other in all reasonable matters necessary to effect a tax-deferred exchange pursuant to Code Section 1031; provided that any such exchange shall not delay Closing. Seller and Buyer will not incur any additional liability or financial obligation as a consequence of such other party’s contemplated exchange, and Buyer and Seller agree to defend and hold each other harmless for, from and against any Claims that may arise from the participation therein.

 

15.15 Sole Discretion

 

Where either party hereto is given the right to exercise its sole and absolute discretion, neither the other party nor any court, arbitrator, third party, or board will have the right to challenge said exercise, whether reasonable or unreasonable, on any grounds whatsoever.

 

15.16 Disclaimer – Preparation of Agreement

 

  This Agreement has been negotiated by the parties.  Buyer and Seller agree that no presumption will apply in favor or against any party in respect of the interpretation or enforcement of this Agreement.  Each party is advised to have this Agreement reviewed by independent legal and tax counsel prior to its execution. By executing this Agreement, each party represents that: (i) it has read and understands this Agreement; (ii) it has had the opportunity to obtain independent legal and tax advice regarding this Agreement; and (iii) it has obtained such independent advice or has freely elected not to do so.

 

[signature page follows]

  

-17-

  

 

 

IN WITNESS WHEREOF, the parties have executed the foregoing Agreement as of the date written on this signature page.

 

	
BUYER:

 

NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association

 

 

 

By:           /s/ Phil DiPofi 

Name:  Phil DiPofi

Its:           President

Chief Executive Officer

 

Date:           August 5, 2014 

 

 

 

 

	
SELLER:

 

AMBASSADORS GROUP, INC., a Delaware corporation

 

 

 

By:            /s/ Philip B. Livingston 

Name:            Philip B. Livingston 

Its:            Interim CEO 

 

 

Date:            August 6, 2014 

 

 

 

 

 

	  	  

This Real Property Purchase and Sale Agreement with Escrow Instructions, together with the earnest money deposit, is hereby acknowledged and accepted and the escrow is opened as of August 7, 2014.  Escrow Agent hereby agrees to act as “the person responsible for closing” the purchase and sale transaction contemplated in this Agreement within the meaning of Section 6045(e) of the Internal Revenue Code of 1986, as amended, and to file all forms and returns required thereby.

  

-18-

 

 

	  	
FIRST AMERICAN TITLE INSURANCE COMPANY

 

 

By:           /s/ Dawn R. McClenahan                                                      

Name:           Dawn R. McClenahan 

Title:           LPO, Commercial Title Officer                                                      

	
  

 

	  

 

  

-19-

  

 

EXHIBIT A

REAL PROPERTY

 

  

-20-

  

EXHIBIT B

LIST OF PERSONAL PROPERTY

	
·  

	
All fitness equipment

	
·  

	
All lunchroom tables and chairs

	
o  

	
(32) 3x3 tables

	
o  

	
(7) 3x6 tables

	
o  

	
(4) 3x5 oval tables

	
o  

	
(200) black chairs

	
·  

	
All installed/attached audio/visual equipment

	
·  

	
All patch panels and cabling

	
·  

	
All equipment racks in data center and data/phone closets

	
·  

	
All building access control equipment

	
·  

	
All back-up power equipment including generators, UPS, and transfer switches

	
·  

	
All data center cooling equipment

	
·  

	
Toyota forklift

	
·  

	
Norlift forklift

	
·  

	
Hydraulic maintenance stand

	
·  

	
All mailroom worktables and shelving

	
·  

	
All mailroom mobile carts

  

-21-

  

EXHIBIT C

EARNEST MONEY NOTE

$250,000.00                                                  August ___, 2014                                                                                         Spokane, WA

 

THIS PROMISSORY NOTE (“Note”) is made and effective as of the date hereof, by NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association (“NFCS”), in favor of AMBASSADORS GROUP, INC., a Delaware corporation (“Ambassadors”).

 

FOR VALUE RECEIVED, NFCS promises to pay to Ambassadors, or order, the sum of Two Hundred Fifty Thousand Dollars ($250,000.00), together with interest thereon, all as hereinafter provided.  All defined terms used in this Note but not otherwise defined will have the meanings ascribed to them in that certain Real Estate Purchase and Sale Agreement and Escrow Instructions between NFCS, as Buyer, and Ambassadors, as Seller (the “Purchase Agreement”).

 

1. Interest.  All sums from time to time owing hereon shall bear interest from the date hereof at the rate of 36/100 percent (.36%) per annum, compounded annually.

 

2. Payment.  Provided that NFCS sends Ambassadors the Approval Notice, the entire principal and all accrued interest shall be due and payable as a balloon payment into escrow in full within two (2) Business Days of the expiration of the Feasibility Period (the “Maturity Date”).

 

3. Prepayment.  All or any part of the principal may be prepaid, together with interest accrued thereon, at any time without penalty; provided, however, that any partial prepayment will not shorten the term of this Note.

 

4. Ambassador’s Remedies on Default.  If NFCS fails to pay the installment required hereunder within three (3) Business Days from the Maturity Date, an event of default shall exist hereunder, and Ambassadors may, without further notice or demand: (i) declare the entire principal then unpaid, together with interest accrued thereon, immediately due and payable, or (ii) terminate the Purchase Agreement by written notice to NFCS, in which event neither party will have any further obligation to the other under the Purchase Agreement, except those obligations that expressly survive its termination.

 

5. Costs and Expenses; Judgment Interest.  NFCS shall pay on demand all expenses and costs, including fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Ambassadors: (i) as a result of any event of default described in Section 4 of this Note; or (ii) in connection with the enforcement or collection of this Note; together with interest thereon.

 

6. Security.  This Note is unsecured.

 

7. Miscellaneous and Procedure.

 

7.1 Application of Payments.  All payments under this Note shall be applied first to the payment of costs and charges due in connection with this Note, then to the payment of accrued but unpaid interest, and then to reduction of the outstanding principal balance.

 

7.2 Notice.  All notices or other written communications required or permitted under this Note must be in writing and will be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt of an electronic confirmation thereof, (ii) one (1) Business Day after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

  

-22-

  

	
  

	
If to NFCS:

	
Northwest Farm Credit Services, FLCA

 

	
  

	
Attn:  Stacy D. Lavin, Esq.

 

	
  

	
1700 S. Assembly Street

 

	
  

	
P.O. Box 2515

 

	
  

	
Spokane, WA 99220-2515

 

	
  

	
Fax:  509.340.5702

 

	
  

	
If to Ambassadors:

	
Ambassadors Group, Inc.

 

	
  

	
Attn:  Lisa Netz

 

	
  

	
Dwight D. Eisenhower Building

 

	
  

	
2001 S. Flint Road

 

	
  

	
Spokane, WA 99224

 

	
  

	
Fax:  509.590.4349

 

	
  

	
With a copy to:

	
Ambassadors Group, Inc.

 

	
  

	
Attn:  Marie Rice

 

	
  

	
Dwight D. Eisenhower Building

 

	
  

	
2001 S. Flint Road

 

	
  

	
Spokane, WA 99224

 

	
  

	
Fax:  509.590.4349

 

7.3 Delay and Waiver.  The rights and remedies of Ambassadors under this Note are cumulative and may be exercised singularly or concurrently and the exercise of any one or more of them will not be deemed a waiver of any other.  No delay or omission in the exercise of any right or remedy of Ambassadors under this Note on any default by NFCS shall impair such a right or remedy, or be construed as a waiver.

 

7.4 Commercial Purpose.  NFCS represents that the indebtedness evidenced by this Note is solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family or household purposes.

 

7.5 Attorney’s Fees.  Should legal action be required to enforce or interpret any of the provisions of this Note, the prevailing party shall be entitled to all costs and reasonable attorney’s fees incurred in connection therewith from the nonprevailing party.

 

7.6 Severability.  If for any reason any provision of this Note is determined by a tribunal of competent jurisdiction to be legally invalid or unenforceable, the validity of the remainder of the Note will not be affected and such provision will be deemed modified to the minimum extent necessary to make such provision consistent with applicable law and, in its modified form, such provision will then be enforceable and enforced.

 

7.7 Venue.  Any action brought to enforce or interpret this Note, at the option of Ambassadors, may be brought in Spokane County, Washington.

 

7.8 Governing Law.  This Note shall be construed in accordance with the laws of the state of Washington.

 

[signature page follows]

 

  

-23-

  

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

 

	  	
“NFCS”:

NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association

	  	
By:           Exhibit – Do Not Execute                                                      

Name:  Phil DiPofi

Its:           President

Chief Executive Officer

 

 

 

 

  

-24-

  

EXHIBIT D

STATUTORY WARRANTY DEED

Filed for Record at Request of and

copy returned to:

Lukins & Annis, P.S.

717 W. Sprague Avenue, Suite 1600

Spokane, WA 99201

Attn:  Tyler J. Black, Esq.

 

Abbreviated Legal Description:

 

Assessor’s Parcel Number:

 

STATUTORY WARRANTY DEED

The Grantor, AMBASSADORS GROUP, INC., a Delaware corporation, for and in consideration of Ten Dollars ($10.00) in hand paid, conveys and warrants to ____________________________, the following real estate legally described on Exhibit A attached hereto and by this reference incorporated herein, situated in the County of Spokane, State of Washington; subject only to the permitted exceptions described on Exhibit B attached hereto.

DATED this ___ day of _______________, 201__.

                                              AMBASSADORS GROUP, INC., a Delaware corporation

By:            Exhibit – Do Not Execute                                                      

Name:                                                                 

Its:                                                                 

Exhibit A: Legal Description

Exhibit B: Permitted Exceptions

[Insert appropriate notarial jurat here]

  

-25-

  

Exhibit A

To

Statutory Warranty Deed

Legal Description

To be agreed upon prior to the expiration of the Seller Title Response Period.

 

  

-26-

  

Exhibit B

To

Statutory Warranty Deed

Permitted Exceptions

To be agreed upon prior to the expiration of the Seller Title Response Period.

  

-27-

  

EXHIBIT E

BILL OF SALE

Pursuant to that certain Real Property Purchase and Sale Agreement and Escrow Instructions (the “Agreement”), executed and delivered by AMBASSADORS GROUP, INC., a Delaware corporation (“Seller”), and NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association (“Buyer”), and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller does hereby sell, transfer, convey and assign to Buyer, the following Personal Property (as that term is defined in the Agreement) owned by Seller and described on the attached Schedule 1.

Seller warrants that Seller has, and hereby conveys, good and marketable title to all of said Personal Property subject to no security interest, mortgage, pledge, lien, encumbrance or charge.  Seller further warrants that Seller has the full right to sell and convey said property to Buyer and that Seller will warrant and defend the conveyance hereby made unto Buyer.

Buyer has inspected the Personal Property conveyed hereunder and is purchasing the same “as is” in its present condition, and Seller makes no warranty with respect to the condition thereof, including, without limitation, no warranty of merchantability of fitness for a particular use.

Dated effective this ___ day of _________________, 201__.

SELLER:

AMBASSADORS GROUP, INC., a Delaware corporation

By:                      Exhibit – Do Not Execute                                           

Name:                                                                

Its:                                                                

 

 

BUYER:

NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association

 

 

By:                      Exhibit – Do Not Execute                                           

Name:                                                                

Its:                                                                

  

-28-

  

EXHIBIT F

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this “Assignment”) is made as of _____________, 201__ (the “Effective Date”), by and between AMBASSADORS GROUP, INC., a Delaware corporation (“Assignor”), and NORTHWEST FARM CREDIT SERVICES, FLCA, a federal land credit association (“Assignee”).

Assignor and Assignee entered into that certain Real Property Purchase and Sale Agreement and Escrow Instructions dated August ___, 2014 (the “Agreement”), providing for, among other things, the conveyance to Assignee of certain real property and improvements (the “Property”), as more particularly described in the Agreement.

 

Assignor is a party to certain Permits and contracts related to the operation, use, and maintenance of the Property as defined in the Agreement.

 

Assignor desires to transfer, assign, and convey to the Assignee all its right, title, and interest in, to, and under the Permits and those contracts delineated on the attached Exhibit A (the “Contracts”) on the following terms and conditions.

 

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Assignor and the Assignee agree as follows:

 

1. Assignment.  Assignor hereby assigns, conveys, transfers, and sets over unto Assignee all of Assignors’ right, title, and interest in the Permits and Contracts, without warranty or recourse, except as specifically set forth in the Agreement.

 

2. Assumption.  Assignee assumes and agrees to pay all sums, and perform, fulfill, and comply with all covenants and obligations, which are to be paid, performed, and complied with by the Property owner under the Permits and Contracts from and after the Effective Date.

 

3. Cross Indemnity.  Assignor shall indemnify, defend and hold harmless Assignee from and against any and all claims, losses, costs, damages, and obligations arising from any breach or alleged breach under the Permits or Contracts on or before the Effective Date.  Assignee shall indemnify, defend and hold harmless Assignor from and against any and all claims, losses, costs, damages, and obligations arising from any breach or alleged breach under the Permits and Contracts after the Effective Date.

 

4. Binding Effect.  This Assignment will inure to the benefit of and will be binding upon the parties hereto and their respective successors and assigns.

 

5. Counterparts.  This Assignment may be executed in several counterparts, each of which will be fully effective as an original and all of which together will constitute one and the same instrument.

 

 

[signature page follows]

 

  

-29-

  

IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered this Assignment as of the Effective Date.

ASSIGNOR:

AMBASSADORS GROUP, INC., a Delaware corporation

By:                      Exhibit – Do Not Execute                                           

Name:                                                                

Its:                                                                

ASSIGNEE:

NORTHWEST FARM CREDIT SERVICES, FLCA,

a federal land credit association

By:                      Exhibit – Do Not Execute                                           

Name:                                                                

Its:                                                                

  

-30-

  

Exhibit A

To

Assignment and Assumption Agreement

Contracts:

[insert, if any, otherwise state “None”]FG Filed by Filing Services Canada Inc. (403) 717-3898

EXHIBIT 10.1

 

Execution Version

 

LOAN AGREEMENT

 

THIS AGREEMENT is made effective this 24th day of June, 2014,

 

BETWEEN:

 

EMC Metals Corp., a corporation incorporated under the laws of the Province of British Columbia with an address at Suite 501 – 1430 Greg Street, Sparks, Nevada, 89431

 

(“EMC”)

 

AND:

 

EMC Metals Australia Pty Ltd., a corporation incorporated under the laws of Australia

 

( “EMC Australia” and together with EMC, jointly and severally, the “Borrower”)

 

AND:

 

Scandium Investments LLC, a limited liability corporation incorporated under the laws of Nevada

 

(the “Lender”)

 

WHEREAS:

 

	
(A)  

	
The Lender has agreed to lend to the Borrower, and the Borrower has agreed to borrow from the Lender, a principal sum of US$2,500,000.00 pursuant to the terms and conditions of this Agreement.

 

	
(B)  

	
In consideration for the Loan (as defined below), the Borrower has agreed to grant the Lender an option to acquire the Australian Properties (as defined below) from the Borrower or to convert the Outstanding Balance (as defined below) into a 20% carried interest in the Australian Properties (as defined below), all as more particularly set forth in the Option Agreement (as defined below) entered into concurrently with this Agreement.

 

  

-1-

  

 

NOW THEREFORE for good and valuable consideration, the receipt and sufficiency of which each party acknowledges, each of the parties agrees as follows:

 

	
1.  

	
Definitions. In addition to the terms defined in the above recitals and elsewhere herein, in this Agreement:

 

	
(a)

	
“Agreement” means this Convertible Loan Agreement;

 

	
(b)

	
“Applicable Laws” means the laws of:

 

	 	
(i)  

	
the Province of British Columbia;

 

	 	
(ii)  

	
Canada;

 

	 	
(iii)  

	
the State of Nevada;

 

	 	
(iv)  

	
the State of Connecticut;

 

	 	
(v)  

	
United States of America;

 

	 	
(vi)  

	
the State of New South Wales

 

	 	
(vii)  

	
the State of Queensland;

 

	 	
(viii)  

	
Australia; or

 

	 	
(ix)  

	
Norway,

 

as the context may require.

 

	
(c)

	
“Assets” means all property, assets, revenues and undertakings of the Credit Parties, both present and future, of whatever nature or kind and wherever situate, whether held directly or indirectly, and all proceeds thereof and therefrom;

 

	
(d)

	
“Australian Properties” means collectively the Nyngan Property and the Honeybugle Property, both as more particularly described in Schedule A to the Option Agreement;

 

	
(e)

	
“Business Day” means a day which is not a Saturday, Sunday or a statutory holiday in the Province of British Columbia, Canada or the State of Connecticut, United States;

 

  

-2-

  

 

	
(f)

	
“Closing Date” means June 20, 2014, and “Closing” means the time of closing on the Closing Date;

 

	
(g)

	
“Credit Parties” means the Borrower, any Guarantor and any Trustee, including any one or more of them, each of them is a “Credit Party”;

 

	
(h)

	
"Disclosure Record" means collectively, all of the documentation which has been filed by or on behalf of EMC on SEDAR with the Canadian securities regulatory authorities or with the United States Securities Exchange Commission pursuant to the requirements of applicable securities law;

 

	 	
(i)  

	
“EMC Australia” means EMC Metals Australia Pty Ltd.;

 

	
(j)

	
“EMC Subsidiaries” means collectively:

 

	 	
(i)  

	
EMC Australia;

 

	 	
(ii)  

	
EMC Metals USA Inc., a corporation incorporated under the laws of Nevada;

 

	 	
(iii)  

	
Wolfram Jack Mining Corp., a corporation incorporated under the laws of Nevada; and

 

	 	
(iv)  

	
The Technology Store, Inc., a corporation incorporated under the laws of Nevada;

 

	
(k)  

	
“Encumbrance” means any deed of trust, mortgage, charge (whether fixed or floating), hypothec, assignment, deposit arrangement, pledge, preference, priority, lien, vendor’s privilege, supplier’s right of repossession or other security interest or encumbrance of whatever kind or nature (including, without limitation, any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing), regardless of form and whether consensual or arising by law (statutory or otherwise), that secures the payment of any Indebtedness or liability or the observance or performance of any obligation;

 

	
(l)

	
“Existing Lenders” means, collectively, Existing Lender - Barry, Existing Lender - Kudu and Existing Lender - Bradley Resources, each of them is an “Existing Lender”;

 

	
(m)

	
“Existing Lender - Barry” means Barry Davies, an individual having an address at 35D Star Sky, The Cullinan, 1 Austin Road West, Kowloon, Hong Kong;

 

	
(n)

	
“Existing Lender - Bradley Resources” means and Bradley Resources Company LLC, a corporation having an address at 161 Rametto Road, Montecito, California, 93108;

 

	
(o)

	
“Existing Lender - Kudu” means Kudu Partners, L.P., a limited partnership having an address at 2310 N. Molter Road Ste. 309, Liberty Lakes, WA 99019;

 

	
(p)

	
“Existing Loans” means, collectively, the Existing Barry Loan, the Existing Bradley Resources Loan and the Existing Kudu Loan, each of them is an “Existing Loan”.

 

	
(q)

	
“Existing Barry Loan” means all Indebtedness, liabilities and obligations owing by the Borrower to Existing Lender - Barry under the loan and royalty agreement between EMC and Existing Lender - Barry dated July 26, 2013, as amended, modified or supplemented from time to time;

 

	
(r)

	
“Existing Bradley Resources Loan” means all Indebtedness, liabilities and obligations owing by the Borrower to Existing Lender - Bradley Resources under the loan and royalty agreement between EMC and Existing Lender - Bradley Resources dated July 26, 2013, as amended, modified or supplemented from time to time;

 

  

-3-

  

 

	
(s)

	
“Existing Kudu Loan” means all Indebtedness, liabilities and obligations owing by the Borrower to Existing Lender - Kudu under the loan and royalty agreement between EMC and Existing Lender - Kudu dated July 26, 2013, as amended, modified or supplemented from time to time;

 

	
(t)

	
“Event of Default” means any event enumerated in Section 11 hereof;

 

	
(u)

	
“Governmental Authority” means the Government of the Province of British Columbia, the Government of Canada, the Government of the State of Nevada, the Government of the United States of America, the Government of the State of New South Wales, the Government of the State of Queensland, the Government of Australia, any other nation or any political subdivision thereof, whether provincial, state, territorial or local, and any agency, authority, instrumentality, regulatory body, court, central bank, fiscal or monetary authority or other authority regulating financial institutions, and any other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government;

 

	
(v)

	
“Guarantor” means any Person who guarantees the payment and performance of all or any part of the Secured Liabilities;

 

	
(w)

	
“Honeybugle Property” means the Honeybugle scandium property in New South Wales, Australia (including license no. EL 7977) as more particularly described in Schedule A to the Option Agreement, and including rights under the Honeybugle Trust Letter;

 

	
(x)

	
“Honeybugle Trust Letter” means the letter agreement dated March 27, 2014 between John Thompson, Johan & Robyn Thompson Family Trust and EMC;

 

	
(y)

	
“include” or “including” means include without limitation or including without limitation, as the case may be, and such term shall not be construed to limit any word or statement which it follows to the specific items or matters immediately following it or similar terms or matters;

 

	
(z)

	
“Indebtedness” of any Person includes, without duplication, (a) indebtedness for, arising from or in connection with borrowed money or indebtedness issued or incurred in substitution or exchange for indebtedness for, arising from or in connection with borrowed money, (b) amounts owing as deferred purchase price for property or services, other than trade payables incurred in the ordinary course of business and payable in accordance with customary practices, (c) indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or financial debt security, (d) obligation to pay rent or other amounts under any capital lease(s), (e) all obligations arising from cash/book overdrafts, (f) reimbursement obligations of such Person under bankers’ acceptances and contingent obligations of such Person in respect of any letter of credit, bank guarantee or surety bond, (g) indebtedness secured by any Encumbrances on assets or property of such Person, (h) any change of control payments or prepayment premiums, penalties, charges or equivalents thereof with respect to any indebtedness, obligation, or liability of the type described in clauses (a) through (g) above, or (i) the contingent obligations of such Person under any guarantee or other agreement assuring payment of any obligations of any Person of the type described in the foregoing clauses (a) to (h) above;

 

	
(aa)

	
“Initial Security Documents” means the agreements, instruments and other documents described in Schedule A attached hereto, in form and substance satisfactory solely to the Lender and the Lender’s counsel, each of them is an “Initial Security Document”.

 

	
(bb)

	
“Jervois” means Jervois Mining Ltd.

 

	
(cc)

	
“Loan” means the secured convertible loan by the Lender to the Borrower in the Principal Amount, or any amount of the Principal Amount outstanding and unpaid from time to time;

 

	
(dd)

	
“Loan Documents” means, collectively, this Agreement, the Security Documents and all other documents, agreements and instruments with respect to any Indebtedness, liabilities or obligations of any Credit Party or any Assets, in form and substance satisfactory solely to the Lender and the Lender’s counsel, now or hereafter entered into in connection with this Agreement by any Credit Party, as amended, modified or supplemented from time to time, each of them is a “Loan Document”;

 

  

-4-

  

 

	
(ee)

	
“Maturity Date” means December 20, 2015;

 

	
(ff)

	
“Nyngan Property” means the Nyngan scandium property in New South Wales, Australia, (including freehold land contained in Folio Identifiers 6/752879, 7/7528879 and tenements described as part of license nos. EL 6009 and EL 6096) as more particularly described in Schedule A to the Option Agreement, and including all rights EMC or any of the Borrowers may have under the Nyngan Settlement Deed;

 

	
(gg)

	
“Nyngan Settlement Deed” means the Settlement Deed between Jervois Mining Ltd. and EMC dated February 4, 2014 relating to the Nyngan Property;

 

	
(hh)

	
“Option Agreement” means the Option Agreement under which the Borrowers grant to the Lender the right to acquire certain interests the Australian Properties in the form attached as Exhibit A hereto;

 

	
(ii)

	
“Outstanding Balance” has the meaning given to such term in Section 4(a);

 

	
(jj)

	
“Permitted Royalties” means the Royalties granted to (a) Kanneteal Pty Ltd. and St Jude Exploration Pty Ltd.; (b) Jervois; and (c) the Existing Lenders in connection with the Existing Loans, each as more particularly described in Schedule A to the Option Agreement;

 

	
(kk)

	
“Person” includes any natural person, corporation, company, limited liability company, trust, joint venture, association, incorporated organization, partnership, Governmental Authority or other entity.

 

	
(ll)

	
“Principal Amount” means the amount of US$2,500,000.00;

 

	
(mm)

	
“Promissory Note” means the promissory note for the Principal Amount in the form attached hereto as Schedule B;

 

	
(nn)

	
“Security Documents” means the Initial Security Documents and any and all other agreements, instruments or other documents, in form and substance satisfactory solely to the Lender and the Lender’s counsel, governed by the Applicable Laws or otherwise required by the Lender, now or hereafter executed and delivered by any Credit Party as security (including by way of guarantee) for the payment or performance of all or any part of the Secured Liabilities, as any of the foregoing may have been, or may hereafter be, amended, modified or supplemented, each of them is a “Security Document”;

 

	
(oo)

	
“Secured Liabilities” means all present and future Indebtedness, liabilities and obligations of any and every kind, nature and description (whether direct or indirect, joint or several, absolute or contingent, mature or unmatured) of the Credit Parties to the Lender under, in connection with or with respect to the Loan Documents (including, without limitation, the Outstanding Balance), and any unpaid balance thereof;

 

	
(pp)

	
“Subsidiary” is, with respect to any Person, any Person of which more than fifty percent (50%) of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled, directly or indirectly, by such Person or through one or more intermediaries;

 

  

-5-

  

 

	
(qq)

	
“Trustee” means any Person holding Assets in trust for and on behalf of any one or more of the Credit Parties;

 

	
(rr)

	
“TSX” means the Toronto Stock Exchange; and

 

	
(ss)

	
“US$” refer to lawful money of the United States of America.

 

In this Agreement, “Borrower” and the personal pronoun “it” or “its” and any verb relating thereto and used therewith shall be read and construed as required by and in accordance with the context in which such words are used depending upon whether the Borrower is one or more individuals, corporations, or partnerships and, if more than one, shall apply to and be binding upon each of them jointly and severally. For greater certainty, in this Agreement, the meaning of the term “Borrower” includes any one or both of EMC and EMC Australia.

 

	
2.  

	
Loan and Consideration.

 

On the Closing Date (unless previously delivered):

 

	
(a)

	
the Borrower will deliver to the Lender:

 

	 	
(i)  

	
each Initial Security Document duly executed and delivered by each Credit Party party thereto;

 

	 	
(ii)  

	
an email from each Existing Lender confirming the outstanding amount of principal and accrued interest payable to such Existing Lender in order to pay out such Existing Lender’s Existing Loan and confirming the wire transfer instructions as set out in Schedule C hereto;

 

	 	
(iii)  

	
a certified copy of a resolution of the directors of each Borrower approving the this Agreement, the Initial Security Documents, the Option Agreement and the transactions contemplated hereunder;

 

	 	
(iv)  

	
the Option Agreement duly executed by the Borrowers;

 

	 	
(v)  

	
payment by way of wire transfer in the amount of fees and disbursements of the Lender’s legal counsel payable to the Lender’s legal counsel; and

 

	 	
(vi)  

	
a legal opinion in form and substance satisfactory to the Lender;

 

	
(b)

	
the Lender will disburse, and the Borrower hereby directs the Lender to disburse, $1,234,997 of Principal Amount to the Existing Lenders to pay out the Existing Loans (for greater certainty, the disbursement of the applicable part of the Principal Amount to the bank account identified in Schedule C hereto of an Existing Lender by wire transfer constitutes full payment of such Existing Lender’s Existing Loan);

 

  

-6-

  

 

	
(c)

	
the Lender will disburse, and the Borrower hereby directs the Lender to disburse, such portion of the Principal Amount as is equal to AUD$1,400,000 to Jervois to pay the balance of the “Settlement Sum” due on June 30, 2014 under the Nyngan Settlement Deed (for greater certainty, the disbursement of the applicable part of the Principal Amount to the bank account identified in Schedule D hereto of Jervois constitutes full payment of EMC’s obligation under the Nyngan Settlement Deed); and

 

	
(d)

	
the Lender will disburse the balance of the Principal Amount, if any, to EMC in accordance with EMC’s direction.

 

	
3.  

	
Use of Proceeds. The Borrower covenants and agrees with the Lender that the proceeds of the Loan shall be used as described in sections 2(b), (c) and (d) and for no other purposes, unless otherwise agreed to by the Lender in writing, at the sole discretion of the Lender.

 

	
4. 

	
Term and Prepayment.

 

	
(a)

	
Any outstanding balance of the Principal Amount, accrued and unpaid interest, other costs or charges payable and other amounts payable hereunder (collectively the “Outstanding Balance”), will be immediately due and payable by the Borrower to the Lender on the earlier of:

 

	 	
(i)  

	
the Maturity Date; and

 

	 	
(ii)  

	
the occurrence of an Event of Default.

 

	
(b)

	
The Loan may not be prepaid without the Lender’s prior written consent, at the sole discretion of the Lender.

 

	
(c)

	
All payments made hereunder will be applied on account of the Outstanding Balance, firstly to any costs or charges payable, secondly to interest payable and thirdly, to principal.

 

	
(d)

	
Upon the exercise and closing of the JV Option or the Purchase Option (as those terms are defined in the Option Agreement), this Loan Agreement shall terminate, the security interests under the Security Documents shall terminate and all security under the Security Documents shall be discharged and released.

 

	
5.  

	
Interest. Interest shall accrue on the Outstanding Balance from time to time commencing from and including the Closing Date at the annual interest rate equal to:

 

	 	
(i)  

	
4% per annum until September 20, 2014;

 

	 	
(ii)  

	
6% per annum from and including September 20, 2014 to December 20, 2014;

 

	 	
(iii)  

	
9% per annum from and including December 20, 2014 to March 20, 2015; and

 

	 	
(iv)  

	
12% per annum from and including March 20, 2015 until the Outstanding Balance is fully paid.

 

  

-7-

  

 

(the “Applicable Interest Rate”); provided that upon the occurrence and during the continuance of any Event of Default, interest shall accrue on the Outstanding Balance at the annual interest rate equal to the aggregate of the Applicable Interest Rate plus 5% per annum (the “Default Interest Rate”).

 

Interest accrued under this Agreement shall be payable to the Lender at the end of each three month period from the Closing Date; provided that interest accrued at the Default Interest Rate shall be payable to the Lender on demand at the Lender’s sole discretion.

 

	
6. 

	
Security. The payment and performance of the Secured Liabilities shall be secured by the Initial Security Documents and all other future Security Documents reasonably requested by the Lender.

 

	
7.  

	
Participation in Financing. Subject to the approval of the TSX, the Lender or an associate or affiliate of the Lender shall participate in the Borrower’s non-brokered private placement announced on May 22, 2014, to subscribe for up to US$250,000 worth of common shares at the price of $0.085 per common share or such other price as may be approved by the TSX in connection with such private placement.

 

	
8.  

	
Representations and Warranties of Borrower. Each Borrower represents and warrants to the Lender as follows:

 

	
(a)

	
the Borrower is a duly organized and validly existing corporation, up-to-date in all filings required by any jurisdiction in which it is registered to do business; the Borrower has the power to own its property, to carry on its respective business as now being conducted, to borrow monies and to grant security therefor; the Borrower is duly qualified and registered to engage in its respective business and is in good standing in each of the jurisdictions in which the properties owned by it or the transaction of its business makes such qualification and registration necessary;

 

	
(b)

	
the Borrower has full right, power and authority to execute and deliver this Agreement and the other Loan Documents to which it is a party and to perform its obligations thereunder, and the execution and delivery of this Agreement (including the borrowing hereunder) and the other Loan Documents to which it is a party and the performance of its obligations thereunder have been duly authorized by all necessary action on its part including the authorization of its directors;

 

	
(c)

	
this Agreement and the other present Loan Documents to which it is a party have been duly executed and delivered and constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms except as the foregoing may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforceability of creditors’ rights generally and the principles of equity;

 

	
(d)

	
the execution of, delivery of, and performance by the Borrower of all of its obligations under, this Agreement and the other Loan Documents to which it is a party and the borrowing and the granting of security hereunder and thereunder will not:

 

	 	
(i)

	
violate any provision of law, any rule, regulation or order of any Governmental Authority, or the constating documents or by-laws of the Borrower;

 

	 	
(ii)

	
violate, be in conflict with, result in a breach of or constitute a default under any mortgage, indenture, contract, undertaking or other agreement to which the Borrower is a party or by which it is bound or which is binding upon any of its properties, assets or revenues; or

 

  

-8-

  

 

	 	
(iii)

	
result in the creation or imposition of any security interest, lien, charge or other encumbrance of any nature whatsoever upon any of the Assets, except as provided in this Agreement or any Security Document to which it is a party;

 

	
(e)

	
no authorization, consent, permit or approval of, exemption from, declaration or qualification with or giving notice to or other action by, or filing with or notice to, any Person (including without limitation any Governmental Authority) is required to permit the Borrower in connection with the execution and delivery of this Agreement or any other Loan Documents to which it is a party or the performance of its obligations thereunder, other than the giving of notice to the TSX of the Agreement and other Loan Documents and the Borrower agrees to promptly, and in any event within one business day of execution of this Agreement file such notice in accordance with the TSX rules;

 

	
(f)

	
there are no actions, suits, claims or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting it before any court or by or before any other Governmental Authority which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or business or the Assets and there exists no default by it with respect to any order, writ, injunction, decree or demand of any court or other Governmental Authority;

 

	
(g)

	
each Credit Party complies with the Applicable Laws applicable to itself and its Assets, at all time;

 

	
(h)

	
no Event of Default has occurred and is continuing;

 

	
(i)

	
each Security Document has set out the true and complete name of each Credit Party thereto;

 

	
(j)

	
each Credit Party has no Indebtedness owing to any Person other than the Existing Loans;

 

	
(k)

	
the outstanding balance of the Existing Barry Loan is US$579,875 plus US$14,497 accrued interest;

 

	
(l)

	
the outstanding balance of the Existing Bradley Resources Loan is US$50,000, plus US$1,250 accrued interest;

 

	
(m)

	
the outstanding balance of the Existing Kudu Loan is US$575,000, plus US$14,375 accrued interest;

 

	
(n)

	
EMC is a reporting issuer in the provinces of British Columbia, Alberta and Ontario and is not in default of any of its obligations as a reporting issuer. EMC’s common shares are listed for trading on the TSX, and EMC is in material compliance with all policies of the TSX and all applicable securities laws.

 

	
(o)

	
all information contained in the Disclosure Record is, as of the date of such information, true and correct in all material respects, and no fact or facts have been omitted therefrom which would make such information materially misleading;

 

  

-9-

  

 

	
(p)

	
the financial statements of EMC contained in the Disclosure Record, filed with the Commission have all been prepared in accordance with United States generally accepted accounting principles and accurately reflect the financial position and all known material liabilities (accrued, absolute, contingent or otherwise) of the Issuer in all material respects as of the date thereof, and no adverse material changes in the financial position of EMC have taken place since the date of the most recently filed audited consolidated financial statements of EMC, other than as has been disclosed in the Disclosure Record;

 

	
(q)

	
neither EMC nor any EMC Subsidiary has taken any action which would be reasonably expected to result in the delisting or suspension of the common shares of EMC on or from the TSX, and EMC has not received any notice from the TSX that its shares may be delisted or that it is subject to a delisting review;

 

	
(r)

	
none of the Borrowers or any of their employees or agents has made any unlawful contribution or other payment to any official of, or candidate for, any federal, state or provincial or foreign office, or failed to disclose fully any contribution, in violation of any law, or made any payment to any foreign, Canadian or provincial or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by applicable laws;

 

	
(s)

	
EMC Australia is authorized to issue unlimited common shares, of which 1000 common shares are issued and outstanding as at the date hereof, all of which are beneficially owned, directly or indirectly, by EMC free and clear of any Lien and all of the outstanding equity interests in EMC Australia have been duly authorized and validly issued as fully paid and non-assessable shares. There exist no options, warrants, purchase rights, or other contracts or commitments that would require EMC or any other person to sell, transfer or otherwise dispose of any equity interests in EMC Australia or for the issue or allotment of any unissued shares in the capital of EMC Australia or any other security convertible into or exchangeable for any such shares.

 

	
(t)

	
other than the EMC Subsidiaries, EMC has no subsidiaries and does not own, directly or indirectly, any shares in the capital of any other body corporate or any equity or ownership interest in any other business or person and has not agreed to acquire any subsidiary or acquire any such shares or other equity ownership or interest. None of the Borrower’s is subject to any obligation or requirement to provide funds to or to make any investment in any business or person by way of loan, capital contribution or otherwise;

 

	
(u)

	
none of EMC Metals USA Inc., Wolfram Jack Mining Corp., or The Technology Store, Inc. hold any material assets or material liabilities or carry on any active business;

 

	
(v)

	
EMC is in compliance with the provisions of National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), and has filed all reports required thereby, as applicable, all of which reports are in compliance with the requirements of NI 43-101;

 

	
(w)

	
EMC has complied and will comply fully with the requirements of all applicable corporate and securities laws in all matters relating to the transactions contemplated under this Agreement;

 

	
(x)

	
The Nyngan Settlement Deed is in full force and effect, EMC is not in breach or violation of any terms thereof, and upon payment of AUD$1,400,000 to Jervois in respect of the balance of the “Settlement Sum” (as defined in the Nyngan Settlement Deed) due on June 30, 2014, EMC or its nominee EMC Australia will, except as otherwise provided in the Nyngan Settlement Deed acquire 100% of the right, title and interest to the Nyngan Property free and clear of all Encumbrances other than the Permitted Royalties;

 

	
(y)

	
There are no approvals, consents or other authorizations required from any third party or governmental authority for the transfer to EMC or its nominee EMC Australia, of any of the right, title and interest to the Nyngan Property, other than such approvals, consents and authorizations that are routine for transfers of exploration licenses or interests therein, and for transfers of freehold land;

 

	
(z)

	
EMC is the sole beneficial owner of all right, title and interest to the Honeybugle Property free and clear of all Encumbrances;

 

  

-10-

  

 

	
(aa)

	
The Honeybugle Trust Letter is in full force and effect and there are no payments owing or required to be made to John Thompson or the John & Robyn Thompson Family Trust to cause the transfer of the legal ownership of the Honeybugle Property to EMC or its nominee EMC Australia; and

 

	
(bb)

	
There are no approvals, consents or other authorizations required from any third party or governmental authority for the transfer to EMC or its nominee EMC Australia, of any of the right, title and interest to the Honeybugle Property, other than such approvals, consents and authorizations that are routine for transfers of exploration licenses or interests therein, and for transfers of freehold land.

 

All of the above representations and warranties of the Borrower contained in this section 7 shall survive the execution and delivery of this Agreement and shall continue until the Outstanding Balance has been repaid in full and this Agreement has been terminated.

 

	
9.  

	
Representations and Warranties of Lender. The Lender represents and warrants to, and agrees with, the Borrower as follows:

 

	
(a)  

	
if the Lender is a corporation, or other unincorporated entity, the Lender is a valid and existing entity, has the necessary capacity and authority to execute and deliver this Agreement and to observe and perform its covenants and obligations hereunder and has taken all necessary corporate action in respect thereof. If the Lender is an individual, partnership, syndicate or other form of unincorporated organization, the Lender has the necessary legal capacity and authority to execute and deliver this Agreement and to observe and perform its covenants and obligations hereunder and has obtained all necessary approvals in respect thereof. In either case, whether the Lender is a corporation, individual, or an unincorporated entity, this Agreement is a legal, valid and binding contract of the Lender enforceable against the Lender in accordance with its terms and will not result in a violation of any of the Lender’s constating documents, or equivalent, or any agreement to which the Lender is a party or by which it is bound;

 

	
(b)  

	
the address of the Lender is accurately stated on the first page of this Agreement; and

 

	
(c)  

	
 (i) none of the funds advanced by the Lender for the Loan (A) will represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) or the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, (B) have been or will be derived from or related to any activity that is deemed criminal under the laws of Canada, the United States or any other jurisdiction, or Lender, and (ii) the Lender shall promptly notify the Borrower if the Lender discovers that any of the representations in paragraph (i) above ceases to be true, and to provide the Borrower with appropriate information in connection therewith.

 

	
10.  

	
Covenants of the Borrower. The Borrower covenants and agrees that, so long as all or any part of the Outstanding Balance remains unpaid under this Agreement, the Borrower:

 

	
(a)

	
shall duly and punctually pay or cause to be paid to the Lender all principal and interest payable hereunder and all other amounts payable hereunder on the dates and the places and in the manner set forth herein or otherwise directed by the Lender in writing;

 

  

-11-

  

 

	
(b)

	
shall duly perform its obligations under this Agreement and all other Loan Documents to which it is a party;

 

	
(c)

	
shall cause the obligations of each other Credit Party under all Loan Documents to which it is a party to be performed;

 

	
(d)

	
shall at all times maintain its corporate existence and cause to be maintained the corporate existence of each other Credit Party;

 

	 	
(i)  

	
shall comply in all material respects with all material contracts, arrangements, agreements or understandings entered into by the Borrower that are related to its business;

 

	
(e)

	
shall furnish and give to the Lender (if such is the case) notice that an Event of Default has occurred and, if applicable, is continuing or notice in respect of any event which would constitute an Event of Default hereunder and specifying the nature of same;

 

	
(f)

	
shall carry on and continuously conduct its business in a lawful, efficient, diligent and business-like manner;

 

	
(g)

	
shall cause to be carried on and shall cause to be continuously conducted the business of each other Credit Party in a lawful, efficient, diligent and business-like manner;

 

	
(h)

	
shall not issue, cause to be issued or allow to be issued any securities of EMC Australia or any options, warrants, purchase rights, or other contracts or commitments that would require EMC or any other person to sell, transfer or otherwise dispose of any equity interests in EMC Australia or for the issue or allotment of any unissued shares in the capital of EMC Australia or any other security convertible into or exchangeable for any such shares;

 

	
(i)

	
shall promptly after the Closing Date take all such actions and steps as are necessary to cause the Honeybugle Property to be transferred to EMC Australia (or such other Subsidiary of EMC as is acceptable to the Lender), including delivering instructions to John Thompson and the John & Robyn Thompson Family Trust to transfer to EMC Australia all rights and interest to the Honeybugle Property;

 

	
(j)

	
shall promptly after the Closing Date take all such actions and steps as are necessary to cause the Nyngan Property to be transferred to EMC Australia (or such other Subsidiary of EMC as is acceptable to the Lender), including delivering instructions to Jervois Mining Limited to transfer all rights and interest to the Nyngan Property as contemplated under the Settlement Agreement;

 

	
(k)

	
shall use the proceeds raised from any future equity or debt financings in excess of those necessary to fund EMC’s general administrative expenses and costs required to maintain its interests in its properties and assets, to finance activities related to the advancement of the Australian Properties and the completion of a Feasibility Study (as defined in the Option Agreement) and to secure all necessary mining permits and licenses for the development of the Nyngan Property;

 

  

-12-

  

 

	
(l)

	
shall maintain the Australian Properties and its right and title thereto in good standing free and clear from all encumbrances other than the Secured Liabilities;

 

	
(m)

	
shall maintain and renew any existing insurance policies with respect for so long as the Loan remains outstanding;

 

	
(n)

	
shall at any reasonable time during normal business hours on any Business Day, give access to one or more representatives of the Lender to make such inspection as such representative or representatives shall deem proper of any of the Assets;

 

	
(o)

	
shall observe and perform its obligations and to cause to be observed and performed the obligations of each other Credit Party, under any Applicable Laws (including environmental laws) and rules, regulations or order of any applicable Governmental Authority and keep proper books and accounts in accordance with United States generally accepted accounting principles;

 

	
(p)

	
shall fully pay and discharge as and when same become due and payable all taxes (including local improvement rates), rates, duties and assessments that may be levied, rated, charged or assessed against the Borrower or its property or any part thereof or any other Credit Party or its property or any part thereof, and if the Borrower fails to pay any of such taxes, rates, duties or assessments and if it is not in good faith contesting same, the Lender may pay, but shall not be obliged to pay, the same and any amounts so paid by the Lender shall become and form part of the principal sum and shall bear interest at the aforesaid rate until paid;

 

	
(q)

	
shall ensure that payments received by the Lender from the Borrower hereunder will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any Governmental Authority, applicable law, regulation or international agreement requires the Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to the Lender, the Borrower hereby covenants and agrees that the amount due from the Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, the Lender receives a net sum equal to the sum which it would have received had no withholding or deduction been required and the Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority. The Borrower will, upon request, furnish the Lender with proof reasonably satisfactory to the Lender indicating that the Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by the Borrower. The agreements and obligations of the Borrower contained in this Section 10(q) shall survive the termination of this Agreement;

 

	
(r)

	
shall ensure that in the event the Borrower, or any of its Subsidiaries creates or acquires any Subsidiary, the Borrower shall provide prior written notice to the Lender of the creation or acquisition of such new Subsidiary and take all such action as may be reasonably required by the Lender to cause each such Subsidiary to guarantee the Secured Liabilities under the Loan Documents and become a Credit Party and, in each case, grant a continuing pledge and security interest in and to the assets of such Subsidiary; and the Borrower (or its Subsidiary, as applicable) shall grant and pledge to the Lender a perfected security interest in the capital or partnership or other participating interest of each such newly created Subsidiary;

 

  

-13-

  

 

	
(s)

	
shall cause any Trustee to grant security interest in or pledge the Assets which such Trustee holds in trust for and on behalf of any Credit Party to and in favour of the Lender pursuant to the terms and conditions of the Loan Documents reasonably requested by the Lender;

 

	
(t)

	
shall ensure that in any event and at all times, Encumbrances are granted and created in the Assets in favour of the Lender, in accordance with the Security Documents;

 

	
(u)

	
shall ensure that no Credit Party shall create, incur, assume or suffer to exist directly or indirectly any Indebtedness, liabilities or obligations (including guarantee) without the prior written consent of the Lender, except the Outstanding Balance;

 

	
(v)

	
shall ensure that no Credit Party shall grant, create, assume or suffer to exist any Encumbrances affecting any of its properties, assets, revenues or undertaking, whether now owned or hereafter acquired except such Encumbrances in favour of the Lender;

 

	
(w)

	
shall use its best efforts to apply for and obtain any required regulatory or stock exchange or other approval that may be required in connection with this Loan Agreement;

 

	
(x)

	
shall not dispose of or suffer or permit the disposal of, including the sale and leaseback of, and shall not grant to any Person the right to acquire, the Assets or any part thereof except as contemplated in this Agreement, the Security Documents or the Option Agreement; and

 

	
(y)

	
shall not merge, amalgamate or consolidate with another person without the prior consent of the Lender.

 

	
11.  

	
Events of Default. Any one or more of the events set forth in this section 11 will constitute an event of default (“Event of Default”) with respect to this Agreement and the Promissory Note:

 

	
(a)

	
the Borrower fails to make any payment of principal or interest when due hereunder and such failure continues for 20 Business Days after written notice thereof is given by the Lender to the Borrower;

 

	
(b)

	
the Borrower defaults in observing or performing any term, covenant or condition of this Agreement or any other Loan Documents, other than the payment of monies as provided for in subsection (a) hereof, on its part to be observed or performed and such failure continues for 20 Business Days after written notice thereof is given by the Lender to the Borrower;

 

	
(c)

	
any Credit Party (other than the Borrower) defaults in observing or performing any term, covenant or condition of any Loan Documents to which it is a party, on its part to be observed or performed and such failure continues for 20 Business Days after written notice thereof is given by the Lender to the Borrower;

 

  

-14-

  

 

	
(d)

	
any of the Borrower’s representations, warranties or other statements in this Agreement or any other Loan Documents were at the time given false or misleading in any material respect;

 

	
(e)  

	
any representations, warranties or other statements of any Credit Party (other than the Borrower) in any Loan Documents to which it is a party were at the time given false or misleading in any material respect;

 

	
(f)

	
the Borrower or any other Credit Party ceases or threatens to cease to carry on business;

 

	
(g)

	
any order is made or an effective resolution is passed for the dissolution, liquidation or winding-up of the Borrower or any other Credit Party or other cancellation or suspension of either corporation’s incorporation or if a petition is filed for the winding-up of the Borrower or any other Credit Party except to the extent that any of these are consented to by the Lender in writing;

 

	
(h)

	
the Borrower or any other Credit Party makes an unauthorized assignment or bulk sale of its assets;

 

	
(i)

	
the Borrower or any other Credit Party is found to be insolvent or bankrupt by a court of competent jurisdiction or makes either an authorized assignment of its assets or a compromise or arrangement for the benefit of its creditors, makes a proposal to its creditors under the Bankruptcy and Insolvency Act (Canada), seeks relief under the Companies’ Creditors Arrangement Act (Canada), the Winding Up Act (Canada) or any other bankruptcy, insolvency or analogous law in Canada or the United States or any other country, files a petition or proposal to take advantage of any act of insolvency, consents to or acquiesces in the appointment of a trustee, receiver, receiver and manager, interim receiver, custodian or other person with similar powers over all or any substantial portion of its assets, files a petition or otherwise commences any proceeding seeking any reorganization, arrangement, composition or readjustment under any applicable bankruptcy, insolvency, moratorium, reorganization or other similar law affecting creditor’s rights or consents to, or acquiesces in, the filing of such a petition; or if a petition in bankruptcy is filed or presented against the Borrower or any other Credit Party;

 

	
(j)

	
a writ, execution or attachment or similar process is issued against the Assets as a result of a judgment against the Borrower or any other Credit Party in an amount which materially affects the Assets and such writ, execution, attachment or similar process is not released, bonded, satisfied, discharged, vacated or stayed within thirty (30) days after its levy, issue or entry;

 

	
(k)

	
a receiver (including a receiver manager) of all or any part of the Assets, or a trustee, liquidator, custodian or other official with similar powers is appointed in respect of either corporation;

 

	
(l)

	
if the transfer of the Honeybugle Property as contemplated under Section 10(h) has not been completed or before April 30, 2015;

 

	
(m)

	
if the transfer of the Nygnan Property to EMC Australia as contemplated under Section 10(j) has not been completed on or before April 30, 2015; and

 

	
(n)

	
if the Borrower has not raised at least US$3.0 million in equity financing on or before December 10, 2015.

 

  

-15-

  

 

	
12.  

	
Effect of Event of Default. If any one or more of the Events of Default occur or occurs and is or are continuing, the Lender may without limitation in respect of any other rights it may have in law or pursuant to any Loan Documents:

 

	
(a)

	
declare all amounts outstanding to the Lender to be payable forthwith and demand immediate payment thereof;

 

	
(b)

	
take all such action permitted under the Security Documents and all of the Lender’s rights at law or in equity; and

 

	
(c)

	
commence such legal actions or proceedings against the Borrower or any other Credit Party as may be permitted hereunder or otherwise at law or in equity.

 

	
13.  

	
Indemnities.

 

The Borrower agrees to indemnify, defend and hold the Lender and their respective directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing the Lender (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in connection with or related to or arising from, out of or under, the transactions contemplated by the Loan Documents; and (b) all losses or expenses incurred to, or paid by an Indemnified Person in connection with or related to or arising from, out of or under, the transactions contemplated by the Loan Documents (including reasonable legal fees and expenses), except as to (a) or (b) for Claims and/or losses and/or expenses directly caused by such Indemnified Person’s gross negligence or willful misconduct. The Borrower hereby further indemnifies, defends and holds each Indemnified Person harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of counsel for such Indemnified Person) in connection with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not such Indemnified Person shall be designated a party thereto and including any such proceeding initiated by or on behalf of the Borrower, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker asserting any right to payment for the transactions contemplated hereby which may be imposed on, incurred by or asserted against such Indemnified Person as a result of or in connection with the transactions contemplated hereby and the use or intended use of the proceeds of the loan proceeds except for liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

	
14. 

	
Legal Fees.

 

	
(a)

	
The Borrower will be liable for the reasonable and necessary legal fees and expenses of the Lender in connection with the negotiation of this Agreement and all other documents delivered in connection with the Loan, and all such legal fees and expenses will be added to the Outstanding Balance.

 

	
(b)

	
If there is an Event of Default, the Borrower shall forthwith pay all expenses of the Lender incurred in the enforcement, administration and preservation of any of its rights under this Agreement, including without limitation, all out-of-pocket expenses and legal fees of counsel to the Lender (on a solicitor and his own client basis), and all such expenses will be added to the Outstanding Balance.

 

  

-16-

  

 

	
15. 

	
Further Assurances.

 

The Borrower shall from time to time and at all times hereafter, upon every reasonable request of the Lender, make, do, execute, and deliver or cause to be made, done, executed and delivered all such further acts, deeds, assurances and things as may be necessary in the opinion of the Lender for more effectually implementing and carrying out the true intent and meaning of this Agreement, the other Loan Documents or any agreement delivered pursuant hereto or thereto and all such additional instruments and agreements and legal opinions in connection with the Assets, in form and substance satisfactory to the Lender, as the Lender may from time to time reasonably request.

 

	
16.  

	
Notices. In this Agreement:

 

	
(a)

	
any notice, demand or other communication required or permitted to be given under this Agreement will be in writing and will be considered to have been given if delivered by hand, transmitted by facsimile or email transmission, or mailed by prepaid registered post to the address or facsimile transmission number or email address of each party set out below:

 

	 	
(i)  

	
if to the Lender:

 

Scandium Investments LLC

c/o Shenassa & Company

11620 Wilshire Blvd., Suite 460

Los Angeles, CA 90025

Attention: President

Email: Shenassa@Shenassa.com

Facsimile: (310) 914-4044

 

with a copy to (which shall not constitute notice):

 

Fasken Martineau DuMoulin LLP

2900 - 550 Burrard Street

Vancouver, British Columbia V6C 0A3

Attention: Iain Mant

Email: imant@fasken.com

Facsimile: (604) 632-4734

 

	 	
(ii)  

	
if to the Borrower:

 

EMC Metals Corp.

Suite 501 – 1430 Greg Street

Sparks, Nevada, 89431

Attention: President

Email: georgeputnam@emcmetals.com

Facsimile: (775) 355-9506

 

with a copy to (which shall not constitute notice):

 

Morton Law LLP

Suite 1200 – 750 West Pender Street

Vancouver, British Columbia V6C 2T8

Attention: Edward L. Mayerhofer

Email: elm@mortonlaw.ca

Facsimile: (604) 681-9652

 

or to such other address or facsimile transmission number as any party may designate in the manner set out above; and

 

	
(b)

	
notice or communication will be considered to have been received:

 

  

-17-

  

 

	 	
(i)  

	
if delivered by hand during business hours on a Business Day, upon receipt by a responsible representative of the receiver, and if not delivered during business hours, upon the commencement of business on the next Business Day;

 

	 	
(ii)  

	
if sent by facsimile or email transmission during business hours on a Business Day, upon the sender receiving confirmation of the transmission, and if not transmitted during business hours, upon the commencement of business on the next Business Day; and

 

	 	
(iii)  

	
if mailed by prepaid registered post upon the fifth Business Day following posting; except that, in the case of a disruption or an impending or threatened disruption in postal services every notice or communication will be delivered by hand or sent by facsimile transmission.

 

	
(c)

	
for greater certainty, any notice, demand or other communication given to EMC in accordance with this Section 16 shall be deemed to be validly and effectively given to the Borrower and each other Credit Party.

 

	
17.  

	
Assignment. This Agreement may not be assigned by the Borrower without the prior written consent of the Lender. The Lender may assign all or any of its right, title, interest and obligations in this Agreement and other Loan Documents to any third parties without any consent of the Borrower.

 

	
18.  

	
Enurement. This Agreement will enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

 

	
19.  

	
Waivers. No failure or delay on the Lender’s part in exercising any power or right hereunder will operate as a waiver thereof.

 

	
20.  

	
Remedies are Cumulative. The Lender’s rights and remedies hereunder are cumulative and not exclusive of any rights or remedies at law or in equity.

 

	
21.  

	
Time. Time is of the essence of this Agreement and all documents or instruments delivered hereunder.

 

	
22.  

	
Invalidity. If at any time any one or more of the provisions hereof is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby to the fullest extent possible by law.

 

	
23.  

	
Governing Laws. This Agreement will be governed by and interpreted in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein. The Borrower and the Lender submit to the non-exclusive jurisdiction of the Courts of the Province of British Columbia and agree to be bound by any suit, action or proceeding commenced in such Courts and by any order or judgment resulting from such suit, action or proceeding, but the foregoing will in no way limit the right of the Lender to commence suits, actions or proceedings based on this Agreement in any jurisdiction it may deem appropriate.

 

	
24.  

	
Amendment. This Agreement may be varied or amended only by or pursuant to an agreement in writing signed by the parties hereto.

 

	
25.  

	
Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered (including by electronic or facsimile format) to the other parties hereto, it being understood that all parties need not sign the same counterpart.

 

  

-18-

  

 

 

 

  

-19-

  

 

SCHEDULE A

INITIAL SECURITY DOCUMENTS

 

	
1.  

	
Promissory Note;

 

	
2.  

	
General security agreement by each Credit Party in favour of the Lender

 

	
3.  

	
Share pledge of shares of EMC Australia

 

	
4.  

	
Option Agreement

 

  

-20-

  

 

SCHEDULE B

PROMISSORY NOTE

 

(see attached)

 

  

-21-

  

 

PROMISSORY NOTE

 

	
Date: June 24, 2014

	
Vancouver, British Columbia

 

This Promissory Note is being issued pursuant to the terms of, and in connection with, a convertible loan agreement dated June 24, 2014 (the “Loan Agreement”) between EMC Metals Corp., EMC Metals Australia Pty Ltd. (collectively, the “Borrower”) and Scandium Investments LLC (the “Lender”). Capitalized terms used in this Promissory Note but not otherwise defined shall be given the meanings ascribed to such terms in the Loan Agreement.

 

FOR VALUE RECEIVED, the Borrower and each one of them, jointly and severally, promise to pay to the order of the Lender on or before December 24, 2015 (the “Maturity Date”), the principal sum of US$2,500,000.00 (the “Principal Amount”) plus interest on the Outstanding Balance at the annual interest rate set out in the Loan Agreement, calculated from and including the date of this Promissory Note and including the date all of the Outstanding Balance has been repaid.

 

This Promissory Note is secured by the Security Documents.

 

The Borrower hereby waives presentment for payment, protest or notice of protest and notice of dishonour of this Promissory Note.

 

Time shall be of the essence. This Promissory Note shall be governed as to validity, interpretation, construction, effect and in all other respects by the laws in effect in the Province of British Columbia.

 

IN WITNESS WHEREOF this Promissory Note has been executed as of the 24th of June, 2014.

  

-22-

  

 

SCHEDULE C

EXISTING LENDERS BANK ACCOUNTS

 

Existing Lender - Barry

 

	
Amount:

	
US$594,371.88

	
Beneficiary Name:

	
Barry Thomas Davies

	  	
35D Star Sky, The Cullinan

	  	
1 Austin Road West

	  	
Kowloon, HONG KONG

	 	 
	
Beneficiary Bank:

	
*****

	 	 
	
SWIFT Code:

	
*****

	 	 
	
ABA #:

	
*****

	 	 
	
Account #:

	
*****

	  	  
	
Existing Lender - Bradley Resources

	  
	  	  
	
Amount:

	
US$51,250

	 	 
	
Beneficiary Name:

	
George W. Holbrook, Jr. Trust

	  	
161 Rametto Road

	  	
Montecito, California  93108

	 	 
	
Beneficiary Bank:

	
*****

	 	 
	
Swift Code:

	
*****

	 	 
	
ABA#

	
*****

	 	 
	
Account #:

	
*****

	  	  
	
Existing Lender - Kudu

	  
	  	  
	
Amount:

	
US$589,375.00

	 	 
	
Beneficiary Name:

	Kudu Partners, L.P.
	  	
2310 N. Molter Road, Suite 309

	  	
Liberty Lake, Washington  99019

	 	 
	
Beneficiary Bank:

	*****
	 	 
	
Swift Code:

	*****
	 	 
	
ABA #:

	
*****

	 	 
	
Account #:

	*****

 

  

-23-

  

 

SCHEDULE D

NYNGAN SETTLEMENT DEED BANK ACCOUNT

	
Amount:

	
A$1,400,000.00

	  	  
	
Beneficiary Name:

	
Jervois Mining Limited

	  	
Level 2, Suite 12 10 Jamieson St.

	  	
Cheltenham VIC 3192 Australia

	  	  
	
Beneficiary Bank:

	
*****

	  	  
	
BSB number:

	
*****

	
Account number:

	
*****

	
ANZ Swift code:

	
*****

 

  

-24-

  

 

EXHIBIT A

FORM OF OPTION AGREEMENT

 

 

 

 

 

 

 

 

 

 

  

-25-

  

 

OPTION AGREEMENT

 

made between

 

EMC Metals Corp.

 

And

 

EMC Metals Australia Pty Ltd.

 

And

 

Scandium Investments LLC

 

in respect of the Nyngan and Honeybugle Properties

 

New South Wales, Australia

 

June 24, 2014

 

  

-26-

  

 

	
ARTICLE 1 INTERPRETATION

	 	 	1	 
	
1.1

	 	
Definitions

	 	 	1	 
	
1.2

	 	
Included Words

	 	 	7	 
	
1.3

	 	
Headings

	 	 	7	 
	
1.4

	 	
Interpretation

	 	 	7	 
	
1.5

	 	
Entire Agreement

	 	 	8	 
	
1.6

	 	
References

	 	 	8	 
	
1.7

	 	
Currency

	 	 	8	 
	
1.8

	 	
Knowledge

	 	 	8	 
	
1.9

	 	
Schedules

	 	 	9	 
	
1.10

	 	
Severability

	 	 	9	 
	
1.11

	 	
Calculation of Time

	 	 	9	 
	
ARTICLE 2 REPRESENTATIONS AND WARRANTIES

	 	 	9 	 
	
2.1

	 	
Mutual Representations and Warranties

	 	 	9	 
	
2.2

	 	
EMC Representations and Warranties

	 	 	10	 
	
2.3

	 	
Survival of Representations and Warranties

	 	 	11	 
	
2.4

	 	
Indemnity

	 	 	11	 
	
ARTICLE 3 JV OPTION

	 	 	11 	 
	
3.1

	 	
JV Option

	 	 	11	 
	
3.2

	 	
Deemed Exercise

	 	 	12	 
	
3.3

	 	
Issuance of Shares

	 	 	12	 
	
3.4

	 	
Expenditure Statement and Audit

	 	 	12	 
	
3.5

	 	
Election

	 	 	13	 
	
3.6

	 	
Optionee’s Election to Terminate JV Option

	 	 	13	 
	
3.7

	 	
JV Option Termination

	 	 	13	 
	
ARTICLE 4 PURCHASE OPTION

	 	 	13 	 
	
4.1

	 	
Purchase Option

	 	 	13	 
	
4.2

	 	
Transfer of Properties

	 	 	14	 
	
4.3

	 	
Optionee’s Election to Terminate Purchase Option

	 	 	14	 
	
4.4

	 	
Purchase Option Termination

	 	 	14	 
	
ARTICLE 5 RIGHTS AND OBLIGATIONS

	 	 	14 	 
	
5.1

	 	
EMC’s Obligations

	 	 	14	 
	
5.2

	 	
Abandonment of Mineral Rights during the Option Period

	 	 	15	 
	
ARTICLE 6 TRANSFERS

	 	 	16 	 
	
6.1

	 	
Limitations on Transfers

	 	 	16	 
	
6.2

	 	
Conditions of Transfers

	 	 	16	 
	
ARTICLE 7 CONFIDENTIAL INFORMATION

	 	 	16	 
	
7.1

	 	
Confidential Information

	 	 	16	 
	
7.2

	 	
Fraudulent or Negligent Disclosure

	 	 	16	 
	
7.3

	 	
Information in Public Domain

	 	 	16	 
	
7.4

	 	
Press Release

	 	 	16	 
	
7.5

	 	
Request to Disclose

	 	 	17	 
	
ARTICLE 8 DISPUTE RESOLUTION

	 	 	17 	 
	
8.1

	 	
Arbitration

	 	 	17	 
	
ARTICLE 9 AREA OF INTEREST

	 	 	17 	 
	
9.1

	 	
All Parties

	 	 	17	 
	
ARTICLE 10 NOTICE

	 	 	18 	 
	
10.1

	 	
Notice

	 	 	18	 
	
ARTICLE 11 GENERAL

	 	 	19 	 
	
11.1

	 	
Other Activities and Interests

	 	 	19	 
	
11.2

	 	
No Waiver

	 	 	19	 
	
11.3

	 	
Further Assurances

	 	 	19	 
	
11.4

	 	
Enurement

	 	 	19	 
	
11.5

	 	
Special Remedies

	 	 	19	 
	
11.6

	 	
Governing Law

	 	 	20	 
	
11.7

	 	
Time of the Essence

	 	 	20	 
	
11.8

	 	
Counterparts

	 	 	20	 
	
11.9

	 	
Costs

	 	 	20	 

 

SCHEDULE A - PROPERTIES

 

SCHEDULE B - JV TERMS

 

  

-1-

  

 

OPTION AGREEMENT

 

THIS AGREEMENT made as of the 24th day of June, 2014.

 

BETWEEN:

 

EMC Metals Corp.

 

(“EMC”)

 

AND:

 

EMC Metals Australia Pty Ltd..

 

(“EMC Australia”)

 

AND:

 

Scandium Investments LLC

 

(the “Optionee”)

 

WHEREAS:

 

A.           The Optionee and EMC have entered into a Loan Agreement dated the date hereof under which the Optionee has loaned US$2,500,000 to EMC (the “Loan”), the proceeds of which have or will be used in part to repay existing debt of EMC and in part to make payment due by EMC necessary for EMC to complete the acquisition of its interests in the Properties described on Schedule A.

 

B.           Upon the completion of advance of the funds under the Loan Agreement, EMC will take all such steps and actions as are required to cause its wholly owned subsidiary EMC Australia to acquire and hold a 100% legal and beneficial interest in and to the Properties.

 

C.           In consideration for the Loan, EMC has agreed to grant to the Optionee a right to acquire from EMC and EMC Australia, subject to certain conditions, either a joint venture interest in the Properties or a 100% interest in the Properties, all as more particularly set out in the this Option Agreement

 

NOW THEREFORE THIS AGREEMENT WITNESSES that for and in consideration of the mutual covenants hereinafter set out and for other good and valuable consideration the Parties agree as follows:

 

  

-2-

  

 

ARTICLE 1

INTERPRETATION

 

	
1.1  

	
Definitions

 

1. For the purposes of this Agreement, except as otherwise defined herein, the following capitalized words and phrases when used herein have the following meanings:

 

“Acquired Interest” has the meaning set out in Section 9.1.

 

“Additional Properties” means any Mineral Rights or Other Rights, or any interest therein, covering property within the Area of Interest and which become a part of the Properties as contemplated in Article 9.

 

“Affiliate” means, in respect of a Person, a corporation with which that Person is affiliated where:

 

	
  

	
one body corporate is affiliated with another body corporate if one of them is the subsidiary of the other or both are subsidiaries of the same body corporate or each of them is controlled by the same Person; and

 

	
  

	
if two bodies corporate are affiliated with the same body corporate at the same time, they are deemed to be affiliated with each other.

 

“Agreement” means this document including any schedules thereto.

 

“Applications” means those applications to transfer ownership of the exploration rights, surface (freehold) rights and any other project rights relating to the Properties from the current registered owners thereof to EMC Australia.

 

“Area of Interest” means any property lying, partially or wholly, within a 2 kilometre distance of the nearest boundary of a Property.

 

“Assets” means the Properties, Applications, and any maps, drill core, samples, assays, geological and other technical reports, studies, designs, plans and financial or other records related to the Properties in the possession or under the control of EMC, EMC Australia and their Affiliates as of the date hereof, or thereafter acquired by EMC, EMC Australia or their Affiliates, together with exploration tools, supplies and equipment thereafter acquired by EMC, EMC Australia or their Affiliates, if the costs of any such acquisition are included in Expenditures made hereunder.

 

“Business Day” means any day other than a Saturday, Sunday or day on which banks in Adelaide, South Australia or Vancouver, British Columbia are generally not open for business.

 

“Direct Project Costs” means all direct charges, costs or expenditures (other than the indirect charge for general administrative services and overhead expenses referred to in the definition of Expenditures) and all capital charges, expenditures or costs incurred on or in connection with Mining Operations, without duplication, and shall, without limiting the generality of the foregoing, include the cost of all work actually carried out in connection with Mining Operations hereunder (including pre-production work, surface and underground exploration and development work, driving adits, raises and drifting and shaft sinking) as well as the cost of metallurgical and/or engineering work required to ensure adequate recoveries of metals contained in the minerals, ores and concentrates produced or derived from the Properties. In addition, Direct Project Costs shall include the costs of all of the Operator’s technical personnel who may, from time to time, provide services with respect to the Properties. Such costs shall be charged out at rates normal to the industry and on the basis of the time actually spent by such personnel on projects related to Mining Operations.

 

  

-3-

  

 

“Effective Date” means June 24, 2014.

 

“EMC” means EMC Metals Corp.

 

“EMC Australia” means EMC Metals Australia Pty Ltd., a wholly owned subsidiary of EMC incorporated under the laws of Australia under Company number 160 223 325.

 

“Encumbrance” means any mortgage, charge, pledge, hypothecation, security interest, assignment, lien (statutory or otherwise), charge, title retention agreement or arrangement, royalty, restrictive covenant or other encumbrance of any nature (including any interest in favour of EMC, EMC Australia or any of their Affiliates), excluding those royalties and other encumbrances disclosed in Schedule A to this Agreement.

 

“Environmental Claim” means any and all administrative, regulatory or judicial actions, suits, demands, claims, liens, notices of non-compliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued under any such Environmental Law, including, without limitation:

 

	
  

	
any and all claims by a Governmental Body for enforcement, clean-up, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law; and

 

	
  

	
any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive or other relief resulting from hazardous materials, including any release thereof, or arising from alleged injury or threat of injury to human health or safety (arising from environmental matters) or the environment.

 

“Environmental Law” means all requirements of the common law or of environmental, health or safety statutes, regulations, rules, ordinances, policies, orders, approvals, notices, licenses permits or directives of any central, provincial, or local Governmental Body including, but not limited to those relating to:

 

	
  

	
noise,

 

	
  

	
pollution or protection of the air, surface water, ground water or land,

 

	
  

	
solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation,

 

	
  

	
exposure to hazardous or toxic substances, or

 

	
  

	
the closure, decommissioning, dismantling or abandonment of any facilities, mines or workings and the reclamation or restoration of any lands.

 

  

-4-

  

 

“Expenditures” means all costs and expenses of whatever kind or nature spent or incurred by or on behalf of EMC, EMC Australia or their Affiliates, from the Effective Date in the conduct of exploration and development activities on or in relation to the Properties including:

 

	
  

	
in holding the Properties in good standing with all applicable Governmental Bodies (including land maintenance costs and any monies expended as required to comply with applicable laws and regulations, such as for the completion and submission of assessment work and filings required in connection therewith), in curing title defects (not including any payments due to previous owners) and in acquiring and maintaining surface and other ancillary rights;

 

	
  

	
in preparing for and in the application for and acquisition of environmental and other permits necessary or desirable to commence and complete exploration, development and operation activities;

 

	
  

	
in doing geophysical and geological surveys, drilling, assaying and metallurgical testing, including costs of assays, metallurgical testing and other tests and analyses to determine the quantity and quality of Minerals, water and other materials or substances;

 

	
  

	
in conducting engineering work as required for work programs or preparation of the Feasibility Study;

 

	
  

	
in the preparation of work programs and the presentation and reporting of data and other results thereof including any program for the preparation of the Feasibility Study;

 

	
  

	
for environmental remediation and rehabilitation;

 

	
  

	
in acquiring facilities, equipment or machinery, or the use thereof, and for all parts, supplies and consumables;

 

	
  

	
for salaries and wages, including actual labour overhead expenses for employees assigned to exploration and development activities;

 

	
  

	
travelling expenses and fringe benefits (whether or not required by law) of all persons engaged in work with respect to and for the benefit of the Properties, including for their food, lodging and other reasonable needs;

 

	
  

	
payments to contractors or consultants for work done, services rendered or materials supplied;

 

	
  

	
all taxes levied against or in respect of the Properties, or activities thereon, and the cost of insurance premiums and performance bonds or other security;

 

	
  

	
all costs incurred in the acquisition of Additional Properties;

 

	
  

	
all Direct Project Costs, to the extent not covered in (a) through (l) above; and

 

	
  

	
the transfer payment contemplated in Section 4.2.

 

“Event of Default” had the meaning given to that term in the Loan Agreement.

 

  

-5-

  

 

“Feasibility Study” means a feasibility study that complies with the definition of such term as given in CIM Definition Standards for Mineral Resources and Mineral Reserves adopted by CIM Council on May 10, 2014, as referred to in National Instrument 43-101, which is specified to be done to a standard of accuracy of +/- 20% or better on capital and operating cost estimates.

 

“Governmental Body” means any government, parliament, legislature, or any regulatory authority, agency, commission or board of any government, parliament or legislature, or any court or (without limitation to the foregoing) any other law, regulation or rule-making entity (including any central bank, fiscal or monetary authority or authority regulating banks), having or purporting to have jurisdiction in the relevant circumstances, or any Person acting or purporting to act under the authority of any of the foregoing (including any arbitrator).

 

“Holdings”, for the purposes of Article 6, has the meaning set out in Section 6.1.

 

“Joint Venture” has the meaning set out in Section 3.5.

 

“JORC” means Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia.

 

“JV Option” has the meaning set out in Section 3.1.

 

“JV Option Conditions” has the meaning set out in Section 3.2.

 

“JV Option Deadline” has the meaning set out in Section 3.2.

 

“JV Option Exercise Notice” shall mean the applicable notice given by a Party pursuant to Section 3.1 or 3.2.

 

“JV Option Termination Notice” has the meaning set out in Section 3.6.

 

“JV Terms” means the terms detailed in Schedule B.

 

 “Loan” means the US$2,500,000 loan made by the Optionee to EMC under the Loan Agreement;

 

“Loan Agreement” means the Loan Agreement dated the date hereof between EMC Metals Corp., EMC Australia and their Affiliates;

 

“Minerals” means all ores, and concentrates or metals derived therefrom, of precious, base and industrial minerals (including without limitation, diamonds and uranium) and which are found in, on or under the Properties and may lawfully be explored for, mined and sold pursuant to the Mineral Rights and other instruments of title under which any of the Properties is held.

 

“Mineral Rights” means prospecting licences, exploration licences, mining leases, mining licences, operating permits, mineral concessions and other forms of mineral tenure or other rights to Minerals, or to work upon lands for the purpose of searching for, developing or extracting Minerals under any forms of mineral title recognized under the laws applicable in Australia, whether contractual, statutory or otherwise, or any interest therein.

 

  

-6-

  

 

“Mining Operations” means every kind of work done on or in respect of the Properties by the Operator and includes:

 

	
  

	
carrying out, or causing to be carried out, line cutting, geophysical, geochemical and geological surveys, library research, report preparation, studies, mapping, assaying, surveying, trenching, shaft-sinking, raising, crosscutting and drifting the Properties, searching for, digging, trucking, sampling, working and procuring ores, whether by open-pit or underground mining, bringing mining lands to lease or patent and keeping the same in good standing, obtaining mineral properties or exploration, development, mining or other licenses, permits or mining claims and maintaining same in good standing, and in doing all other exploration, development, pre-production, mining or reclamation work;

 

	
  

	
paying wages, salaries and benefits of individuals engaged in such work and in supplying food, lodging, transportation and other reasonable needs of such individuals;

 

	
  

	
paying insurance premiums and assessments or premiums for workers’ compensation insurance, contributions for unemployment insurance or other pay allowances or benefits customarily paid in the district to such individuals;

 

	
  

	
making payments in respect of exploration permits, leases, licenses, mining claims, taxes, rates, assessments or other governmental charges and option payments in connection with the Properties;

 

	
  

	
purchasing, leasing or renting plant, buildings, machinery, tools appliances, equipment or supplies or incurring other capital expenses, and in installing, erecting, detaching or removing any such assets on or from the Properties, and

 

	
  

	
managing or supervising any work which is done in respect of the Properties or in any other respects necessary or desirable in the opinion of the Operator.

 

“NI 43-101” means National Instrument 43-101, Standards of Disclosure for Mineral Properties, as implemented and in effect in Canada.

 

“Operations” means every kind of work done, or activity performed by the Operator on or in respect of the Properties to carry out or complete Programs including, without limitation, investigating, prospecting, exploring, analysing, developing, property maintenance, sampling, assaying, preparation of reports, estimates and studies, surveying, rehabilitation, reclamation and environmental protection, and further including the management and administration necessary to conduct the foregoing work or activity.

 

“Operator” means the operator of the Project.

 

“Option Exercise Date” means the earlier of the:

 

	
  

	
date on which the JV Option is exercised in accordance with Section 3.1;

 

	
  

	
the date on which the JV Option is deemed exercised in accordance with Section 3.2; and

 

	
  

	
the date the Purchase Option is exercised in accordance with Section 4.1.

 

“Option Period” means the period between the Effective Date and earlier of:

 

	
  

	
the date on which the JV Option is exercised in accordance with Section 3.1, the JV Option is deemed exercised in accordance with Section 3.2, or the Purchase Option is exercised in accordance with Section 4.1; and

 

  

-7-

  

 

	
  

	
the date on which the JV Option has terminated in accordance with Sections 3.7 and the Purchase Option has terminated in accordance with Section 4.4.

 

“Optionee” means Scandium Investments LLC.

 

“Other Rights” means any interest in real property, whether freehold, leasehold, license, right of way, easement, any other surface or other right in relation to real property, and any right, licence or permit in relation to the use or diversion of water, but excluding any Mineral Rights.

 

“Outstanding Loan Amount” means at any time the outstanding principal and interest due and owing under the Loan Agreement.

 

“Party” means a party to this Agreement and “Parties” means all of them.

 

“Person” means and includes any individual, corporation, partnership, firm, joint venture, syndicate, association, trust, Governmental Body and any other form of entity or organization.

 

“Program” means a written description outlining all Mining Operations which is contemplated to be carried out.

 

“Project” means the exploration of the Properties and potentially the development, operation and closure and remediation of Mining Operations on the Properties.

 

“Properties” means the Mineral Rights, and Other Rights, if any, described in Schedule A, and after the date of this Agreement includes any Additional Property, together with any renewal of any such Mineral Rights or Other Rights and any other form of successor or substitute title therefor, but excluding any Mineral Rights or Other Rights abandoned in accordance with Section 5.2 and “Property” means any one of the Properties.

 

“Purchase Option” has the meaning set out in Section 4.1.

 

“Purchase Option Termination Notice” has the meaning set out in Section 4.3.

 

“Quarterly Report” means a comprehensive report of work performed on the Properties, the Expenditures incurred and the results obtained therefrom in a respective calendar quarter.

 

“Representatives” means the employees, professionals, consultants and agents employed by or contracted to a Party.

 

  

-8-

  

 

“Transfer” for the purposes of Article 6 has the meaning set out in Section 6.1.

 

	
1.2  

	
Included Words

 

2. This Agreement will be read with such changes in gender or number as the context requires.

 

	
1.3  

	
Headings

 

3. The headings to the Articles, Sections, subsections or clauses of this Agreement are inserted for convenience only and are not intended to affect the construction hereof.

 

	
1.4  

	
Interpretation

 

4. Unless the context otherwise requires, in this Agreement:

 

	 	
(a)

	
a reference to an agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced except to the extent prohibited by this Agreement or that other agreement or document;

 

	 	
(b)

	
a reference to legislation or to a provision of legislation or to a code includes a modification or re-enactment of it, a legislative provision substituted for it and a regulation, code, by-law, ordinance or statutory instrument issued under it;

 

	 	
(c) 

	
a reference to writing includes a facsimile or electronic mail transmission and any means of reproducing words in a tangible and permanently visible form;

 

	 	
(d)  

	
headings and any table of contents or index are for convenience only and do not form part of this Agreement or affect its interpretation;

 

	 	
(e)  

	
a provision of this Agreement shall not be construed to the disadvantage of a Party merely because that Party was responsible for the preparation of this Agreement or the inclusion of the provision in this Agreement;

 

	 	
(f)  

	
the word “including” means “including without limitation” and “include” and, “includes” will be construed similarly;

 

	 	
(g)  

	
if an act must be done on a specified day which is not a Business Day, it must be done instead on the next Business Day; and

 

	 	
(h)  

	
a reference to a thing (including a right, obligation or concept) includes a part of that thing but nothing in this paragraph 1.4(h) implies that performance of part of an obligation constitutes performance of the obligation.

 

  

-9-

  

 

	
1.5  

	
Entire Agreement

 

5. This Agreement including all Schedules together with the Loan Agreement and other agreements and documents to be delivered pursuant hereto and the Loan Agreement are the full expression of the Parties’ intentions and rights and the entire agreement between them pertaining to the subject matter hereof and supersede all prior letters of intent, prior agreements, understandings, negotiations and discussions whether oral or written of the Parties. There are no representations, warranties or other agreements between the Parties in connection with the subject matter hereof, except as set forth herein. No amendment or termination of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any other provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provisions nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

 

	
1.6  

	
References

 

6. Unless otherwise stated, a reference herein to a numbered or lettered Article, Section, subsection, clause or schedule refers to the Article, Section, subsection, clause or schedule bearing that number or letter in this Agreement. A reference to “this Agreement”, “hereof”, “hereunder”, “herein” or words of similar meaning, means this Agreement including the schedules hereto, together with any amendments thereof.

 

	
1.7  

	
Currency

 

7. All dollar amounts expressed herein, unless otherwise specified, refer to lawful currency of the United States of America.

 

	
1.8  

	
Knowledge

 

8. Where any representation or warranty contained in this Agreement is expressly qualified by reference to the knowledge of a Party, such Party confirms that it has made due and diligent inquiry of such Persons (including appropriate officers of such Party, as applicable) as it considers necessary as to the matters that are the subject of the representations and warranties.

 

	
1.9  

	
Schedules

 

9. The following schedules are attached to and incorporated in this Agreement by this reference:

 

1. Schedule A                      Properties

 

2. Schedule B                      JV Terms

 

  

-10-

  

 

	
1.10  

	
Severability

 

10. If any provision of this Agreement is or becomes illegal, invalid or unenforceable, in whole or in part, the remaining provisions will nevertheless be and remain valid and subsisting and the said remaining provisions will be construed as if this Agreement had been executed without the illegal, invalid or unenforceable portion.

 

	
1.11  

	
Calculation of Time

 

11. If any time period set forth in this Agreement ends on a day of the week which is not a Business Day, then notwithstanding any other provision of this Agreement, such period will be extended until the same time of the next following day which is a Business Day.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

 

	
2.1  

	
Mutual Representations and Warranties

 

12. Each Party represents and warrants to the other Party hereto that, as of the Effective Date and the Option Exercise Date:

 

	 	
(a)

	
it is a body corporate duly incorporated or continued and duly organized and validly subsisting under the laws of its organizational jurisdiction;

 

	 	
(b)

	
it has full power and authority to carry on its business and to enter into this Agreement and carry out the provisions thereof;

 

	 	
(c)

	
neither the execution and delivery of this Agreement nor the consummation of the transactions hereby contemplated conflict with, result in the breach of or accelerate the performance required by any agreement to which it is a party;

 

	 	
(d)  

	
the execution and delivery of this Agreement do not violate or result in the breach of the laws of any jurisdiction applicable to a Party or pertaining thereto or of its organizational documents;

 

	 	
(e)  

	
all corporate authorizations have been obtained for the execution of this Agreement and for the performance of its obligations hereunder; and

 

	 	
(f)  

	
this Agreement constitutes a legal, valid and binding obligation of the Party enforceable against it in accordance with its terms.

 

  

-11-

  

 

	
2.2  

	
EMC Representations and Warranties

 

13. EMC and EMC Australia jointly and severally represent and warrant to the Optionee that, as of the Effective Date and the Option Exercise Date:

 

	 	
(a)  

	
as of the Effective Date EMC is the sole beneficial owner of the Properties and the rights associated with the Applications and as of the Option Exercise Date EMC Australia be the sole registered and beneficial owner of the Properties and the rights associated with the Applications;

 

	 	
(b)  

	
the Properties, the Applications and any royalty or other encumbrances in relation thereto, are properly and accurately described in Schedule A;

 

	 	
(c)  

	
the Mineral Rights comprising the Properties have been duly and validly located and recorded pursuant to all applicable laws and regulations in Australia and the State of New South Wales and are in good standing;

 

	 	
(d)

	
to its knowledge there is no valid basis for protesting the recording of any of the Mineral Rights comprising the Properties;

 

	 	
(e)

	
there are no actual adverse claims, challenges, suits, actions, prosecutions, investigations or proceedings against or to the ownership of or rights or title to the Properties, the Applications or any portion thereof;

 

	 	
(f)

	
no consent or approval of any third party or Governmental Body is required for the execution, delivery or performance of this Agreement by it or the transfer or acquisition of any interest in the Properties and the Applications other such approvals, consents and authorizations of the Foreign Investment Review Board that may be required under the Foreign Acquisitions and Takeovers Act 1975 (Australia).

 

	 	
(g)

	
all taxes, assessments, rentals, levies or other payments relating to the Properties and the Applications and required to be made to any Governmental Body on or before the Effective Date have been made;

 

	 	
(h)

	
to its knowledge there is no proposal to terminate or vary the terms of or rights attaching to any of the Properties or the Applications from any Governmental Body, or any challenge to its right, title or interest therein;

 

	 	
(i)

	
to its knowledge, there are no Environmental Claims in respect to the Properties, nor to its knowledge have any activities of it or on behalf of it on the Properties or the Applications been in violation of any applicable Environmental Law, regulations or regulatory prohibition or order, and to the best of its knowledge, conditions on and relating to the Properties and the Applications are in compliance with such Environmental Laws, regulations, prohibitions and orders;

 

  

-12-

  

 

	 	
(j)

	
to its knowledge, none of the Properties or the Applications may reasonably be thought to have been acquired or advanced, as applicable, directly or indirectly, as a result of the payment of a bribe to an official or the concealment or conversion of the proceeds of a bribe to an official. Further, no Additional Property will be acquired, directly or indirectly, as a result of the payment of a bribe to an official or the concealment or conversion of the proceeds of a bribe to an official;

 

	 	
(k)  

	
as at the Option Exercise Date, it will have made available to the Optionee all information in its possession or control relating to work done on or with respect to the Properties and the Applications;

 

	 	
(l)  

	
EMC, EMC Australia and their Affiliates are, in all material respects, conducting their respective businesses in compliance with all applicable laws, rules and regulations (including all material applicable Canadian and Australian federal, provincial, state, municipal, and local environmental and licensing laws, regulations and other lawful requirements of any governmental or regulatory body, including but not limited to those contained in any mineral claim or other form of mineral tenure, or in any licence, concession or permit) of each jurisdiction in which its respective business is carried on and each is licensed, registered or qualified in all jurisdictions in which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated and all such licences, registrations and qualifications are valid, subsisting and in good standing and it has not received a notice of a material non-compliance, nor knows of, nor has reasonable grounds to know of, any facts that could give rise to a notice of a material non-compliance with any such laws, regulations or permits which could have an adverse material effect on it and each such licence, registration, qualification or permit will at the Option Exercise Date be valid, subsisting and in good standing; and

 

	 	
(m)  

	
neither EMC, EMC Australia nor any of their Affiliates have any liability, direct or indirect, contingent or otherwise, which materially adversely affects it or would reasonably be expected to have a material adverse effect on the Properties or Applications. Without limiting the generality of the foregoing, EMC Australia has no material obligation or liability except those arising in the ordinary course of business none of which is materially adverse to it.

 

	
2.3  

	
Survival of Representations and Warranties

 

14. The representations and warranties detailed in Section 2.1 and 2.2 inclusive are deemed remade as of the Option Exercise Date and the Parties will be relying thereon in entering into this Agreement. The representations and warranties are deemed remade as of the date of the exercise of eth JV Option or Purchase Option, as the case may be, save to the extent that such representations and warranties are rendered inaccurate by the effluxion of time or any act or omission of the non-representing or non-warranting Party.

 

	
2.4  

	
Indemnity

 

15. Subject to Section 2.3, each Party will indemnify and save the other harmless from all loss, damage, costs, actions and suits arising out of or in connection with any breach of any representation, warranty, covenant, agreement or condition made or to be fulfilled by it hereunder. A Party may waive any of such representations, warranties, covenants, agreements or conditions in whole or in part at any time without prejudice of its right in respect of any other breach of the same or any other representation, warranty, covenant, agreement or condition.

 

  

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ARTICLE 3

JV OPTION

 

	
3.1  

	
JV Option

 

16. The Optionee shall have the option exercisable at any time, so long as the Loan is outstanding and so long as it has not exercised the Purchase Option, to acquire a 20% equity interest in EMC Australia (the “JV Option”). The Optionee may elect to exercise the JV Option by delivering or causing to be delivered to EMC a notice confirming the exercise of the JV Option.

 

	
3.2  

	
Deemed Exercise

 

17. If prior to December 10, 2015 (the “JV Option Deadline”):

 

	 	
(a)

	
EMC receives net proceeds of not less than US$3.0 million from equity financing (the “Financing”);

 

	 	
(b)

	
no Event of Default has occurred and is continuing;

 

	 	
(c)

	
the Loan has not been repaid; and

 

	 	
(d)

	
the Purchase Option has not been exercised,

 

(collectively, the “JV Option Conditions”),

 

18. EMC shall have the right to deem the JV Option to have been exercised by the Optionee. On or before the JV Option Deadline, EMC shall deliver or cause to be delivered a notice to the Optionee confirming whether it has satisfied the JV Option Conditions. Subject to EMC having satisfied the JV Option Conditions before the JV Option Deadline, EMC may at that time give notice to the Optionee confirming that the Optionee is deemed to have exercised the Option.

 

  

-14-

  

 

	
3.3  

	
Issuance of Shares

 

19. The exercise price for the JV Option shall be equal to the Outstanding Loan Amount as of the Option Exercise Date. The payment of the exercise price shall be made by the setoff of all Outstanding Loan Amounts against the exercise price of the JV Option. Upon exercise of the JV Option, EMC agrees to cause EMC Australia, to immediately issue that number of shares to the Optionee (or its nominee) such that after such issuance the Optionee holds 20% of the outstanding shares of EMC Australia, on a fully diluted basis.

 

	
3.4  

	
Expenditure Statement and Audit

 

20. An itemized statement of Expenditures completed in any period certified to be correct by an officer of EMC will be conclusive evidence of the making of such Expenditures unless within 90 days of receipt of such statement the Optionee delivers an objection to the statement to EMC. If the Optionee delivers an objection within such 90 day period, then Optionee will be entitled to request that the auditors of EMC, audit the Expenditures provided for in the statement of Expenditures that is the subject of the objection. At the conclusion of such audit:

 

	 	
(a)  

	
if the auditors determine that the statement of Expenditures exceed the Expenditures actually incurred by more than five percent of those stated, then the costs of the audit will be borne by EMC; and

 

	 	
(b)  

	
if the auditors determine that the statement of Expenditures was accurate within five percent of the Expenditures actually incurred or the statement of Expenditures understate the Expenditures actually incurred by greater than a five percent margin, then the costs of the audit will be borne by the Optionee.

 

The auditors’ determination of Expenditures will be final and determinative of the amounts stated in the statement in question, and will not be subject to arbitration hereunder.

 

	
3.5  

	
Election

 

21. Delivery of the applicable JV Option Exercise Notice shall constitute election by the Parties to continue to advance the Properties and EMC Australia and the Optionee shall be deemed to have formed a joint venture (the “Joint Venture”) effective the date of delivery of such applicable JV Option Exercise Notice. The Joint Venture will be conducted by EMC Australia and shall be constituted by way of a shareholders or other agreement (mutatis mutandis) and the Parties shall in a timely manner agree upon the terms of such agreement and execute same, but in any event generally on the JV Terms. Notwithstanding such deeming, for documentary purposes, the Parties shall forthwith negotiate in good faith and execute a form of shareholders agreement consistent with the JV Terms. If and until such shareholders agreement is executed, the JV Terms shall be deemed to constitute such agreement (in either case the “JVA”). Save in respect to matters arising hereunder before the deemed formation of the Joint Venture, the JVA shall supplant this Agreement.

 

  

-15-

  

 

	
3.6  

	
Optionee’s Election to Terminate JV Option

 

22. For greater certainty, if no Event of Default has occurred and is continuing the Optionee may elect at any time, on or before the JV Option Deadline, to terminate the JV Option by delivering notice to that effect to EMC (the “JV Option Termination Notice”).

 

	
3.7  

	
JV Option Termination

 

23. The JV Option will be of no further force or effect and will automatically terminate if:

 

	 	
(a)

	
the Optionee has not exercised the JV Option in accordance with Section 3.1;

 

	 	
(b)

	
EMC has not deemed the JV Option to have been exercised in accordance with Section 3.2;

 

	 	
(c)

	
the Loan is repaid in accordance with the terms in the Loan Agreement;

 

	 	
(d)

	
the Purchase Option is exercised; or

 

	 	
(e)

	
the Optionee delivers the JV Option Termination Notice to EMC.

 

  

-16-

  

 

ARTICLE 4

PURCHASE OPTION

 

	
4.1  

	
Purchase Option

 

24. For so long as the Loan is outstanding, if:

 

	 	
(a)  

	
the JV Option has not been exercised in accordance with Section 3.1 and EMC has not satisfied the JV Option Conditions on or before the JV Option Deadline; or

 

	 	
(b)  

	
an Event of Default has occurred and is continuing,

 

25. the Optionee shall have the Option to elect to acquire the Properties (the “Purchase Option”).

 

	
4.2  

	
Transfer of Properties

 

26. The exercise price for the Purchase Option shall be equal to the Outstanding Loan Amount as of the Option Exercise Date. The payment of the exercise price shall be made by the setoff of all amounts owing under the Outstanding Loan Amount against the exercise price of the Purchase Option. Upon exercise of the Purchase Option, EMC Australia will immediately transfer all of the Mineral Rights and the Applications to the Optionee or its nominee, free and clear of any Encumbrance, with all costs including any stamp duty or similar tax payable in respect thereof.

 

	
4.3  

	
Optionee’s Election to Terminate Purchase Option

 

27. For greater certainty the Optionee may elect at any time, to terminate the Purchase Option by delivering notice to that effect to EMC (the “Purchase Option Termination Notice”).

 

	
4.4  

	
Purchase Option Termination

 

28. The Purchase Option will be of no further force or effect and will automatically terminate if:

 

	 	
(a)  

	
the Loan is repaid in accordance with the terms in the Loan Agreement;

 

	 	
(b)  

	
the JV Option is exercised in accordance with Section 3.1 or deemed exercised in accordance with Section 3.2; or

 

	 	
(c)  

	
the Optionee delivers the Purchase Option Termination Notice to EMC.

 

  

-17-

  

 

ARTICLE 5

RIGHTS AND OBLIGATIONS

 

	
5.1  

	
EMC’s Obligations

 

29. EMC and EMC Australia must during the Option Period:

 

	 	
(a)

	
pay all Expenditures properly incurred promptly as and when due;

 

	 	
(b)

	
conduct all work on or with respect to the Properties, the Application areas and the Area of Interest and collect, handle, store and record all data related thereto, all in a manner consistent with good exploration, engineering and mining practice and in compliance with the applicable laws, rules, orders and regulations and to JORC and/or NI 43-101 standards;

 

	 	
(c)

	
keep the Properties in good standing and free and clear of all Encumbrances (except liens for taxes not yet due, other inchoate liens, liens contested in good faith by EMC or EMC Australia) and to proceed with all diligence to contest and discharge any such Encumbrance that is filed;

 

	 	
(d)

	
permit the directors, officers, employees and designated consultants and agents of the Optionee, at their own expense and risk, access to the Properties and all records and accounts in respect of EMC, EMC Australia or their Affiliates work on the Properties and the Application areas at all reasonable times following reasonable prior notice;

 

	 	
(e)

	
permit the Optionee to inspect, twice per calendar year, all geological, geophysical and geochemical information, maps, diagrams, documents, reports, records and databases in the possession or under the control of EMC, EMC Australia or their Affiliates and related to the Properties and the Application areas, along with any samples or drill core obtained therefrom, and access at all reasonable times following reasonable prior notice, at its own sole risk and expense, to the Properties and the Application areas;

 

	 	
(f)

	
perform such assessment work or make payments in lieu thereof and pay such rentals, taxes or other payments and do all such other things as may be necessary to maintain the Properties and related assets in good standing including, without limitation, staking and re-staking mining concessions, and applying for additional Mineral Rights and Other Rights;

 

	 	
(g)

	
maintain true and correct books, accounts and records of Expenditures, in accordance with United States generally accepted accounting principles, consistently applied;

 

	 	
(h)

	
deliver to the Optionee within 15 days after the end of each calendar quarter, a Quarterly Report provided that a Quarterly Report will not be required during any quarter in which no work was conducted, and no Expenditures incurred;

 

	 	
(i)

	
conduct all appropriate consultation, in respect to the Project, with local community groups;

 

	 	
(j)

	
provide responsible environmental management to the Project within the rules and guidelines operative of the appropriate Governmental Bodies having jurisdiction thereover;

 

	 	
(k)

	
provide the Optionee with copies of all of the environmental, heritage, and archaeology studies, and monitoring reports prepared for Governmental Bodies and brief the Optionee in such regard on a regular basis;

 

	 	
(l)

	
transfer all data, documents, reports, records, accounts, samples and assays in its possession or control, and relating to the Mining Operations or the Properties, to any replacement Operator;

 

	 	
(m)

	
promptly deliver to the Optionee any notices, demands or other material communications relating to any of the Assets that EMC, EMC Australia or any of their Affiliates receives;

 

	 	
(n)

	
obtain the prior written approval of the Optionee to the sending of any notice, demand or other material communications relating to any of the Assets to any adjacent property owner or any Governmental Body;

 

	 	
(o)

	
use its best efforts to apply for and obtain any required regulatory, stock exchange or other approval that may be required for the exercise of the JV Option, the Purchase Option or any other rights of the parties pursuant to this Option Agreement or the JV Terms within a reasonable time or at the request of the Optionee; and

 

	 	
(p)

	
refrain from disposing of its interest in any of the Assets, except in accordance with Article 6.

 

	
5.2  

	
Abandonment of Mineral Rights during the Option Period

 

30. If, during the Option Period, EMC, EMC Australia or any of their Affiliates proposes to surrender or abandon any Mineral Rights comprised in the Properties, then it will notify the Optionee of its intent, and such Mineral Rights may only be abandoned with the consent of the Optionee. Following a surrender, abandonment or transfer made pursuant to such consent then the Mineral Rights so surrendered, abandoned or transferred will thereafter cease to form part of the Properties and will no longer be subject to this Agreement, save and except with respect to such obligations or liabilities of the Parties as have accrued to the date of such surrender, abandonment or transfer.

 

  

-18-

  

 

ARTICLE 6

TRANSFERS

 

	
6.1  

	
Limitations on Transfers

 

31. EMC will not and will cause EMC Australia to not transfer, convey, assign, mortgage or grant an option in respect of or grant a right to purchase or in any manner transfer, alienate or otherwise dispose of (in this Article, to “Transfer”) any or all of its interest in the Properties or transfer or assign any of its rights under this Agreement (in this Article, such interests and rights, collectively, the “Holdings”) without the prior written consent of the Optionee. This Agreement may be assigned by the Optionee in connection with an assignment of the Loan Agreement as permitted in accordance with the terms therein.

 

	
6.2  

	
Conditions of Transfers

 

32. As a condition of any Transfer other than to another Party, the transferee must covenant and agree in writing to be bound by this Agreement, including this Article 6, and prior to the completion of any such Transfer, the transferring Party will deliver to the other Party evidence thereof in a form satisfactory to such other Party in which case the transferring Party will be released from its obligations hereunder with the exception of firstly any outstanding obligations arising prior to the Transfer and secondly pursuant to Article 9, for which the transferring Party will remain liable.

 

ARTICLE 7

CONFIDENTIAL INFORMATION

 

	
7.1  

	
Confidential Information

 

33. Except as specifically otherwise provided for herein, the Parties will keep confidential all data and information respecting this Agreement and the Assets and will refrain from using it other than for the activities contemplated hereunder or publicly disclosing it unless required by law or by the rules and regulations of any regulatory authority or stock exchange having jurisdiction, or with the consent of the other Party, such consent not to be unreasonably withheld.

 

	
7.2  

	
Fraudulent or Negligent Disclosure

 

34. Neither Party will be liable to the other Party for the fraudulent or negligent disclosure of information by any of the Parties’ employees, servants or agents, provided that the Party has taken reasonable steps to ensure the preservation of the confidential nature of such information.

 

	
7.3  

	
Information in Public Domain

 

  

-19-

  

 

35. The provisions of this Article 7 do not apply to information which is or becomes part of the public domain other than through a breach of the terms hereof.

 

	
7.4  

	
Press Release

 

36. The Parties will consult with each other prior to issuing any press release or other public statement regarding the Properties, or the activities of the Parties with respect thereto. In addition, each Party will obtain prior consent from the other Party before issuing any press release or public statement. The foregoing obligations to consult with and obtain the consent of the other Party shall not apply where such disclosure is required by law or by the rules and regulations of any regulatory authority or stock exchange having jurisdiction, provided that the Party required to disclose will use reasonable efforts to consult with and provide advance notice of such disclosure to the other Party. Where a Party requests consent from the other Party of any press release or public statement and the other Party has not responded to such request within two Business Days, then the Party proposing the press release or public statement will be entitled to proceed with its disclosure as if it had received consent from the other Party. However, any consent by a Party to the other Party issuing a press release or public statement, will not be considered an approval or certification of the consenting Party to the accuracy of the information in such press release or public statement, or a confirmation that such press release or public statement complies with the rules, policies, by-laws and disclosure standards of the applicable regulatory authorities or stock exchanges.

 

	
7.5  

	
Request to Disclose

 

37. Where a request is made for permission under this Article 7 to disclose confidential information or issue a press release or other public statement, a reply thereto will be made as soon as possible and in any event within two Business Days after receipt of such request, failing which the Party requesting will be entitled to disclose such information in the limited circumstances specified in such request as if such consent had been given.

 

ARTICLE 8

DISPUTE RESOLUTION

 

	
8.1  

	
Arbitration

 

38. Any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination or invalidating thereof, shall be settled by arbitration of a single arbitrator pursuant to the Commercial Arbitration Act (RSBC 1996 C. 55) and such arbitration shall be conducted under the rules of the British Columbia International Commercial Arbitration Centre in Vancouver, BC. The Parties waive any rights under any applicable law to appeal any arbitration proceedings or award. The place of arbitration shall be Vancouver, BC. The arbitrator shall be a person acceptable to both Parties and have expertise in the subject matter of the dispute.

 

  

-20-

  

 

ARTICLE 9

AREA OF INTEREST

 

	
9.1  

	
All Parties

 

	 	
(a)  

	
From the Effective Date until termination of this Agreement, EMC, EMC Australia and their Affiliates will not acquire any Mineral Rights (or an interest therein) or Other Rights (or an interest therein) located wholly or in part within the Area of Interest (the “Acquired Interest”) unless acquired in accordance with Section 9.1(b).

 

	 	
(b)  

	
If EMC, EMC Australia or any of their Affiliates acquires or proposes to acquire an Acquired Interest, within thirty (30) days after such acquisition or proposed acquisition, as the case may be, EMC shall notify the Optionee of such acquisition or proposed acquisition. Such notice shall describe in detail the Acquired Interest and the cost thereof. In addition to such notice, EMC shall make any and all information concerning the Acquired Interest available for inspection by the Optionee. Within thirty (30) days after receiving the notice and information, the Optionee shall notify the acquiring Party of its election to include such Acquired Interest in the Properties, and if it so elects then such Acquired Interest will be deemed an Additional Property and EMC will bear the costs of such acquisition and EMC and EMC Australia shall or shall cause their Affiliates to extend the Charge over such Additional Property. If the Optionee does not want to include such Acquired Interest as part of the Properties, then EMC, EMC Australia and any of their Affiliates will be free to acquire or otherwise deal with such Acquired Interest for their own account, and such Acquired Interest will be deemed not subject to this Agreement.

 

ARTICLE 10

NOTICE

 

	
10.1  

	
Notice

 

39. All notices and other communications under this Agreement will be in writing and may be delivered personally or transmitted by facsimile as follows:

 

40. To EMC or EMC Australia:

 

3. EMC Metals Corp.

Suite 501 – 1430 Greg Street

Sparks, Nevada, 89431

Attention: President

Email: georgeputnam@emcmetals.com

Facsimile: (775) 355-9506

 

41. With a copy to (which shall not constitute notice):

 

4. Morton Law LLP

Suite 1200 – 750 West Pender Street

Vancouver, British Columbia V6C 2T8

Attention: Edward L. Mayerhofer

Email: elm@mortonlaw.ca

Facsimile: (604) 681-9652

 

  

-21-

  

 

42. To the Optionee:

 

5. Scandium Investments LLC

6. c/o Shenassa & Company

7. 11620 Wilshire Blvd., Suite 460

8. Los Angeles, CA 90025

9. Attention: President

10. Email: Shenassa@Shenassa.com

11. Facsimile: (310) 914-4044

 

43. With a copy to (which shall not constitute notice):

 

12. Fasken Martineau DuMoulin LLP

2900 - 550 Burrard Street

Vancouver, British Columbia V6C 0A3

Attention: Iain Mant

Email: imant@fasken.com

Facsimile: (604) 632-4734

 

44. or to such addresses as each Party may from time to time specify by notice. Any notice will be deemed to have been given and received:

 

	 	
(a)  

	
if personally delivered, then on the day of personal service to the recipient Party, provided that if such date is a day other than a Business Day such notice will be deemed to have been given and received on the first Business Day following the date of personal service;

 

	 	
(b)  

	
if sent by email or facsimile transmission and successfully transmitted prior to 4:00 pm on a Business Day (local time for the recipient Party), then on that Business Day, and if transmitted after 4:00 pm on that day then on the first Business Day following the date of transmission.

 

  

-22-

  

 

ARTICLE 11

GENERAL

 

	
11.1  

	
Other Activities and Interests

 

45. This Agreement and the rights and obligations of the Parties hereunder are strictly limited to the Properties and the Area of Interest. Save as herein specifically set out, each Party will have the free and unrestricted right to enter into, conduct and benefit from business ventures of any kind whatsoever, whether or not competitive with the activities undertaken pursuant hereto, without disclosing such activities to the other Parties or inviting or allowing the other to participate including, without limitation, involving Mineral Rights.

 

	
11.2  

	
No Waiver

 

46. No consent or waiver expressed or implied by any Party in respect of any breach or default by the other in the performance by such other of its obligations hereunder will be deemed or construed to be a consent to, or a waiver of, any other breach or default.

 

	
11.3  

	
Further Assurances

 

47. The Parties will promptly execute or cause to be executed all documents, deeds, conveyances and other instruments of further assurance which may be reasonably necessary or advisable to carry out fully the intent of this Agreement or to record wherever appropriate the respective interests from time to time of the Parties in the Assets.

 

	
11.4  

	
Enurement

 

48. This Agreement will enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns.

 

	
11.5  

	
Special Remedies

 

49. Each of the Parties agrees that its failure to comply with the covenants and restrictions set out in Section 5.2 (Abandonment of Mineral Rights During Option Period), Article 6 (Transfers), Article 7 (Confidential Information), or Article 9 (Area of Interest) would constitute an injury and cause damage to the other Parties impossible to measure monetarily. Therefore, in the event of any such failure, the other Parties will, in addition and without prejudice to any other rights and remedies that it may have at law or in equity, be entitled to injunctive relief restraining, enjoining or specifically enforcing the provisions of Section 5.2, Article 6, Article 7 or Article 9, as the case may be, and any Party intending to breach or which breaches the provisions Section 5.2, Article 6, Article 7 or Article 9 hereby waives any defence it may have in law to such injunctive or equitable relief.

 

	
11.6  

	
Governing Law

 

50. This Agreement will be governed by and interpreted in accordance with the laws of British Columbia and the laws of Canada generally applicable therein.

 

	
11.7  

	
Time of the Essence

 

51. Time is of the essence in the performance of each obligation under this Agreement.

 

  

-23-

  

 

	
11.8  

	
Counterparts

 

52. This Agreement may be executed in any number of counterparts and all such counterparts, taken together, will be deemed to constitute one and the same instrument. This Agreement may be signed by facsimile.

 

	
11.9  

	
Costs

 

53. Each Party must bear its own legal and other costs arising out of the negotiation, preparation and execution of this Agreement.

 

IN WITNESS, this Agreement has been executed as of the date first above given.

 

 

	
Name: 

	 
	 	 
	
Title:

	 

 

  

-24-

  

 

Schedule A

Properties

 

Nyngan Property

 

The Nyngan scandium property in New South Wales, Australia, (including freehold land contained in Folio Identifiers 6/752879, 7/7528879, plus exploration tenements described as part of license numbers EL 6009 (limited to BOU d,e,j,k and f ) and all of license number EL 6096) and including all rights EMC or any of the Borrowers may have under the Settlement Deed between Jervois Mining Ltd. (“Jervois”) and EMC dated February 4, 2014 relating to the Nyngan Property (the “Nyngan Settlement Deed”).

 

Subject to the following royalties:

 

	 	
(a)  

	
a 1.5% NPI royalty granted pursuant to the royalty agreement dated June 4, 2002 and made between Jervois and Kanneteal Pty Ltd. and St Jude Exploration Pty Ltd. (formerly known as Plumbum Pty Ltd.), as amended;

 

	 	
(b)  

	
a 1.7% NSR royalty granted to Jervois pursuant to the Nyngan Settlement Deed as more particularly described therein;

 

	 	
(c)  

	
the 0.2% royalty granted to Kudu Partners, L.P. (“Kudu”) in connection with the loan and royalty agreement between EMC and Kudu dated July 26, 2013, as more particularly described in the royalty agreement between EMC and Kudu dated July 26, 2013;

 

	 	
(d)  

	
the 0.2% royalty granted to Barry Davies (“Barry”) in connection with the loan and royalty agreement between EMC and Barry dated July 26, 2013, as more particularly described in the royalty agreement between EMC and Barry dated July 26, 2013;

 

	 	
(e)  

	
the 0.2% royalty granted to Bradley Resources Company LLC (“Bradley”) in connection with the loan and royalty agreement between EMC and Bradley dated July 26, 2013, as more particularly described in the royalty agreement between EMC and Bradley dated July 26, 2013;

 

Honeybugle Property

 

The Honeybugle scandium property in New South Wales, Australia (including license no. EL 7977) and including rights under the letter agreement dated March 27, 2014 between John Thompson, Johan & Robyn Thompson Family Trust and EMC.

 

  

-1-

  

 

Schedule B

JV Terms

 

 

 

 

 

 

 

 

 

  

-2-

  

 

SCHEDULE B

JV TERMS

 

	
1.  

	
Governing Principles And Scope

 

Principles and Scope

 

The following terms and principles (the “Terms”) are intended to be incorporated in a shareholders agreement governing the affairs of the Company (“Shareholders’ Agreement”) based on the requirements of the applicable corporate law of Australia, together with other terms and principles as may be agreed. The Terms are not exhaustive.

 

Parties

 

The parties to the Shareholders’ Agreement will be the Shareholders and the Company.

 

	
2.  

	
Definitions

 

Unless the context otherwise requires, in the Terms:

 

	 	
(1)  

	
“Adjusted Proportionate Share” has the meaning given in clause 13.4(2);

 

	 	
(2)  

	
“Approved Budget” means a budget of estimated Company Expenditures approved by the Board relating to the carrying out of an Approved Program or otherwise to be incurred during the period to which an Approved Budget relates;

 

	 	
(3)  

	
“Approved Program” means a program of Operations approved by the Board;

 

	 	
(4)  

	
“Assets” means all property or assets of any nature or kind, whether real or personal, tangible or intangible, corporeal or incorporeal, and includes any other interest in that property or those assets;

 

	 	
(5)  

	
“Available Cash” means, in respect of any Year after the date of commencement of commercial production, all revenues from the sale of Mineral Product, from the sale or the disposition of any Assets of the Company, from insurance claims, from services provided by the Company to other persons and from investments and interest received as a return on investment of the Company funds on deposit, less all costs and any contingencies and reserves as may be approved by the Board from time to time;

 

	 	
(6)  

	
“Board” has the meaning given in clause 9.2(1);

 

  

-3-

  

 

	 	
(7)  

	
“Business Day” means any day, other than a Saturday, Sunday or a day on which banks in Adelaide, South Australia or Vancouver, British Columbia are generally not open for business;

 

	 	
(8)  

	
“Cash Call Notice” has the meaning given in clause 7.3;

 

	 	
(9)  

	
“Chair” means the chairperson of the Board.

 

	 	
(10)  

	
“Chargee” has the meaning given in clause 14.1;

 

	 	
(11)  

	
“Company” means EMC Metals Australia Pty Ltd.;

 

	 	
(12)  

	
“Company Activities” means all and any activities directed to the achievement of the purposes of the Company as set out in clause 3;

 

	 	
(13)  

	
“Company Expenditures” in addition to cash expenditures includes costs, obligations and liabilities incurred or properly accrued but not yet met;

 

	 	
(14)  

	
“Constitution” means the constating documents of the Company;

 

	 	
(15)  

	
“Current Proportionate Share” has the meaning given in clause 13.4(1);

 

	 	
(16)  

	
“Defaulting Shareholder” means a Shareholder which is in material breach of any of the provisions of the Shareholders’ Agreement;

 

	 	
(17)  

	
“Diluted Amount” has the meaning given in clause 13.4(3);

 

	 	
(18)  

	
“Effective Date” means the date on which each Shareholder executes the Shareholders’ Agreement;

 

	 	
(19)  

	
“Electing Shareholder” has the meaning given in clause 15.4(2)(a);

 

	 	
(20)  

	
“EMC” means EMC Metals Corp.

 

	 	
(21)  

	
“EMC Shares” means common shares in the capital of EMC;

 

	 	
(22)  

	
“Equity Conversion Portion” has the meaning given in clause 6.2(2);

 

  

-4-

  

 

	 	
(23)  

	
“Equity Option” has the meaning given in clause 6.2(3);

 

	 	
(24)  

	
“Feasibility Study” means a feasibility study that complies with the definition of such term as given in CIM Definition Standards for Mineral Resources and Mineral Reserves adopted by CIM Council on May 10, 2014, as referred to in National Instrument 43-101, which is specified to be done to a standard of accuracy of +/- 20% or better on capital and operating cost estimates;

 

	 	
(25)  

	
“Governmental Authority” means any foreign, domestic, national, federal, provincial, territorial, state, regional, municipal or local government or authority, quasi government authority, fiscal or judicial body, government or self-regulatory organization, commission, board, tribunal, organization, or any regulatory, administrative or other agency, or any political or other subdivision, department, or branch of any of the foregoing;

 

	 	
(26)  

	
“Interest” means all or part of the Proportionate Share of a Shareholder, as, in the relevant circumstances, identified by such Shareholder.

 

	 	
(27)  

	
“Mineral Product” means any form or compound whatsoever containing precious, base or industrial minerals, which may lawfully be explored for and mined from the Properties and sold;

 

	 	
(28)  

	
“Non charging Shareholder” has the meaning given in clause 14.1;

 

	 	
(29)  

	
“Non-Operator” means Scandium when EMC or its designate is Operator, and EMC when Scandium or its designate is Operator;

 

	 	
(30)  

	
“Notice” has the meaning given in clause 17;

 

	 	
(31)  

	
“Other Shareholder” has the meaning given in clause 15.3;

 

	 	
(32)  

	
“Operations” means all prospecting, exploration, development, construction, mining, milling, processing, treatment operations and related operations conducted by or on behalf of the Company with respect to the Properties, including the preparation of any preliminary assessment, pre-feasibility study or feasibility study and any other reports or supplementary information;

 

	 	
(33)  

	
“Operator” means initially EMC or its designate affiliate, unless or until the Board replaces EMC or such designate or EMC or its designate ceases to be Operator in accordance with clause 11.1;

 

	 	
(34)  

	
“Operator Claim” has the meaning given in clause 6.1;

 

	 	
(35)  

	
“Participatory Interest Date” has the meaning given in clause 6.1;

 

	 	
(36)  

	
“Piggy Back Notice” has the meaning given in clause 15.4(1)(c);

 

  

-5-

  

 

	 	
(37)  

	
“Project” has the meaning given in clause 3(1);

 

	 	
(38)  

	
“Project Area” means specified mineral properties of the Company or any portions thereof;

 

	 	
(39)  

	
“Properties” or “Property” has the meaning given in the Option Agreement;

 

	 	
(40)  

	
“Proportionate Share” has the meaning set out in clause 4.1, as adjusted from time to time in accordance with the Shareholders’ Agreement;

 

	 	
(41)  

	
“Security” has the meaning given in clause 14.1;

 

	 	
(42)  

	
“Selling Shareholder” means a Shareholder who desires or is compelled to sell, transfer, assign or dispose of the whole or any part of its Proportionate Share;

 

	 	
(43)  

	
“Shareholder” means a party with a Proportionate Share;

 

	 	
(44)  

	
“Shareholders’ Agreement” has the meaning given in clause 1.1;

 

	 	
(45)  

	
“Shareholders Meeting” means a meeting of the Shareholders duly convened pursuant to clause 10.1.

 

	 	
(46)  

	
“Shares” means common shares in the capital of the Company;

 

	 	
(47)

	
“Supermajority Decision” means a decision made by the Board that requires the approval by a vote of at 100% of the voting Board members and a decision made by the Shareholders that requires the approval by a vote of 100% of the voting Shareholders.

 

	 	
(48) 

	
“Terms” has the meaning given in clause 1.1;

 

	 	
(49)  

	
“Third Party Offer” has the meaning given in clause 15.3;

 

	 	
(50)  

	
“Third Party Offeror” has the meaning given in clause 15.3;

 

  

-6-

  

 

	 	
(51)  

	
“Scandium” means Scandium Investments LLC;

 

	 	
(52)  

	
“Year” means each period of 12 successive months, with the first such period commencing on the Effective Date and each successive period commencing on an anniversary of the Effective Date and, for the avoidance of doubt, the final Year will be the period commencing on the anniversary of the Effective Date occurring immediately prior to the earlier of the date of termination or expiry of the Shareholders’ Agreement; and

 

	 	
(53)  

	
a reference to a clause is to a clause of the Terms.

 

	
3.  

	
Purpose of the Company

 

	 	
(1)  

	
The purpose of the Company will be only:

 

	
  

	
to carry out exploration of the Properties for Mineral Products;

 

	
  

	
if results justify so doing, to make technical, commercial and economic pre-feasibility and feasibility studies to establish whether or not a mining operation is economically viable in or on the Properties;

 

	
  

	
if any mining operation is considered technically, commercially and economically viable, to develop one or more mines and to commence and continue production of saleable Mineral Product on a commercial scale; and

 

	
  

	
any other activity in connection with or incidental to any of the foregoing including the beneficiation, processing or refining of Mineral Product.

 

(collectively, the “Project”)

 

	 	
(2)  

	
The Board shall cause the Company to be operated consistently with the Approved Programs and Approved Budgets and in a manner which permits the provisions of the Shareholders’ Agreement to be effective.

 

  

-7-

  

 

	
4.  

	
Proportionate Share and Deemed Company Expenditures

 

Initial Proportionate Share

 

Upon the execution of the Shareholders’ Agreement, Scandium and EMC (or their designated Affiliates), will have the following initial equity ownership interest (expressed as a percentage) in the Company (“Proportionate Share”):

 

	 	
(1)  

	
Scandium (or a designated affiliate) – 20%; and

 

	 	
(2)

	
EMC (or a designated affiliate) – 80%.

 

Deemed Company Expenditures

 

The deemed Company Expenditures of the Shareholders on the Participatory Interest Date will be:

 

	 	
(3)  

	
Scandium – US$2,500,000; and

 

	 	
(4)  

	
EMC – US$10,000,000.

 

	
5.  

	
Rights and Liabilities of Shareholders

 

As between the Shareholders the rights, duties, obligations and liabilities arising out of the Shareholders’ Agreement will be several and not joint, it being the express purpose and intention of the Shareholders that all liabilities and obligations to third parties arising out of the Shareholders’ Agreement will be borne by the Shareholders in proportion to their respective Proportionate Share.

 

	
6.  

	
Carried interest and participatory interest option

 

Carried Interest

 

Prior to the date (the “Participatory Interest Date”) that is the later of:

 

	 	
(1)

	
the date on which EMC completes, delivers to Scandium and files on SEDAR a Feasibility Study in respect of one or more Property; and

 

	 	
(2) 

	
the date on which a mining license is issued in respect of one or more Property for which a Feasibility Study was filed pursuant to clause 6.1(1) by the appropriate Governmental Authority of New South Wales, Australia or such other jurisdiction having authority to grant mining licenses for the Property or Properties;

 

Scandium shall be carried in its Proportionate Share and shall not be required to contribute any Company Expenditures to the Company and all such Company Expenditures for the period from the Effective Date to the Participatory Interest Date shall be borne by EMC without any obligation arising on Scandium to reimburse EMC for such Company Expenditures during such period.

 

  

-8-

  

 

Option to Convert into EMC Common Shares

 

	 	
(3)  

	
Upon the occurrence of the Participatory Interest Date, the Company shall give written Notice to Scandium specifying the Participatory Interest Date.

 

	 	
(4)  

	
Within 30 Business Days of receipt of the notice given by the Company under clause 6.2(1), Scandium may give a written Notice to the Company and EMC of its election to sell all or a portion of its Proportionate Share in the Company (the “Equity Conversion Portion”) to EMC for consideration consisting of that number of EMC Shares determined in accordance with clause 6.3, subject to receipt of applicable regulatory, stock exchange and shareholder approvals as may be required.

 

	 	
(5)  

	
If the option (the “Equity Option”) granted by clause 6.2(2) is not exercised within 30 Business Days or is exercised only with respect to a portion of Scandium’s Proportionate Share, then Scandium shall be deemed to have elected to convert its carried Proportionate Share, or that portion of its carried Proportionate Share not so exercised, into a participatory interest on the terms set out below.

 

	 	
(6)  

	
If the Equity Option is exercised by Scandium in respect of its entire Proportionate Share, the Shareholders’ Agreement shall terminate.

 

Valuation of Proportionate Interest

 

	 	
(7)

	
If the Equity Option is exercised by Scandium, EMC shall issue to Scandium the number of EMC Shares calculated by:

 

	
N

	
=

	
V

	
E

 

where:

 

‘N’ is the Number of EMC Shares issued to Scandium,

 

‘V’ is the fair market value of the Equity Conversion Portion to be acquired by EMC pursuant to the Equity Option, and

 

‘E’ is the market value of the EMC Shares (as defined in the TSX Company Manual) on the TSX or the principal market on which the EMC Shares are traded as at the date of Scandium’s exercise of the 

Equity Option.

 

  

-9-

  

 

	 	
(8) 

	
The fair market value of the Equity Conversion Portion shall be as agreed to by the Shareholders acting reasonably, provided that if the Shareholders are unable to agree on the fair market value of such the Equity Conversion Portion within 10 Business Days of the exercise by Scandium of the Equity Conversion Portion, parties will engage an independent valuator to assess the fair market value of the Equity Conversion Portion.

 

	
7.  

	
Contribution to Company Expenditures

 

Obligation to Contribute

 

Subject to clauses 6.1, 6.2 and 13.1, each Shareholder must contribute all Company Expenditures incurred:

 

	 	
(1)  

	
in conducting Approved Program;

 

	 	
(2)  

	
as contemplated by Approved Budgets; or

 

	 	
(3)  

	
in a manner provided for in the Shareholders’ Agreement

 

in proportion to its Proportionate Share, on each date on which such contribution is due to be made.

 

Provision of Security

 

To the extent that security (whether in the form of cash, negotiable securities, letters of guarantee, irrevocable letters of credit or otherwise) is required to be posted with or in favour of any Governmental Authority in connection with an Approved Program, after the Participatory Interest Date, each of the Shareholders must lodge security, in such form as may be acceptable to the particular Governmental Authority, in an amount equal to its Proportionate Share at the time and to the total amount of security then required by the Governmental Authority; and if the security will expire at a particular time a Shareholder must replace or renew its security before that time if required by the Governmental Authority.

 

Timing of Contributions

 

If contributions to Company Expenditures are required to be made by a Shareholder under the Shareholders’ Agreement, then the Operator must issue a Notice to each Shareholder (“Cash Call Notice”) for each calendar quarter. Any Cash Call Notice must be issued not more than 40 Business Days but not less than 30 Business Days in advance of the calendar quarter to which the Cash Call Notice relates.

 

  

-10-

  

 

Payment of Contributions

 

All contributions to Company Expenditures required to be made by a Shareholder under the Shareholders’ Agreement must be made by that Shareholder paying, to the Operator, the amount stated in the Cash Call Notice as being the amount due to be contributed by that Shareholder:

 

	 	
(4)  

	
on or before 20 Business Days before the first day of the calendar quarter to which the Cash Call Notice relates; and

 

	 	
(5)  

	
to a bank account opened by the Company with a financial institution approved by the Board.

 

	
8.  

	
Distributions of Advances, Cash or Mineral Product

 

Distribution of Advances and Cash Flow

 

The Shareholders, either in general meeting or by a unanimous resolution must cause the Company, not less frequently than quarterly, to distribute its Available Cash:

 

	 	
(1)  

	
firstly, in repayment to the Shareholders, pro rata in accordance with all loans received by the Company from the Shareholders; and

 

	 	
(2)  

	
secondly, subject to applicable law, by way of dividends or other distributions to the Shareholders, pro rata in accordance with their Proportionate Shares.

 

	
9.  

	
Administration of the Company

 

Company Constitution

 

Except to the extent otherwise provided in the Shareholders’ Agreement or by law, the conduct of the business of the Company will be governed in accordance with its Constitution which must, upon the advice of the Company's legal counsel (which counsel will be initially nominated by EMC and thereafter may be changed by the Shareholder who at the relevant time has the largest Proportionate Share), be amended as necessary to be consistent with the Terms. The terms of the Shareholders’ Agreement will take precedence over the Constitution, except where the same conflicts with applicable law.

 

  

-11-

  

 

Board

 

	 	
(1)

	
The affairs of the Company will be governed by the board of directors of the Company (“Board”).

 

	 	
(2)

	
The Board shall have 4 members.

 

	 	
(3)

	
Subject to clause 9.2(6):

 

	
  

	
Scandium must nominate 2 of the members for the time being of the Board;

 

	
  

	
EMC must nominate 2 of the members for the time being of the Board;

 

	
  

	
subject to clause 9.2(6), a quorum at a meeting of the Board must comprise 2 members with one of those members representing each Shareholder; and

 

	 	
(4)  

	
Each Shareholder agrees to vote its Shares so as to elect as members of the Board those persons so nominated pursuant to clause 9.2(3).

 

	 	
(5)  

	
The Shareholders must cause the Company, if necessary and if permitted by applicable law, to amend its Constitution to provide for the following:

 

	
  

	
the discretion of the Board to create committees to advise the Board on certain matters and delegate certain powers of the Board to these committees; and

 

	
  

	
changes to the Board to reflect the provisions of clause 9.2(6).

 

	 	
(6)  

	
If, through dilution pursuant to clause 13, a Shareholders’ Proportionate Share is less than 20% but is equal to or exceeds 5%, then such Shareholder will be entitled to nominate 1 member to the Board and the other Shareholder will be entitled to nominate 3 members to the Board; and

 

Chair and Officers

 

	 	
(7)  

	
The Board must, on an annual basis immediately following the annual general meeting of the Company, by resolution, appoint the:

 

	
  

	
Chair; and

 

	
  

	
officers of the Company.

 

  

-12-

  

 

	 	
(8)  

	
The Chair must be a Board member.

 

	 	
(9)  

	
If one Shareholder has a larger Proportionate Share than the other Shareholder, then the Shareholder having the larger Proportionate Share will be entitled to have the Board appoint its nominee as the Chair.

 

	 	
(10)  

	
If no Shareholder has a larger Proportionate Share than the other Shareholder, then the Chair shall rotate annually between the nominees of the Shareholders, with the nominee of EMC being appointed as the initial Chair.

 

Decisions by Board

 

	 	
(11)  

	
Decisions of the Board expressed by a resolution which must be passed by a majority vote, except for Unanimous Decisions.

 

	 	
(12)  

	
In the event of a tie vote on a resolution of the Board the following will apply:

 

	
  

	
no Board member (including the Chair) will have a second tie-breaking vote; and

 

	
  

	
the Board will appoint an independent expert by majority vote to make a recommendation to the Board as to how to vote on the resolution that is the subject of the tie vote, and the Board will thereafter vote in accordance with that recommendation, and each Shareholder will take such action as is necessary to ensure representatives of such Shareholder that are members of the Board (or any replacement thereof) vote in accordance with the recommendation. If a majority of the members of the Board are unable to agree on a choice of independent expert, each Shareholder will within three (3) days, each provide a list of three (3) independent experts, and they shall each alternately strike (with the person striking first being randomly drawn) names form the combined list until only one (1) name remains; the remaining name shall be the independent expert for the purposes of this paragraph. For the purposes of the foregoing, an "independent expert" shall mean a person with appropriate professional qualifications and experience on the subject matter of the resolution that is the subject of the tie vote.

 

Unanimous Board Decisions

 

The plurality of votes required for the Company to pass a resolution at a Director’s Meeting in respect of any of the matters listed below is 100% of the votes cast on the resolution:

 

	 	
(13)  

	
an expansion program that would adversely impact on existing financing arrangements of the Company or a party;

 

	 	
(14)  

	
the institution, defence, compromise or settlement of any court or arbitral proceedings involving the Company involving an amount in excess of $500,000;

 

  

-13-

  

 

	 	
(15)  

	
the compromise or settlement of any insurance claim involving an amount in excess of $500,000;

 

	 	
(16)  

	
except as expressly provided otherwise in the Shareholders’ Agreement, any decision to commence or prepare a Feasibility Study;

 

	 	
(17)  

	
any decision to commence a mining program;

 

	 	
(18)  

	
the approval of any development plan or any decision to develop a mining operation on the Project Area and bring the Project Area or any part of it into commercial production;

 

	 	
(19)  

	
any decision to suspend or defer Operations or place any Operation on a care and maintenance basis or to commence or recommence operations under a mining program;

 

	 	
(20)  

	
entry into or the termination by the Company of any contract or subcontract relating to the Company involving a commitment to expenditure, whether capital or operating, in excess of $250,000;

 

	 	
(21)  

	
irrespective of whether expressly contemplated in an Approved Program or Approved Budget, approval of the sale or disposal of any of the Properties or any interest in the Properties having a market value in excess of $250,000;

 

	 	
(22)  

	
irrespective of whether expressly contemplated in an Approved Program or Approved Budget, approval of any purchase of any item of property (whether real or personal, tangible or intangible), having a value in excess of $250,000;

 

	 	
(23)  

	
any decision to approve or pay an Operator’s fee for management of the Operations;

 

	 	
(24)  

	
the incurring of indebtedness by the Company or the creation of an encumbrance in respect of its Assets to secure such indebtedness, except for the incurring of indebtedness and the creation of an encumbrance in respect of the financing or refinancing of a development program or mining program;

 

	 	
(25)  

	
the entry into or the termination by the Company of any offtake agreement or any other agreement relating to the sale of a royalty or other ongoing interest in any Mineral Product from the Properties; and

 

	 	
(26)  

	
if applicable, the review and approval of annual resource and reserve estimates prepared by the Operator, as appropriate for the purpose of National Instrument 43-101.

 

	
10.  

	
SHAREHOLDERS Meetings

 

  

-14-

  

 

Calling of Shareholders Meetings

 

	 	
(1)  

	
A Shareholders Meeting may be called by:

 

	
  

	
the Board; or

 

	
  

	
any Shareholder.

 

	 	
(2)  

	
The Company must give Notice of the date, time and location of any Shareholders Meeting to each Shareholder and publish the Notice, if required by the Constitution.

 

	 	
(3)  

	
The Notice prescribed in clause 10.1(2) must be delivered to each Shareholder (and published, if so required) at least 5 Business Days prior to the date of the proposed Shareholders Meeting.

 

	 	
(4)  

	
A Shareholders Meeting will not necessary if all of the Shareholders agree, in writing, to any proposed resolution.

 

Supermajority Shareholder Decisions

 

The plurality of votes required for the Company to pass a resolution at a Shareholders Meeting called in respect of any of the matters listed below is 100% of the votes cast on the resolution:

 

	 	
(5)  

	
issuing additional Shares (except pursuant to clause 13.7);

 

	 	
(6)  

	
a change in the number of Board members;

 

	 	
(7)  

	
the giving jointly by the Shareholders of any guarantee (whether direct or indirect) to secure the obligation of any person arising under the Shareholders’ Agreement or otherwise in relation to the Properties,

 

	 	
(8)  

	
the consolidation, merger or amalgamation with any other corporation by the Company;

 

	 	
(9)  

	
an alteration, amendment or other modification of the authorized capital of the Company unless specifically otherwise permitted in the Shareholders’ Agreement;

 

	 	
(10)  

	
any split or consolidation of any authorized capital of the Company whether issued or unissued;

 

	 	
(11)  

	
amending the Constitution of the Company, or limiting the power of the Board;

 

	 	
(12)  

	
the winding up of the Company or otherwise permanently terminating or ceasing Operations; and

 

	 	
(13)  

	
the undertaking of any business activity unrelated or not reasonably ancillary to the Company Activities.

 

  

-15-

  

 

	
11.  

	
Operator

 

Initial Operator and Removal of Operator

 

Unless the Shareholders unanimously agree otherwise, EMC will be initial Operator and will remain so unless:

 

	 	
(1)  

	
pursuant to clause 13, the Operator’s Proportionate Share of the Company has diluted to less than 50% and the Company elects to replace the Operator;

 

	 	
(2)  

	
the Operator fails to submit an annual program and budget as contemplated in clause 12.1 and the Company elects to replace the Operator;

 

	 	
(3)  

	
the Operator resigns;

 

	 	
(4)  

	
the Operator is removed for default; or

 

	 	
(5)  

	
the Operator is subject to an Insolvency Event.

 

Operator Obligations

 

The Operator must:

 

	 	
(6)  

	
conduct the Operations in accordance with Approved Programs and Approved Budgets;

 

	 	
(7)  

	
pay all Company Expenditures incurred promptly as and when due;

 

	 	
(8)  

	
conduct all Operations in a good workmanlike manner and in manner consistent with good exploration, engineering and mining practice and in compliance with NI 43-101 standards and all applicable laws, rules, orders and regulations, including without limitation all applicable anti-corruption laws such as the Canadian Corruption of Foreign Public Official Act, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the Criminal Code of Canada, the U.K. Bribery Act, and the U.S. Foreign Corrupt Practices Act;

 

	 	
(9)  

	
except as expressly contemplated by the Shareholders’ Agreement or for taxes not yet due, other inchoate liens and liens contested in good faith by the Operator, keep the Properties in good standing and free and clear of all encumbrances and to proceed with all diligence to contest and discharge any such encumbrance that is filed;

 

  

-16-

  

 

	 	
(10)  

	
perform such assessment work and make such filings as are required by Governmental Authorities or make payments in lieu thereof and pay such rentals, taxes or other payments and do all such other things as may be necessary to maintain the Properties and related assets in good standing including, without limitation, staking and re-staking mineral rights, and, with the approval of the Board, applying for additional mineral rights and other rights;

 

	 	
(11)  

	
permit Board members, officers, employees and designated consultants and agents of the Non-Operator:

 

	
  

	
access to the Properties at all reasonable times; and

 

	
  

	
access to all records of the Operator pertaining to the Operations and the Properties;

 

	 	
(12)  

	
permit the Non-Operator at its sole risk and expense and upon being provided with reasonable notice, to inspect, at all reasonable times, all geological, geophysical and geochemical information, maps, diagrams, documents, reports, records and databases in the possession or under the control of the Operator and related to the Properties, along with any samples or drill core obtained therefrom, and access at all reasonable times, at its own sole risk and expense, to the Properties;

 

	 	
(13)  

	
provide the Non-Operator with copies of any and all correspondence with Governmental Authorities and third parties with respect to the Properties and any and all documents submitted to or filed with Governmental Authorities to record assessment work on the Properties;

 

	 	
(14)  

	
maintain true and correct books, accounts and records of Company Expenditures, in accordance with International Financial Reporting Standards, consistently applied;

 

	 	
(15)  

	
conduct all appropriate consultation, in respect to the Project, with local community groups including appropriate aboriginal groups, if any;

 

	 	
(16)  

	
conduct all Operations in accordance with responsible health and safety guidelines and provide responsible environmental management to, and sustainable development of, the Project within the rules and guidelines operative of the appropriate Governmental Authorities having jurisdiction there over and in accordance with community policies and standards;

 

	 	
(17)  

	
provide the Non-Operator with copies of all of the environmental, heritage, and archaeology studies, and monitoring reports prepared for Governmental Authorities and brief the Non-Operator in such regard on a regular basis;

 

	 	
(18)  

	
transfer all data, documents, reports, records, accounts, samples and assays in its possession or control, and relating to the Operations, the Project or the Properties, to an incoming Operator;

 

	 	
(19)  

	
permit and provide the Non-Operator and its respective representatives access as and when required to all scientific and technical data and information in its possession or control relating to the Properties, copies of any scoping, pre-feasibility, feasibility or similar studies, results of Operations conducted on or in relation thereto and all planned Operations thereon as may be required by the Non-Operator in order to assist the Non-Operator to fulfill its regulatory reporting obligations;

 

  

-17-

  

 

	 	
(20)  

	
deliver to the Non-Operator regular progress reports during periods of active Operations and promptly notify the Non-Operator of any material exploration results or adverse events;

 

	 	
(21)  

	
deliver to the Non-Operator annually, within 40 Business Days after the end of each Year, a report on the work conducted on or with respect to the Properties for the previous Year summarizing any significant technical data learned or obtained and providing a breakdown of Company Expenditures incurred in carrying out Operations in that Year; and

 

	 	
(22)  

	
place and maintain, with a reputable insurer or insurers, such insurance as the Operator in its discretion deems advisable together and, upon the written request of the Non-Operator, provide it with evidence of such insurance.

 

Prohibitions

 

The Operator must not, except with the prior approval of the Board or except in an emergency or as necessary to protect property and persons:

 

	 	
(23)  

	
knowingly enter into any contract or arrangement in connection with the Company Activities with a Shareholder or an affiliate of a Shareholder;

 

	 	
(24)  

	
except where sufficient details are provided in an Approved Program or Approved Budget enter into any contract or subcontract involving a commitment to Company Expenditures, whether capital or operating, in excess of $500,000;

 

	 	
(25)  

	
except where expressly contemplated in an Approved Program or Approved Budget, sell or otherwise dispose of any Asset of the Company having a market value exceeding $500,000;

 

	 	
(26)  

	
institute, defend, compromise or settle any court or arbitral proceedings or insurance claim involving an amount in excess of $500,000; or

 

	 	
(27)  

	
except as necessary to comply with law or the requirements of any Governmental Authority having jurisdiction, suspend or curtail any Operations.

 

Indemnification of Operator

 

	 	
(28)  

	
Each Shareholder must indemnify the Operator from and against any liabilities (“Operator Claim”) suffered, sustained or incurred by the Operator which arises out of or as a consequence of the performance by the Operator or its officers, employees or agents of the Operator’s obligations under the Shareholders’ Agreement.

 

	 	
(29) 

	
If the Shareholders are required to indemnify the Operator under clause 11.4(1) and the Operator Claim in respect of which indemnification is to be given is one that arises out of or was suffered, sustained or incurred as a consequence of the performance by a Shareholder of the Operator's obligations under the Agreement while acting as Operator, then the liability of the other Shareholder to indemnify the Operator under clause 11.4(1) in respect of the Operator Claim will be equal to its Proportionate Share (expressed as a percentage) at the time the Operator Claim was incurred.

 

  

-18-

  

 

Apportionment of Liability

 

A Shareholder’s liability to indemnify the Operator (whether under clause 11.4(1) or otherwise) will be reduced proportionally to the extent that any negligent act or omission of the Operator or its officers, employees or agents has caused or contributed to any Operator Claim.

 

Operator’s Fee

 

The Operator may not charge a fee for management of the Operations, unless the Board approves the fee by a Supermajority Decision.

 

	
12.  

	
Programs and Budgets

 

Annual Programs and Budgets

 

	 	
(1)  

	
The Operator must submit annual programs and budgets for Operations, including quarterly Company Expenditures projections, recommended by the Operator for Board approval.

 

	 	
(2)  

	
If the Board declines to approve an annual program and budget, as submitted by the Operator, then the Non-Operator may submit such an annual program and budget for Board approval.

 

	 	
(3)  

	
If the:

 

	 	
  

	
Non-Operator fails to submit an annual program and budget as contemplated in clause 12.1(2); or

 

	
  

	
Board declines to approve an annual program and budget, as submitted by the Non-Operator,

 

then the Board will be deemed to have approved a program and budget for the continuation of the Operations at the level of the last Approved Program and last Approved Budget, excluding any capital expenditure.

 

Operator’s Authority

 

The approval of a program and budget by the Board will be authority for the Operator to undertake the Operations specified in and incidental to such Approved Program and to incur on behalf of the Company the Company Expenditures estimated in and incidental to such Approved Budget, but the Operator must not incur Company Expenditures in the performance of the Operations specified in an Approved Program and an Approved Budget in an amount which exceeds by more than 10% the total of the Company Expenditures estimated within an Approved Program and an Approved Budget except:

 

	 	
(4)  

	
in an emergency, as considered by the Operator necessary to maintain and preserve the Assets of the Company or to preserve or protect life, limb, property or the environment;

 

	 	
(5)  

	
to effect and maintain required insurances;

 

  

-19-

  

 

	 	
(6)  

	
in accordance with a prior approval obtained from the Board; or

 

	 	
(7)  

	
as necessary to comply with any law or requirement of a Governmental Authority having jurisdiction where reference to the Board is impracticable and until such reference becomes practical.

 

	
13.  

	
Dilution

 

Option to Elect Dilution

 

A Shareholder may, by Notice to the other Shareholder and the Operator given within 10 Business Days after the approval by the Board of an Approved Program and an Approved Budget, elect not to contribute to the Company Expenditures to be incurred during the period to which that Approved Budget relates.

 

Consequence of Election

 

If a Shareholder gives Notice as permitted by clause 13.1, then:

 

	 	
(1)  

	
it will not be entitled or obliged to contribute to Company Expenditures incurred from the commencement of the period covered by the Approved Budget in relation to which the Notice was given until it becomes entitled and obliged to recommence contributing to Company Expenditures; and

 

	 	
(2)  

	
during the period for which a Shareholder is not entitled nor obliged to so contribute its Proportionate Share will dilute.

 

Calculation of Proportionate Shares

 

	 	
(3)  

	
During any period in which the Proportionate Share of a Shareholder is diluting Proportionate Shares of the Shareholders will be calculated as follows:

	
PS

	
=

	
100

	
x

	
PTE

	
TE

 

where:

 

  

-20-

  

 

‘PS’ is the Proportionate Share of a Shareholder

 

‘PTE’ is that Shareholder’s Total Company Expenditures

 

‘TE’ is Total Company Expenditures

 

	 	
(4)  

	
For the purposes of this clause 13.3:

 

	
  

	
“Shareholder’s Acquired Company Expenditures” means, in relation to a Shareholder which has acquired the whole or any part of the Proportionate Share of another Shareholder, an amount which bears to that other Shareholder’s Total Company Expenditures immediately prior to such acquisition taking place, the same proportion as the acquired Proportionate Share bears to the Proportionate Share of that other Shareholder immediately prior to such acquisition taking place;

 

	
  

	
“Shareholder’s Assigned Company Expenditures” means, in relation to a Shareholder which has assigned part of its Proportionate Share, an amount which bears to that Shareholder’s Total Company Expenditures immediately prior to such assignment taking place, the same proportion as the assigned Proportionate Share bears to the Proportionate Share of that Shareholder immediately prior to such assignment taking place;

 

	
  

	
“Shareholder’s Contribution Company Expenditures” in relation to each Shareholder means the total of all contributions to Company Expenditures made by that Shareholder in accordance with clause 7.1;

 

	
  

	
“Shareholder’s Deemed Company Expenditures” in relation to each Shareholder means the amount specified in clause 4.1(2);

 

	
  

	
“Shareholder’s Total Company Expenditures” in relation to each Shareholder means the total of that Shareholder’s Deemed Company Expenditures plus that Shareholder’s Contribution Company Expenditures plus that Shareholder’s Acquired Company Expenditures less that Shareholder’s Assigned Company Expenditures;

 

	
  

	
“Total Contribution Company Expenditures” means the total of all contributions to Company Expenditures made by all Shareholders in accordance with clause 7.1;

 

	
  

	
“Total Deemed Company Expenditures” means an amount equal to the total amount of deemed Company Expenditures specified in clause 4.1(2); and

 

	
  

	
“Total Company Expenditures” means the sum of Total Deemed Company Expenditures plus Total Contribution Company Expenditures.

 

  

-21-

  

 

Operator to Make Calculations

 

If a Shareholder’s Proportionate Share is diluting in accordance with clause 13.2, then calculations of Proportionate Shares must be made in each calendar quarter by the Operator at the same time as it prepares a Cash Call Notice in respect of a calendar quarter (and such a determination must also be made immediately upon a Shareholder, whose Proportionate Share has been diluting, again becoming entitled and obliged to contribute to Company Expenditures). The Operator must, after having made such a calculation, notify (by incorporating the following information within the Cash Call Notice referred to above) the Shareholders of:

 

	 	
(5)  

	
their respective Proportionate Shares on the date immediately prior to the date on which a Shareholder’s Proportionate commenced diluting in accordance with clause 13.2 or as recorded in any Notice previously given by the Operator under this clause 13.4 in respect of that dilution (“Current Proportionate Share”), as applicable;

 

	 	
(6)  

	
their respective Proportionate Shares as at the expiration of the relevant calendar quarter or other applicable period (“Adjusted Proportionate Share”) and of the date on which the calculation of the Proportionate Share was made; and

 

	 	
(7)  

	
the amount (expressed as a percentage) by which a diluting Shareholder’s Proportionate Share has been diluted within the relevant calendar quarter or other applicable period (“Diluted Amount”), which for certainty is the product obtained by subtracting from the diluting Shareholder’s Current Proportionate Share the diluting Shareholder’s Adjusted Proportionate Share.

 

Failure to pay Contributions to Company Expenditures

 

If a Shareholder fails to contribute to Company Expenditures after electing to contribute, then:

 

	 	
(8)  

	
such Shareholder will be in default under the Shareholders’ Agreement;

 

	 	
(9)  

	
the Proportionate Share of such Shareholder’s will dilute, within the relevant calendar quarter or other applicable period, by an amount which is twice the applicable Diluted Amount; and

 

	 	
(10)  

	
the consequences detailed in 13.2(1) and (2) shall apply to such Shareholder.

 

No Subsequent Increase

 

Once the Proportionate Share of a Shareholder has decreased by operation of this clause 13 it will not be entitled to increase its Proportionate Share except as may arise by subsequent operation of this clause 13 in relation to another Shareholder or by subsequent operation of any other provision of the Shareholders’ Agreement the operation of which results in such an increase in Proportionate Share occurring.

 

  

-22-

  

 

Issuance of Shares to Effect Dilution

 

A Shareholder whose Proportionate Share dilutes in accordance with this clause 13 must, as soon as is practicable after its Proportionate Share has diluted, do all acts and things and execute all documents necessary so as to facilitate the issuance by the Company to the non-diluting Shareholder of such number of Shares so as to effect to the required percentage reduction in the Proportionate Share of the diluting Shareholder.

 

Diluting Shareholder to Bear Costs of Dilution

 

A Shareholder whose Proportionate Share dilutes in accordance with this clause 13 must bear all costs and expenses (including any tax, duty or other charge) associated with the dilution of its Proportionate Share including all costs in relation to its compliance with clause 13.7.

 

Surrender for Royalty

 

If the Proportionate Share of any Shareholder dilutes in accordance with this clause 13 is diluted to less than 5%, then such Shareholder shall surrender its Proportionate Share to the other Shareholder in exchange for a 2% net smelter returns royalty on all Mineral Product produced at the Properties, under a royalty agreement to be entered into on usual commercial terms.

 

	
14.  

	
Financing

 

Charging

 

Each Shareholder may charge, mortgage, assign by way of security or otherwise encumber its Proportionate Share if and only if the chargee, mortgagee, assignee or encumbrance (“Chargee”) agrees in a legally enforceable manner with the other Shareholder (“Non charging Shareholder”) that the rights and interests of the Non-charging Shareholder under the Shareholders’ Agreement or in the Company will not be subject to or prejudiced by the charge, mortgage, assignment or other encumbrance (“Security”) and that the Chargee and any liquidator, receiver, receiver and manager, assignee or transferee taking an interest in or relating to the Proportionate Share of the Shareholder granting the Security will be bound by the terms of the Shareholders’ Agreement and will take subject to the rights and interests of the Non-charging Shareholder under the Shareholders’ Agreement.

 

No other Encumbrances

 

Except as specified in clause 14.1 or expressly contemplated by the Shareholders’ Agreement, no Shareholder may give or create any encumbrance in or over its Proportionate Share or the Assets of the Company.

 

  

-23-

  

 

	
15.  

	
Transfers and Assignments

 

Assignment to Affiliates

 

Each Shareholder may at any time assign part or all of its Proportionate Share to an affiliate of that Shareholder provided:

 

	 	
(1)  

	
the affiliate complies with clause 15.5;

 

	 	
(2)  

	
the assigning Shareholder and the assignee affiliate agree in writing with the remaining Shareholder that:

 

	
  

	
the Assignor remains liable for its obligations under the Shareholders’ Agreement despite such assignment; and

 

	
  

	
if the assignee ceases to be an affiliate of the assigning Shareholder, then it must immediately re-transfer its Proportionate Share to the assigning Shareholder.

 

Assignment to Third Parties and Right of First Offer

 

Subject to clause 15.5, any Shareholder may at any time and from time to time sell or assign all or part of its Interest to a third party as long as:

 

	 	
(3)  

	
the Selling Shareholder first gives Notice to the other Shareholder detailing the:

 

	
  

	
Interest to be sold or assigned;

 

	
  

	
consideration (which must be a cash consideration) for which the Interest is proposed to be sold or assigned; and

 

	
  

	
other material terms and conditions upon which it wishes to sell or assign.

 

	 	
(4)  

	
for a period of 30 Business Days from the time of receipt of the Notice detailed in clause 14.2(1), the other Shareholder shall have the exclusive right and option to purchase the Interest for the consideration and on the terms and conditions specified in the Notice;

 

	 	
(5)  

	
the option granted by clause 15.2(2) may, if at any time there are more than two Shareholders, be exercised by all or any one or more of the other Shareholders and if more than one exercise such option, then those exercising it must purchase the Interest as between them in proportion to their Proportionate Shares inter se or in such other proportions as they may agree, provided that the whole of the Interest must be taken up by the other Shareholders; and

 

	 	
(6)  

	
if the option granted by clause 15.2(2) is not exercised, then for the period of 30 Business Days following the expiration of the 30 Business Days period specified in clause 15.2(2) the Selling Shareholder may sell or assign the Interest to a third party for the consideration and on terms and conditions no more favourable than those specified in the Notice detailed in clause 15.2(1), provided that if such sale or assignment has not completed by such deadline, then the entirety of clause 15.2(2) shall again apply to any proposed sale or assignment.

 

  

-24-

  

 

Pre-emptive Rights

 

	 	
(7)  

	
If a Shareholder receives a bona fide offer (“Third Party Offer”) from an arm’s length third party (“Third Party Offeror”), for the purchase or acquisition of the Interest of such Shareholder, which Third Party Offer the Selling Shareholder desires to accept, then the Selling Shareholder must, before accepting the Third Party Offer, give Notice to the other Shareholder (“Other Shareholder”) detailing:

 

	
  

	
the Interest;

 

	
  

	
the name of the Third Party Offeror;

 

	
  

	
all of the material terms and conditions of the Third Party Offer; and

 

	
  

	
if all of the consideration or any part of it is not in cash, then the cash value of the consideration or the relevant part thereof, as determined by the Selling Shareholder.

 

	 	
(8)  

	
Upon receipt of a Notice under clause 15.3(1), the following provisions will then apply:

 

	
  

	
within 5 Business Days after receipt of a Notice under clause 15.3(1), the Other Shareholder may give Notice objecting to a determination of the cash value of the consideration detailed in clause 15.3(1)(d) and, upon such an objection Notice being given, all of the Shareholders must seek to agree upon such cash value, provided that if they are unable to reach agreement within 5 Business Days after the date of the giving of such objection Notice, then such cash value will constitute a dispute to be resolved in accordance with the dispute resolutions provisions of the Shareholders’ Agreement (the cost of which determination must be borne, if the cash value determined is less than that determined by the Selling Shareholder, by the Selling Shareholder and in any other case by the Shareholder which objects to the Selling Shareholder’s determination);

 

	
  

	
the Shareholder other than the Selling Shareholder will have an option, exercisable by Notice to the Selling Shareholder within 30 Business Days of the receipt of a Notice under clause 15.3(1), to acquire the subject Interest:

 

	 	
(i)  

	
upon the same terms and conditions as are contained in the Third Party Offer; and

 

	 	
(ii)  

	
for the consideration expressed in the Third Party Offer or in lieu of any part of that consideration which is not a cash consideration, the cash value of it as determined or agreed in accordance with clause 15.3(2)(a);

 

  

-25-

  

 

	
  

	
the option granted under clause 15.3(2)(b) will, if at any time there are more than two Shareholders, be capable of being exercised by all or any one or more of the Shareholders (other than the Selling Shareholder) and if it is exercised by more than one of them, then they must purchase the subject Interest as between them in proportion to their Proportionate Shares inter se or in such other proportions as they may agree;

 

	
  

	
if the option granted under clause 15.3(2)(b) is not duly exercised, then the Selling Shareholder may, subject to compliance with clauses 15.4 and 15.5, accept the Third Party Offer without any alteration whatsoever and if it does so, then it must take all reasonable steps, subject always to the terms of the Third Party Offer, to complete the sale and purchase thereby arising within 30 Business Days after the date of acceptance; and

 

	
  

	
if the Third Party Offer is not accepted within the time allowed in clause 15.3(2)(d) or any material alteration of the Third Party Offer is proposed, then the Selling Shareholder must not accept the Third Party Offer after that time or as so altered without first having again complied with the foregoing provisions of this clause 15.3.

 

Piggy-Back Rights

 

	 	
(9)  

	
If, at any time, a Selling Shareholder which has a Proportionate Share of 50% or more receives a bona fide Third Party Offer from a Third Party Offeror to purchase its Interest, then the Selling Shareholder shall not accept such Third Party Offer unless:

 

	
  

	
the Selling Shareholder has complied with the provisions of clause 15.3 with respect to the sale of its Interest and the option granted under clause 15.3(2)(b) is not duly exercised;

 

	
  

	
the Third Party Offeror has agreed to purchase an Interest from the Other Shareholder (being a percentage of the Proportionate Share of the Other Shareholder equal to the percentage of the Proportionate Share of the Selling Shareholder comprised in the Interest of the Selling Shareholder) for the same proportional price and on the same terms and conditions as set out in the Third Party Offer;

 

	
  

	
the Selling Shareholder has delivered to the Other Shareholder a copy of such Third Party Offer and a Notice (“Piggy Back Notice”) specifying that the Selling Shareholder is prepared to accept such Third Party Offer; and

 

	
  

	
if the Other Shareholder elects to sell its Interest to the Third Party Offeror under clause 15.4(2)(a), then the Third Party Offeror has executed such agreements or documents reasonably acceptable to the Other Shareholder to reflect the agreement referred to in clause 15.4(1)(a).

 

	 	
(10)  

	
Following receipt by the Other Shareholder of a Piggy Back Notice, the Other Shareholder shall have the right, exercisable within 30 Business Days from the date of its receipt of the Piggy Back Notice, to give Notice to the Selling Shareholder:

 

  

-26-

  

 

	
  

	
that the Other Shareholder is electing to sell its Interest to the Third Party Offeror at the same proportional price and on the same terms and conditions set out in the Third Party Offer (“Electing Shareholder”); or

 

	
  

	
that the Other Shareholder is electing not to sell its Interest to the Third Party Offeror.

 

	 	
(11)  

	
If the Other Shareholder does not give Notice to the Selling Shareholder, within the period of 30 Business Days provided in clause 15.4(2), of the election by the Other Shareholder to sell its Interest to the Third Party Offeror under clause 15.4(2)(a),  then the Other Shareholder shall be deemed to have elected not to sell its Interest to the Third Party Offeror.

 

	 	
(12)  

	
Provided that the:

 

	
  

	
Selling Shareholder has complied with clause 15.4(1); and

 

	
  

	
Other Shareholder is an Electing Shareholder,

 

following the expiration of the 30 Business Day period referred to in clause 15.4(2), the Selling Shareholder may sell its Interest to the Third Party Offeror (or its nominee), at the same price and on the same terms and conditions as set out in the Third Party Offer.

 

	 	
(13)  

	
If the Company has shareholders other than the Shareholders, then the Selling Shareholder and any Electing Shareholder shall not sell their respective Interests under clause 15.4(4) to any person other than the Third Party Offeror (or its nominee) or at any price or on terms different from those set out in the Third Party Offer.

 

	 	
(14)  

	
If the Other Shareholder:

 

	
  

	
elects not to sell its Interest to the Third Party Offeror under clause 15.4(2)(b); or

 

	
  

	
pursuant to clause 15.4(3), is deemed to have elected not to sell its Interest to the Third Party Offeror,

 

then the Selling Shareholder (and where the Company has shareholders other than the Shareholder, any Electing Shareholder) may sell their respective Interests to the Third Party Offerors at the same price (proportionally adjusted in the case of any Electing Shareholder) and on the same terms and conditions as set out in the Third Party Offer.

 

  

-27-

  

 

General Requirements

 

No assignment in whole or in part of an Interest to a third person (including an affiliate) will be effective unless and until the assignee:

 

	 	
(15)  

	
executes and delivers to the other Shareholder an agreement or instrument, in a form as the other Shareholder may reasonably require, by which the assignee:

 

	
  

	
agrees to be bound by and to perform and observe all of the terms and conditions of the Shareholders’ Agreement or any security related to the Operations or binding upon and to be performed and observed by the assigning Shareholder to the extent of the interest sold or assigned; and

 

	
  

	
specifies its address for service, including a facsimile number; and

 

	 	
(16)  

	
secures any and all necessary approvals of any Governmental Authority to that assignment.

 

	
16.  

	
Withdrawal And Winding Up

 

No voluntary winding up of the Company may be completed without the Shareholders having made adequate payment of, or provided security for, reclamation and closure costs in proportion to their Proportionate Share.

 

	
17.  

	
NOTICES

 

All notices and other communications under this Agreement (each, a “Notice”) will be in writing and may be delivered personally or transmitted by facsimile as follows:

 

1. To EMC or EMC Australia:

 

2. EMC Metals Corp.

3. Suite 501 – 1430 Greg Street

4. Sparks, Nevada, 89431

5. Attention: President

6. Email: georgeputnam@emcmetals.com

7. Facsimile: (775) 355-9506

 

  

-28-

  

 

8. With a copy to (which shall not constitute notice):

 

9. Morton Law LLP

10. Suite 1200 – 750 West Pender Street

11. Vancouver, British Columbia V6C 2T8

12. Attention: Edward L. Mayerhofer

13. Email: elm@mortonlaw.ca

14. Facsimile: (604) 681-9652

 

15. To Scandium:

 

16. Scandium Investments LLC

17. c/o Shenassa & Company

18. 11620 Wilshire Blvd., Suite 460

19. Los Angeles, CA 90025

20. Attention: President

21. Email: Shenassa@Shenassa.com

22. Facsimile: (310) 914-4044

 

23. With a copy to (which shall not constitute notice):

 

24. Fasken Martineau DuMoulin LLP

25. 2900 - 550 Burrard Street

26. Vancouver, British Columbia V6C 0A3

27. Attention: Iain Mant

28. Email: imant@fasken.com

29. Facsimile: (604) 632-4734

 

30. or to such addresses as each Party may from time to time specify by notice. Any notice will be deemed to have been given and received:

 

	 	
(a)

	
if personally delivered, then on the day of personal service to the recipient Party, provided that if such date is a day other than a Business Day such notice will be deemed to have been given and received on the first Business Day following the date of personal service;

 

	 	
(b)

	
if sent by facsimile transmission and successfully transmitted prior to 4:00 pm on a Business Day (local time for the recipient Party), then on that Business Day, and if transmitted after 4:00 pm on that day then on the first Business Day following the date of transmission.

 

  

-29-

  

 

Electronic Mail

 

The Parties may use electronic mail for routine day to day communication but electronic mail must not be used for and will not constitute Notice under the Shareholders’ Agreement where the Shareholders’ Agreement expressly requires that a Notice be given.

 

Verbal Communications

 

Except where expressly provided otherwise in the Shareholders’ Agreement, verbal communications will not constitute formal communication or Notice under the Shareholders’ Agreement and neither Party has any obligation to act on any verbal communication or instruction unless and until it is confirmed by Notice. Any action taken by a Party based on any verbal communication, instruction or assurance will be at that Party’s sole risk and will be without liability to or recourse against the other Party.

 

	
18.  

	
Other Provisions

 

Default

 

If a Shareholder is a Defaulting Shareholder, the failure is capable of remedy and the Defaulting Shareholder does not remedy that failure within 20 Business Days after Notice to the Defaulting Shareholder requiring it to be remedied, the Defaulting Shareholder’s Proportionate Share will be subject to a compulsory buy-sell procedure.

 

Force Majeure

 

The Shareholders’ Agreement will contain Force Majeure provisions customary in a shareholders agreement of this nature.

 

Confidentiality

 

The Shareholders’ Agreement will contain Confidentiality provisions customary in a shareholders agreement of this nature.

 

Dispute Resolution

 

The Shareholders’ Agreement will contain dispute resolution provisions customary in a shareholders agreement of this nature.

 

Governing Law

 

The Shareholders’ Agreement will be governed by and interpreted in accordance with the laws of the Province of British Columbia and, subject to the dispute resolution provisions, the parties must submit to the exclusive jurisdiction of the courts of British Columbia.

 

 

-30-

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