Document:

paceth_s1-ex0402.htm

Exhibit 4.2

 

SCHEDULE 3(j)

to Securities Purchase Agreement

 

Anti-takeover Provisions

 

The board of directors of the Company is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of Preferred Stock in one or more series and to fix and state the voting powers, designations, preferences and relative participating, optional or other special rights of the shares of each series and the qualifications, limitations and restrictions thereof.

 

 

  

  

  

 

SCHEDULE 3(k)

to Securities Purchase Agreement

 

SEC Documents; Financial Statements.

 

The Company filed a Form 8-K on November 27, 2009, which was due on November 25, 2009.

 

  

  

  

 

SCHEDULE 3(l)

to Securities Purchase Agreement

 

Absence of Certain Changes

 

	
1.  

	
The Company has declared in 2010 and prior years and is in arrears in the payment of dividends prescribed by the Certificate Of Designations, Powers, Preferences And Rights of the Series B Cumulative Convertible Preferred Stock in the amount of approximately $4,800,000.

 

	
2.  

	
The Company plans to accrue for additional dividends for the three months ended September 30, 2010 on the last day of the period in the amount of approximately $760,000. This is in addition to the amount in (1).

 

	
3.  

	
The Company intends to enter a sales agreement for the sale of its membership interests in Front Range Energy LLC.

 

 

  

  

  

 

SCHEDULE 3(m)

to Securities Purchase Agreement

 

No Undisclosed Events, Liabilities, Developments or Circumstances

 

	
1.  

	
The Company intends to enter a sales agreement for the sale of its membership interests in Front Range Energy LLC for an amount substantially less the Company’s current recorded book value, resulting in a significant loss on the sale.

 

	
2.  

	
The Company intends to discharge the indebtedness owed to Lyles United, LLC and Lyles Mechanical Co.

 

	
3.  

	
The Company intends to discharge the indebtedness owed to Campbell-Sevey, Inc.

 

	
4.  

	
The Company intends to purchase membership interests in New PE Holdco, LLC.

 

 

  

  

  

 

SCHEDULE 3(n)

to Securities Purchase Agreement

 

Conduct of Business;  Regulatory Permits

 

	
1.

	
The Company is in arrears in the payment of dividends prescribed by the Certificate of Designations, Powers, Preferences and Rights of the Series B Cumulative Convertible Preferred Stock in the amount of approximately $4,800,000 as of June 30, 2010.

 

	
2.

	
The Company received a letter from The NASDAQ Stock Market on September 15, 2009, indicating that the bid price of the Company’s common stock for the last 30 consecutive business days had closed below the minimum $1.00 per share required for continued listing.  The Company subsequently regained compliance by notification of the NASDAQ Stock Market on January 26, 2010.

 

	
3.

	
The Company received a letter from The NASDAQ Stock Market on June 30, 2010, indicating that the bid price of the Company’s common stock for the last 30 consecutive business days had closed below the minimum $1.00 per share required for continued listing.  The Company has been provided an initial period of 180 calendar days, or until December 27, 2010, in which to regain compliance.

 

 

 

 

  

  

  

 

SCHEDULE 3(q)

to Securities Purchase Agreement

 

Transactions with Affiliates

 

	
1.  

	
The Company’s Chairman and Chief Executive Officer provided funds totaling $2,000,000 on March 31, 2009, for general cash and operating purposes, in exchange for two unsecured promissory notes.

 

	
2.  

	
The Company has issued shares of its Series B Preferred Stock to certain related parties.

 

 

 

  

  

  

 

SCHEDULE 3(r)

to Securities Purchase Agreement

 

Equity Capitalization

 

	
1.  

	
The holders of the Company’s Series B Cumulative Convertible Preferred Stock have preemptive rights.

 

	
2.  

	
The Company has outstanding 6,519,228 warrants and 80,000 options exercisable into the Company’s common stock.

 

	
3.  

	
See Schedule 3(s) for documents evidencing Indebtedness.

 

	
4.  

	
Certificate Of Designations, Powers, Preferences And Rights of the Series B Cumulative Convertible Preferred Stock provides for weighted-average anti-dilution protection.

 

	
5.  

	
The Registration Rights Agreement dated as of March 27, 2008 by and between Pacific Ethanol, Inc. and Lyles United, LLC.

 

	
6.  

	
The holders of certain Warrants issued in May 2008 are entitled to certain purchase rights if at any time the Company grants, issued or sells any rights to purchase stock, warrants, securities or other property pro rate to the holders of any class of shares of Common Stock.

 

	
7.  

	
Financing statements filed with respect to Permitted Liens, including the following:

 

	
a.  

	
UCC Financing Statement filed for the benefit of VFI-SPV VII, SL, Corp. with the Secretary of State of Delaware (Initial Filing No. 82081311).

 

	
b.  

	
UCC Financing Statement filed for the benefit of VFI-SPV VII, SL, Corp. with the Secretary of State of Delaware (Initial Filing No. 83358627).

 

	
c.  

	
UCC Financing Statement filed for the benefit of Wachovia Capital Finance Corproation (Western) with the Secretary of State of Oregon (Initial Filing No. 8038326).

 

	
d.  

	
UCC Financing Statement filed for the benefit of Agricredit Acceptance LLC with the Secretary of State of California (Initial Filing No. 20087174034983).

 

 

 

  

  

  

 

SCHEDULE 3(s)

to Securities Purchase Agreement

 

Indebtedness and Other Contracts

 

	
1.  

	
Loan and Security Agreement between Kinergy Marketing LLC as Borrower and Wachovia Capital Finance Corporation (Western), as amended. The Loan and Security Agreement is a revolving credit facility whereunder the Company’s borrowing capacity is capped at $12,500,000.

 

	
2.  

	
Master Lease Agreement dated June 9, 2008 between the Company, Varilease Finance, Inc., and VFI-SPV SL VII, Corp, as amended (the “Lease”).  The Company’s initial obligation under the Lease was $1,709,543.  The parties to the Lease have finalized the negotiation of an amendment to the Lease which will allocate a portion of that obligation to the subsidiaries of New PE Holdco, LLC, leaving the Company with an obligation of $736,281.

 

On November 19, 2008, the Company received notice from the lessors under the Lease, stating that the lessors deemed the Company to be in default because of a material adverse change in the Company’s financial condition.  The Company disputed the alleged default, and continued from that time to this to make all payments on a timely basis.  The Company expects the alleged condition of default to be formally retracted or waived in connection with the pending amendment of the Lease.

 

	
3.  

	
Settlement Agreement dated as of August 6, 2009, between the Company and Campbell-Sevey, Inc., as amended.  The Company’s liability under the Settlement Agreement is approximately $1,500,000.

 

	
4.  

	
Promissory Note in the principal amount of $1,000,000 dated March 29, 2009 in favor of Neil M. Koehler, as amended.

 

	
5.  

	
Promissory Note in the principal amount of $1,000,000 dated March 29, 2009 in favor of William L. Jones, as amended.

 

	
6.  

	
Agricredit Acceptance LLC Lease Agreement between Pacific Ag. Products LLC and Kirby Manufacturing, Inc. dated September 17, 2008. The Company’s liability under the Lease is approximately $160,000.

 

	
7.  

	
Promissory Note dated November 7, 2008, in favor of Lyles United, LLC with a current outstanding balance of $14,800,212.

 

	
8.  

	
Promissory Note dated October 21, 2008, in favor of Lyles Mechanical Co. with a current outstanding balance of $1,820,577.

 

 

 

 

  

  

  

 

 

SCHEDULE 3(t)

to Securities Purchase Agreement

 

Absence of Litigation

 

	
1.  

	
The Company’s subsidiary, Pacific Ethanol California, Inc., and its directors William L. Jones, Neil M. Koehler and Ryan W. Turner, are parties to the action captioned Barry J. Spiegel v. Barry Siegel, et al, filed in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida, Case No. 05-18512.

 

	
2.  

	
The Company is a defendant in the action captioned The Shaw Group, Inc. v. Pacific Ethanol, et al, filed in the Superior Court of California in Imperial County, Case No. ECU04396.

 

 

  

  

  

 

SCHEDULE 3(z)

to Securities Purchase Agreement

 

Subsidiary Rights

 

Under the terms of the instruments securing the Promissory Note dated November 7, 2008, in favor of Lyles United, LLC, the proceeds from the sale of the Company’s interest in Front Range Energy, LLC are required to be distributed to Lyles United, LLC until such Note is discharged.

 

 

 

  

  

  

 

SCHEDULE 3(bb)

to Securities Purchase Agreement

 

Internal Accounting and Disclosure Controls

 

On December 3, 2008, the Company’s Independent Registered Accountants issued a letter to the Company’s Audit Committee of the Board of Directors and Management, which identified the following significant deficiency in the Company’s internal control over financial reporting:

 

The process by which management communicated its interpretation of FAS 144 and the resulting impairment with its auditors should have been more timely, allowing for more time to address differing interpretations of the guidance and its application. The complexity of the guidance and possible interpretation should have been taken into account in providing the Company’s analysis sooner for review and discussion with its auditors.

 

 

 

  

  

  

SCHEDULE 3(cc)

to Securities Purchase Agreement

 

Off Balance Sheet Arrangements

 

	
1.  

	
Master Lease Agreement dated June 9, 2008 between the Company, Varilease Finance, Inc., and VFI-SPV SL VII, Corp, as amended.

 

	
2.  

	
Agricredit Acceptance LLC Lease Agreement between Pacific Ag. Products LLC and Kirby Manufacturing, Inc. dated September 17, 2008.

 

 

  

  

  

 

 

SCHEDULE 3(rr)

to Securities Purchase Agreement

 

Ranking of Notes

 

	
1.  

	
Loan and Security Agreement between Kinergy Marketing LLC as Borrower and Wachovia Capital Finance Corporation (Western), as amended.

 

	
2.  

	
Master Lease Agreement dated June 9, 2008 between the Company, Varilease Finance, Inc., and VFI-SPV SL VII, Corp, as amended.  On November 19, 2008, the Company received notice from the lessors, stating that the lessors deemed the Company to be in default because of material adverse change in the Company’s financial condition.  The Company disputed the alleged default, and has continued to make all payments on a timely basis.  The Company expects the alleged condition of default to be formally retracted or waived in connection with a pending amendment of the facility.

 

	
3.  

	
Agricredit Acceptance LLC Lease Agreement between Pacific Ag. Products LLC and Kirby Manufacturing, Inc. dated September 17, 2008.

 

 

  

  

  

 

 

SCHEDULE 4(d)

to Securities Purchase Agreement

 

Payment of Indebtedness

 

	
1.  

	
The Company intends to prepay up to $1,000,000 of the amount owed to William L. Jones under the Promissory Note dated March 29, 2009.

 

	
2.  

	
The Company may prepay up to $1,500,000 of the amount owed to Campbell-Sevey under the Settlement Agreement dated as of August 6, 2009.Exhibit 10.1

 

CONTRACT
# LS2010-

 

between

 

ROYAL
CANADIAN MINT

 

and

 

SPROTT
ASSET MANAGEMENT LP

FOR
AND ON BEHALF OF

SPROTT
PHYSICAL SILVER TRUST

 

 

SILVER
STORAGE AGREEMENT

 

 

 

SILVER STORAGE AGREEMENT

 

THIS
AGREEMENT made in duplicate this            day of                        
      , 2010

 

	
  B E T W E E N:

  	
   

  	
  ROYAL
  CANADIAN MINT,

  
	
   

  	
   

  	
  Ottawa, Ontario,
  Canada, a Body Corporate established by the Royal
  Canadian Mint Act, R.S.C. 1985 c.R-9.

  
	
   

  	
   

  	
  (hereinafter called the “Mint”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  OF THE FIRST PART

  
	
   

  	
   

  	
   

  
	
  A N D:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SPROTT
  ASSET MANAGEMENT LP for and on behalf of Sprott Physical Silver
  Trust, a trust organized under the laws of the Province of Ontario

  
	
   

  	
   

  	
  (hereinafter
  called the “Customer”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  OF THE SECOND PART

  

 

The Mint and the
Customer hereby agree as follows:

 

1.  Definitions

 

“Agreement” means
this agreement and any document referred to in this agreement as forming part
of this agreement.

 

“Business Day” means
any Monday to Friday inclusively, excluding holidays observed by the Mint.

 

“Contracting
Authority” means the representative of a party who is responsible for the
management and administration of this Agreement.

 

“Force Majeure”
means circumstances or causes beyond the Mint’s and/or a Sub-Custodian’s
reasonable control, including, without limitation, acts or omissions or

 

2

 

the failure to
cooperate of the Customer (including, without limitation, entities or
individuals under its control, or their respective officers, directors,
employees or other personnel and agents), acts or omissions or the failure to
cooperate by any third party, fire or other casualty, act of God, strike or
labour dispute, war or other violence, or any law, order or requirement of any
governmental agency or authority.

 

“herein”, “hereby”, “hereunder”,
when used in any section shall, unless the contrary is apparent from the
context, be understood to relate to the Agreement as a whole, and not merely to
the section in which they appear.

 

“Improperly Packed
Pallet” means bars that are not securely or safely packed on a well constructed
sturdy wood pallet.

 

“London Good
Delivery Bars” means silver bars that meet the standard measure of quality in
silver bullion, as set forth by the London Bullion Market Association.

 

“Mint’s Facility”
means, at the Mint’s choice, the Mint’s premises located at 520 Lagimodière
Blvd., Winnipeg, Manitoba, R2J 3E7, or any other safe storage facility located
in Canada used by the Mint for the purposes set out herein, including the
facility of a Sub-Custodian, whether or not the Mint is the owner or tenant of
said other facility or otherwise.

 

“Property” means
Silver (as defined hereunder) that belongs to the Customer or in regards to
which the Customer is the duly authorized agent of the owner.

 

“Receipt
of Deposit” means the document issued by the Mint and confirming the bar count
and the total weight of Silver, in troy ounces, received by the Mint in a
particular delivery.

 

“Silver” shall mean
silver in the form of London Good Delivery Bars.

 

“Sub-Custodian”
means a sub-custodian, agent or depository appointed by the Mint to perform any
of the Mint’s duties under this Agreement, including the safekeeping of
Property.

 

 “Transfer of Allocated
Storage” means the transfer of allocated Silver to another customer allocated
storage account held by the Mint.

 

“Withdrawal”
means the physical removal of the Property or a portion thereof from the Mint’s
Facility.

 

3

 

2.    Contracting Authority

 

(a)          The Chief Operating
Officer, an officer of the Mint, is the Contracting Authority for the Mint.

 

(b)         The Chief Financial
Officer, an officer of the Customer, is the Contracting Authority for the
Customer.

 

(c)          No delegation of authority
and authorization of a representative by the Contracting Authority of the Mint
or the Contracting Authority of the Customer shall be effective unless the
authorization and delegation is in writing, specifying the nature and extent of
the authorization given and the names of the representatives, and is duly
executed and delivered to the Customer or the Mint, as the case may be, by the
Contracting Authority.

 

3.    Description
of Service

 

(a)          The Mint agrees to maintain
an inventory of Property on behalf of the Customer at the Mint’s Facility under
the terms and conditions set forth in this Agreement and the Mint agrees to
exercise the same degree of care and diligence in safeguarding the Property as
any reasonably prudent person acting as a custodian would exercise in the same
circumstances.

 

(b)         From time to time during
the term of this Agreement, the Customer shall give written notice (hereinafter
an “Initial Notice”) to the Mint of its
intention to have Property delivered to and stored at the Mint’s Facility.  The Initial Notice shall be delivered to the
Mint at least three (3) Business Days prior to the Business Day the Customer
intends for the Property to be delivered to the Mint’s Facility. Within one (1)
Business Day of the receipt of an Initial Notice, the Mint shall confirm to the
Customer an acceptable receipt date for the delivery of the Property. The Mint
reserves the right to suggest an alternative receipt date for delivery, or
refuse receipt of a delivery in the event of storage capacity limitations.

 

(c)          Initial Notices shall specify
the amount, weight in troy ounces, type, assay characteristics, bar numbers and
bar brand(s), and declared value of Property to be stored.  Assay characteristics shall be denoted in
troy ounces to two (2) decimal places. 
The Customer agrees that it shall never conceal or misrepresent any
material fact or circumstance concerning the Property delivered to the Mint’s
Facility.  The Initial Notice shall also
inform the Mint as to the identity of the armoured carrier company that will
transport the Property from the Customer’s location to the Mint’s Facility.

 

(d)         All costs relating to the
delivery of the Property to the Mint’s Facility, such as, but not limited to,
transportation and insurance costs, shall be borne by the Customer.

 

4

 

(e)          If the Property arrives at the
Mint’s Facility without having given the Initial Notice or if the Property
arrives in advance of receiving a confirmed receipt date from the Mint, the
whole in accordance with Clause 3(b) and (c), the Mint has the right and may
choose to return the Property to the Customer at the latter’s cost.

 

(f)            Upon receiving Property at
the Mint’s Facility, the bar numbers stated in the Initial Notice will be
compared to the respective bar numbers imprinted on each bar delivered by the
Customer. Each bar will also be weighed and compared with the weight stated in
the Initial Notice.

 

(g)         Once bar numbers and
weights stated in the Initial Notice have been successfully verified, the Mint shall confirm to the Customer
receipt of said Property by providing to the Customer by facsimile transmission
a Receipt of Deposit confirming the bar count and total weight of the Silver
received in troy ounces.

 

(h)         In the event of a
discrepancy between the bar count performed at time of receipt of the Property
at the Mint’s Facility and the information stated in the Initial Notice, the
Customer shall be promptly notified of such a discrepancy. In such a case, all
activity will be suspended and the Customer shall forthwith either: (i) provide
written instructions to the Mint for the return of the Property to the
Customer, at the latter’s cost; or (ii) issue a revised Initial Notice to
correct said discrepancy.

 

(i)             In the event a discrepancy
is discovered of one half troy ounce (0.5 oz) or more between the weight of the
Property stated in the Initial Notice and the weight as calculated at the time
of receipt of material at the Mint’s Facility, the Mint shall promptly notify
the Customer of such a discrepancy.  In
such a case, the Mint will suspend all activity and the Customer shall
forthwith either: (i) provide written instructions to the Mint for the return
of the Property to the Customer, at the latter’s cost; or (ii) issue a revised
Initial Notice to correct said discrepancy.

 

(j)             The parties expressly
understand and agree that the Mint does not assume any liability as to the
authenticity or assay characteristics of any Property and/or in regards to any
discrepancies identified between the weight and bar count of the Property as
stated in the Initial Notice and the actual weight and bar count of the
Property delivered.

 

(k)          If the Property arrives at
the Mint’s Facility on Improperly Packed Pallets, the Customer will be notified
by the Mint that it considers the state of the packing to pose a potential
safety hazard and the Mint will repack the pallet at the Customer’s expense at
the rate set out in the rate schedule attached hereto (hereinafter the “Rate Schedule”).

 

5

 

(l)             From time to time during
the term of this Agreement, the Customer may give written notice to the Mint of
its intention to withdraw Property from its inventory.  Such written notice shall be delivered to the
Mint at least three (3) Business Days prior to the Withdrawal date and shall:
(i) specify the Property to be withdrawn from the inventory, including a bar
list specifying, for each bar to be withdrawn, the bar number, the bar brand,
the weight in troy ounces, and the fineness; (ii) specify the Business Day on which
the Withdrawal is to occur; and (iii) contain the name of the Customer’s
carrier or representative, the vehicle model and registration number and other
details which may be requested by the Mint relating to the Customer’s carrier
or representative authorized to take delivery of the Property to be withdrawn.

 

(m)       All costs relating to the
Withdrawal of the Property, such as, but not limited to, transportation and
insurance costs, shall be borne by the Customer.

 

(n)         Upon receipt of proper and
complete instructions in writing from the Customer, and for the fee set forth
in the Rate Schedule, the Mint will transfer the Property or a portion thereof
to a third party who has an allocated storage account with the Mint. The
written transfer order must include an authorised signature. Transfers of
Allocated Storage shall be processed within one (1) Business Day from reception
of proper and complete instructions in writing and will be confirmed to the
recipient by facsimile on the day of transfer.

 

(o)         The Customer shall provide
the Mint with the names and signatures of the Customer’s authorized
representatives who are empowered to issue orders for Transfers of Allocated
Storage or for Withdrawals of the Property from the Mint’s Facility.  It is expressly understood and agreed that
the Mint shall not be liable for any transfer of Property made under a Transfer
of Allocated Storage or for any Withdrawal order fraudulently executed in the
name of an authorized Customer representative, nor for any transfer of Property
under a Transfer of Allocated Storage or for a Withdrawal made where the
authority of any such representative has been revoked and the Mint has not been
notified thereof in writing in due time.

 

(p)         Nothing contained in this
Agreement shall create between the parties the relationship of principal and
agent, mandatory and mandatary, partnership or joint venture. The Customer has
no authority to and undertakes not to make any representation relating to the
Mint, nor give any warranty or representation on behalf of the Mint, without
the Mint’s prior written authorization. The Customer will be liable for any and
all damages, losses and costs, including special, incidental, consequential,
indirect and punitive damages, losses and costs (including lost profits and
lost savings) suffered by the Mint as a result of a breach of any of the above
undertakings. The Customer recognizes and acknowledges that any breach or
threatened breach of the above undertakings may cause the Mint irreparable harm
for which monetary damage may 

 

6

 

be
inadequate. The Customer agrees therefore that the Mint shall be entitled to an
injunction to restrain the Customer from such breach or threatened breach.

 

4.   Sub-Custodian

 

Subject to applicable law, including for greater
certainty National Instrument 81-102 - Mutual Funds, the Mint may, at its
discretion and with the consent of the Customer, which consent shall not be
unreasonably withheld, appoint Sub-Custodians to perform any of its duties
under this Agreement including the custody and safekeeping of Property.  The Customer hereby consents to the
appointment of The Brink’s Company, through its Canadian subsidiary Brink’s
Canada Limited, as a Sub-Custodian. The Mint will, on request, provide the
Customer with the name and address of any Sub-Custodian of Property along with
any other information which the Customer may reasonably require concerning the
appointment of the Sub-Custodian.

 

5.   Segregation
of Property

 

The Mint shall keep
the Property specifically identified as the Customer’s Property and physically
segregated at all times from any other property belonging to the Mint or other
of its customers.

 

6.   Inventory Statements

 

The Mint will send
the Customer an inventory statement on a monthly basis.  The monthly inventory statements will also
include a summary of all Receipts of Deposit, Transfers of Allocated Storage
and Withdrawals of Property for the previous month.  Said inventory statement shall be issued no
later than seven (7) Business Days following the end of each calendar month.

 

7.   Audit and Security and Safety Requirements

 

Following a minimum
of two (2) weeks’ prior written notice, the Customer’s authorized employees and
representatives will have access to the Mint’s Facility for the purpose of
performing a physical audit of the Property held in custody by the Mint and/or,
as applicable, by a Sub-Custodian, provided that such audit does not disrupt
the routine operation of the Mint’s Facility and is held on a Business Day
during the Mint’s and/or, as applicable, the Sub-Custodian’s regular business
hours.  The Customer’s employees and
representatives will also have access to the Mint’s and/or, as applicable, the
Sub-Custodian’s inventory records relating to the Property.  The Customer’s employees and representatives
shall present proper credentials to the Mint’s Facility manager as a condition
of being admitted to the Mint’s Facility.

 

The Customer agrees
to be bound by the applicable security procedures and policies relating to the
access to the Mint’s Facility. All authorized employees and representatives who
are allowed access to the Mint’s Facility pursuant to the present Agreement
will be subject to security clearance prior to being admitted to the Mint’s
Facility.

 

7

 

The Customer’s
authorized employees and representatives could possibly be subject to search
while at the Mint’s Facility.

 

Prior to arriving at
the Mint’s Facility, the Customer shall obtain, from the Contracting Authority,
the details of the applicable safety regulations.

 

8.    Indemnity

 

(a)              The Customer shall indemnify and hold
harmless the Mint, its directors, officers, employees and agents, from and
against any damages, losses, injuries, costs or expenses or any claim, action,
suit or other proceeding, including reasonable settlement, judgment and
attorney’s fees, arising out of the presence of any of the Customer’s
employees, agents, representatives or contractors on the premises of the Mint’s
Facility in connection with this Agreement.

 

(b)             The Customer warrants that it has legal title
to the Property delivered and stored in the Mint’s Facility or is the duly
authorized agent of the owner of the Property, with the right in either
instance to transfer possession of the Property to the Mint and/or, as
applicable, to a Sub-Custodian, free and clear of all liens and
encumbrances.  The Customer shall
indemnify and hold harmless the Mint, its directors, officers, employees and
agents, from and against any damages, losses, injuries, costs or expenses or
any claim, action, suit or other proceeding, including reasonable settlement,
judgment and attorney’s fees, arising out of any breach of this warranty.

 

9.   Service Charges and Payment

 

(a)          Except as otherwise provided
for in this Agreement, the Customer shall pay the Mint, for the services
provided by the Mint under this Agreement, upon presentation of monthly
invoices, the charges set forth in the Rate Schedule.

 

(b)         Federal, Provincial and/or
local taxes, where applicable, shall be added to the charges set forth in the
Rate Schedule.

 

(c)          The Customer shall effect
payment to the Mint for value in USD funds by wire transfer using the following
instructions:

 

	
   

  	
  US Correspondent Bank:

  	
  JP
  Morgan Chase

  
	
   

  	
   

  	
  New York, N.Y.

  
	
   

  	
   

  	
  ABA#: 021000021

  
	
   

  	
   

  	
   

  
	
   

  	
  Destination Bank:

  	
  Royal Bank of Canada

  
	
   

  	
   

  	
  90 Sparks Street

  

 

8

 

	
   

  	
   

  	
  Ottawa, Ontario

  
	
   

  	
   

  	
  Canada

  
	
   

  	
   

  	
  SWIFT#: ROYCCAT2

  
	
   

  	
   

  	
   

  
	
   

  	
  Beneficiary:

  	
  Royal Canadian Mint

  
	
   

  	
  Transit:

  	
  00006

  
	
   

  	
  Account:

  	
  400-216-8

  

 

(d)         All charges remaining
unpaid after the invoice due date will be subject to interest at a rate of 11⁄2
percent (1.5%) per month, but in no event to exceed the highest rate allowed by
applicable law.

 

(e)          The Mint may increase the
charges set forth in the Rate Schedule following a thirty (30) day written
notice to that effect in the event of a change in economic conditions beyond
the Mint’s control that increases operating costs incurred by the Mint. Within
ten (10) Business Days of receipt of said notice, the Customer may provide the
Mint with written instructions for the return of the Property. The costs for
returning the Property shall be borne by the Customer.

 

(f)            If the Customer defaults in
the full and timely payment of any monies due to the Mint pursuant to this
Agreement and/or the terms stated in the Mint’s invoice, or otherwise defaults
in the performance of any of the Customer’s other obligations to the Mint, then
the Customer shall be responsible for, without prejudice to the Customer’s
other obligations pursuant to the present Agreement and/or by way of law and/or
equity, the reimbursement of any legal fees and other reasonable costs and
expenses incurred by the Mint in the collection of any said monies due to the
Mint (which monies, obligations, fees, costs and expenses shall hereinafter be
collectively referred to as the “Unpaid Obligations”),
and the Mint, in addition to any and all other rights and remedies provided for
in this Agreement and/or by way of law and/or equity, shall be permitted to
retain as a credit and to offset against such Unpaid Obligations, on a dollar
for dollar basis, any Property deposited or caused to have been deposited with
or otherwise delivered to the Mint’s Facility for safekeeping or any other
purpose on behalf of the Customer.

 

(g)         It is agreed that the Mint
will have no obligation to proceed with a requested Withdrawal and/or a
Transfer of Allocated Storage until all sums due to the Mint per the present
Agreement have been paid in full.

 

10.   Risk and Liability

 

(a)          Except as otherwise
provided in this Agreement, the Mint shall bear all risks of physical loss or
damage to Property sent to the Mint’s Facility for storage under this Agreement
from the time: (i) said Property 

 

9

 

has
been taken into the Mint’s possession and control, whether through physical
delivery or through a Transfer of Allocated Storage (including any Property in
the possession and control of any Sub-Custodian, whether or not the Mint is the
owner or tenant of the facility at which such Property is located); and (ii)
the Mint has issued to the Customer a Receipt of Deposit for said Property. The
Mint’s liability shall terminate in respect of any portion of the Property upon
the expiration or termination of the Agreement, whether or not the Property
remains in the Mint’s Facility, upon transfer of the Property under a Transfer
of Allocated Storage, as requested by the Customer, or upon remittance to the
Customer’s carrier or representative in the event of a Withdrawal.

 

(b)         The Customer shall ensure
that Property sent to the Mint’s Facility is packaged in accordance with the
custom of the trade so that the Property is not reasonably susceptible to
damage.

 

(c)          Conditional upon the
Customer giving a written notice in the time and manner described in Clause 11
herein, in the event of physical loss or destruction of Property (whether
through fraud, theft, negligence or otherwise and regardless of culpability by
the Mint) for which the Mint bears the risks of physical loss or damage as
provided in clause 10(a), the Mint will within five (5) Business Days from which
the Mint becomes aware and confirms such physical loss or damage either, at its
option: (i) replace the lost or destroyed Property based on the advised weight
and advised assay characteristics provided in the Customer’s Initial Notice; or
(ii) compensate the Customer for the monetary value of the lost or destroyed
Property based on the advised weight and assay characteristics provided in the
Customer’s Initial Notice and the market value of the lost Property, using the
Silver Fixing of the LBMA on the first (1st)
Business Day following receipt of written notice from the Customer identifying
said loss or destruction.

 

(d)         Conditional upon the
Customer giving a written notice in the time and manner described in Clause 11
herein, in the event of physical damage to Property for which the Mint bears
the risks of physical loss or damage as provided in clause 10(a), the Mint will
restore the portion of 

 

10

 

damaged
Property to at least as good as state as it was prior to being so damaged.

 

(e)          Upon replacement of the
lost and/or destroyed Property as provided for above, the Customer hereby
agrees to and does hereby assign to the Mint all of its right, title and
interest in said lost and/or destroyed Property; upon replacement of lost
and/or destroyed Property and/or upon restoration of damaged Property, the
Customer hereby agrees to and does hereby assign to the Mint all of its rights
of recovery against third parties that are the subject of a claim and/or
against whom a claim can be instituted, and to execute any documents as may be
reasonably necessary to perfect such assignment upon request by the Mint or the
Mint’s insurers.

 

(f)            The Mint shall endeavour to
provide the Customer with not less than 30 days’ written notice of any
cancellation or termination of any afforded insurance coverage of the Property,
whether provided by the Mint and/or the Sub-Custodian. .

 

11.   Notice of Claims

 

(a)          The Customer and the Mint
shall maintain a record of all Property delivered to the Mint.

 

(b)         In the event of loss,
damage or destruction of the Property under this Agreement or any portion
thereof, the Customer shall give written notice to the Mint informing the
latter of such an event within five (5) Business Days from the discovery of any
such loss, damage or destruction, but, in the case of loss or destruction of
the Property, in no event more than thirty (30) calendar days after delivery by
the Mint to the Customer of an inventory statement in which a discrepancy first
appears.  In the case of loss or
destruction of the Property, said written notice is to include an affirmative
written proof of the Property lost or destroyed, subscribed and sworn to by the
Customer and substantiated by the books, records and accounts of the
Customer.  Unless notice is given as
aforesaid, all claims shall be deemed to have been waived.  No action, suit or other proceeding to
recover for any loss, damage or destruction shall be brought against the Mint
unless notice shall have been given as aforesaid and unless such action, suit
or proceeding shall have been commenced within twelve (12) months from the time
said written notice is sent to the Mint pursuant to this paragraph.

 

(c)          The parties shall promptly
and diligently assist each other to establish the identity of the Property lost
or destroyed, and shall take all such other reasonable steps as may be
necessary to assure the maximum amount of salvage at a minimum cost.

 

11

 

12.           Mint’s
Limitation of Liability

 

In addition to any
other limitations of liability of the Mint provided under this Agreement or by
way of law, the Mint is not be liable for any damages, losses, costs or
expenses or for non-performance or delays of service caused by or resulting
from any of the following, whether suffered directly or indirectly by the Mint
and/or a Sub-Custodian:

 

(a)          either :(i) war, civil war, revolution,
rebellion, insurrection, or civil strife there from, or any hostile act by or
against a belligerent power; (ii) capture, seizure, arrest, restraint or
detainment (piracy excepted), and the consequences thereof or any attempt
thereat; or (iii) derelict mines, torpedoes, bombs or other derelict weapons of
war.

 

(b)         either: (i) any chemical, biological, or
electromagnetic weapon; (ii) the use or operation, as a means for inflicting
harm, of any computer, computer system, computer software, computer software
programme, malicious code, computer virus or process or any other electronic
system; (iii) ionising radiations from or contamination by radioactivity from
any nuclear fuel or from any nuclear waste or from the combustion of nuclear
fuel; (iv) the radioactive, toxic, explosive or other hazardous or contaminating
properties of any nuclear installation, reactor or other nuclear assembly or
nuclear component thereof; (v) any weapon or device employing atomic or nuclear
fission and/or fusion or other like reaction or radioactive force or matter; or
(vi) the radioactive, toxic, explosive or other hazardous or contaminating
properties of any radioactive matter. 
The exclusion in this sub-clause (vi) does not extend to radioactive
isotopes, other than nuclear fuel, when such isotopes are being prepared,
carried, stored, or used for commercial, agricultural, medical, scientific or
other similar peaceful purposes.

 

(c)          any act of terrorism or any action taken in
controlling, preventing, suppressing or in any way relating to any act of
terrorism.  An act of terrorism means an
act, including but not limited to the use of force or violence and/or the
threat thereof, of any person or group(s) of persons, whether acting alone or
on behalf of or in connection with any organization(s) or government(s),
committed for political, religious, ideological or similar purposes including
the intention to influence any government and/or to put the public, or any
section of the public, in fear;

 

(d)         strikes, lockouts or other labour
disturbances, riots, authority of law, acts of God or means beyond the control
of the Mint, the Mint’s Facility and/or any Sub-Custodian; or

 

(e)          a case of Force Majeure.

 

12

 

13.           Consequential
Damages

 

The Mint shall not
be liable under any circumstance whatsoever for special, incidental,
consequential, indirect or punitive losses or damages (including lost profits
or lost savings), except as a result of gross negligence or wilful misconduct
by the Mint and whether or not the Mint had knowledge that such losses or
damages might be incurred.

 

14.          Transportation of Property

 

In the event the
Mint makes arrangements to have the Property transported to the Mint’s Facility
or to deliver Property from the Mint’s Facility to the Customer’s facility or
its designated consignee, such transportation service shall be performed
pursuant to a separate agreement between the Customer and the Mint and the
Customer shall reimburse the Mint for all costs associated therewith.

 

15.           Hazardous
Substances and Right to Refuse Shipment

 

(a)          The Customer hereby
certifies that any and all Property sent to the Mint’s Facility shall be free
of hazardous substances including, but not limited to, beryllium, cadmium,
mercury, polychlorinated biphenzyls and radioactive material.  The Mint reserves the right to sample and
test the Property for the presence of hazardous substances.

 

(b)         The Mint shall have the
right to refuse delivery or reject Property that, in the Mint’s opinion, acting
reasonably, contains a hazardous substance, or is, or becomes, unsuitable or
undesirable whether for metallurgical, environmental or other reasons.  Without prejudice to the Mint’s right to
refuse delivery or reject Property as described above, prior to the Mint doing
same, the Mint shall discuss the situation with the Customer.

 

(c)          Property that is rejected
by the Mint pursuant to paragraph (b) shall be returned to the Customer at the
latter’s cost. The Customer shall, upon reception of a notice of rejection from
the Mint, provide the Mint with written instructions detailing the Customer’s
arrangements for return of the Property. 
Pending receipt of such instructions, the Mint may take action, as it
considers appropriate, for the proper packaging and handling of the Property.  Any expenses incurred by the Mint in doing so
shall be for the Customer’s account.

 

(d)         The Customer shall be
liable and shall indemnify and hold harmless the Mint, its directors, officers,
employees and agents, from and against any damages, losses, injuries, costs or
expenses or any claim, action, suit or other proceeding, including reasonable
settlement, judgment and attorney’s fees, arising out of the presence of any
hazardous substances contained in the Property.

 

13

 

16.           Term
of the Agreement and Return of Property

 

This Agreement shall
be effective as of the date first indicated above and shall continue thereafter
for a term of three (3) years, unless earlier terminated in accordance with the
terms of this Agreement.

 

Prior to the
expiration of the term of any renewal(s) thereof, the Customer shall provide
the Mint with written instructions regarding the return of the Property. The
costs for returning the Property shall be borne by the Customer. Property left
in storage at the Mint’s Facility after the expiration date will be subject to
storage and handling charges which may differ from those set out in the Rate
Schedule attached hereto.  The Customer
also agrees to reimburse the Mint for any and all costs incurred by the Mint by
reason of the Property having been left in storage at the Mint’s Facility after
the expiration date.

 

17.           Termination
for Default

 

Where: (i) the
Customer is in default in carrying out any of its obligations under this
Agreement and fails to correct said default within ten (10) Business Days
following a written notice sent by the Mint to the Customer informing the
latter of the default; (ii) the Customer is dissolved or adjudged bankrupt, or
a trustee, receiver or conservator of the Customer or of its property is appointed,
or an application for any of the foregoing is filed; or (iii) the Customer is
in breach of any representation or warranty contained herein, the Mint may,
upon giving written notice to the Customer, terminate this Agreement.

 

Where: (i) the Mint
is in default in carrying out any of its obligations under this Agreement and
fails to correct said default within ten (10) Business Days following a written
notice sent by the Customer to the Mint informing the latter of the default;
(ii) the Mint is dissolved or adjudged bankrupt, or a trustee, receiver or
conservator of the Mint or of its property is appointed, or an application for
any of the foregoing is filed; or (iii) the Mint is in breach of any
representation or warranty contained herein, the Customer may, upon giving
written notice to the Mint, terminate this Agreement.

 

Upon the giving of a
written notice of termination by either party pursuant to the terms of the
present section, the Customer shall inform the Mint in writing of its
instructions for the return of the Property and the costs for returning the
Property to the Customer shall be borne by the Customer. Property left in
storage at the Mint’s Facility after the termination date will be subject to
storage and handling charges which may differ from those set out in the Rate
Schedule attached hereto. Also, the Customer agrees to reimburse the Mint for 

 

14

 

any and all costs
incurred by the Mint by reason of the Property having been left in storage at the
Mint’s Facility after the termination date.

 

In case of
termination by the Mint pursuant to the present section, the Customer shall be
liable towards the Mint for all losses and damages which may be suffered by the
Mint by reason of the default or occurrence upon which the notice was
based.  In case of termination by the
Customer pursuant to the present section, the Mint shall be liable towards the
Customer for all losses and damages which may be suffered by the Customer by
reason of the default or occurrence upon which the notice was based.

 

18.           Termination
for Convenience

 

Notwithstanding
anything contained in this Agreement, the Mint may, at its sole discretion and
at any time prior to the expiration of the term or any renewal(s) or
extension(s) thereof, terminate this Agreement by giving the Customer thirty
(30) calendar days written notice to that effect.

 

Upon a notice of
termination being given pursuant to the terms of the present section, the
Customer shall inform the Mint in writing of its instructions for the return of
the Property. In the event of termination under the present section, the costs
of returning the Property to the Customer shall be borne by the Mint. Property
left in storage at the Mint’s Facility after the termination date due to the
Customer not having given said return instructions prior to termination date
will be subject to storage and handling charges which may differ from those set
out in the Rate Schedule attached hereto. Also, the Customer agrees to
reimburse the Mint for any and all costs incurred by the Mint by reason of the
Property having been left in storage at the Mint’s Facility after the
termination date due to the Customer not having given said return instructions
prior to termination date.

 

In the event of
termination under the present section, the Customer will have no claim for
compensation except as otherwise specified in the present Agreement and will
have no claim for damages or loss of profit as a result of the termination.

 

19.           Notices

 

Any notice given
under this Agreement will be in writing, and will be delivered by messenger,
prepaid registered mail, facsimile or email to the following addresses:

 

	
  If to the Mint:

  	
  If to the
  Customer:

  
	
   

  	
   

  
	
  Director, Mint Office

  	
  Steven
  Rostowsky

  
	
  Royal Canadian Mint

  	
  Chief
  Financial Officer

  
	
  320 Sussex Drive

  	
  Sprott
  Asset Management LP

  
	
  Ottawa, ON

  	
  200 Bay Street,
  Suite 2700

  

 

15

 

	
  Facsimile: (613) 998-1330

  	
  Toronto, Ontario
  M5J 2J1

  
	
  E-mail: entwistle@mint.ca

  	
  Facsimile: (416)
  943-6497

  
	
   

  	
  E-mail :
  srostowsky@sprott.com

  

 

A party may change
its address by informing the other party of the new address in writing.  Each notice shall be deemed given: (i) when
received, if delivered by messenger; (ii) upon confirmation of receipt, if
given by facsimile or email; or (iii) three (3) Business Days after the date of
mailing when sent by prepaid registered mail.

 

20.           Waiver

 

The failure of a
party to insist upon strict adherence to any term of this Agreement on one or
more occasions will not be considered a waiver or deprive the party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement.

 

21.           Entire
Agreement

 

This Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all prior and/or contemporaneous offers,
negotiations, promises, exceptions and understandings, whether oral or written,
between the parties hereto with respect to the subject matter hereof.

 

22.           Amendments

 

Except as specifically
provided for herein, this Agreement may not be waived, altered or amended
except by an instrument in writing duly executed by the Customer and the Mint.

 

23.           Assignment

 

This Agreement shall
be binding on the Customer and the Mint and their respective successors and
assigns.  Neither the Customer nor the
Mint shall assign or transfer its rights or obligations hereunder without the
prior written consent of the other.  Any
such consent shall not be unduly delayed or unreasonably withheld.

 

24.           Applicable
Law and Arbitration

 

This Agreement and
all matters relating to this Agreement (whether in contract, statute, tort
(including, without limitation, negligence) or otherwise), is governed by, and
construed in accordance with, the laws of the Province of Ontario (without
giving effect to the choice of law principles thereof).

 

Any dispute arising
out of or in connection with this Agreement, including any question regarding
its existence, validity or termination, shall be referred to and finally resolved
by arbitration in accordance with the Commercial Arbitration
Act, R.S.C. 1985, c.17 (2nd 

 

16

 

Supp.) and any
amendments thereto.  The number of
arbitrators will be three (3).  The place
of arbitration will be the City of Ottawa, Ontario, Canada.  The language to be used in the arbitral
proceedings is English and/or French.

 

25.           No
Bribe

 

The
Customer warrants:

 

(a)          that no bribe, gift or
other inducement has been paid, given, promised or offered to any official or
employee of the Mint for, or with a view to, the obtaining of the Agreement by
the Customer; and

 

(b)         that it has not employed
any person to solicit or secure the Agreement upon any agreement for a
commission, percentage, brokerage or contingent fee.

 

26.           Members
of the House of Commons

 

No
Member of the House of Commons shall be admitted to any share or part of the
Agreement or to any benefit to arise therefrom.

 

27.           Confidentiality

 

All information
regarding the Property, including, but not limited to: (i) kind, type,
quantity, form and size of the Property in inventory at any time; and (ii)
customers of the Customer to whom Property is released or transferred, is
considered by the Customer to be confidential. 
The Mint shall keep such information confidential and not use such
information, either for its own benefit or for the benefit of any third party
or disclose such information, either directly or indirectly, except as required
by applicable legislation, government directives and/or policies and except
that the Mint may use and/or disclose such information in litigation; provided,
however, that the Mint shall promptly notify the Customer of the circumstances
requiring such disclosure (unless such notice is prohibited by order, subpoena,
applicable legislation, government directives and/or policies).  It is agreed that the Mint may disclose any
of the above information to any Sub-Custodian provided that the agreement with
such Sub-Custodian will contain substantially similar confidentiality provisions.

 

28.           Investment
Advice

 

It is understood and
agreed that, as part of its services under this Agreement, the Mint has not
undertaken a duty to supervise the Customer’s investment in, or to make any
recommendation to the Customer with respect to, the purchase, sale or other
disposition of any Property or the balance of Property the Customer maintains
in inventory

 

17

 

IN WITNESS WHEREOF, each of the parties
hereto has caused this Agreement to be executed on its behalf by its duly
authorized officer(s), as of the date and year written above.

 

 

Royal Canadian Mint

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Beverley Lepine

  	
   

  
	
   

  	
  Chief Operating
  Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  John Moore

  	
   

  
	
   

  	
  Executive
  Director,

  	
   

  
	
   

  	
  Bullion and
  Refinery

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Sprott
  Asset Management LP

  	
   

  
	
  for and on behalf
  of Sprott Physical Silver Trust, by its general partner Sprott Asset
  Management GP Inc.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Kirstin McTaggart

  	
   

  
	
   

  	
  Chief Compliance
  Officer

  	
   

  
	
   

  	
  Director

  	
   

  

 

18

 

RATE SCHEDULE to
Silver Storage Agreement bearing number                     by and between the Royal Canadian Mint and
Sprott Physical Silver Trust (“Customer”).

 

STORAGE AND HANDLING CHARGES

 

PRECIOUS METAL NON
EXCHANGE MONTHLY STORAGE AND WITHDRAWAL CHARGE (by type and weight)

 

 

	
   

  	
   

  	
   

  	
   

  	
  DEPOSIT/WITHDRAWAL

  
	
  TYPE AND WEIGHT

  	
   

  	
  STORAGE RATES

  	
   

  	
  RATES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  London Good
  Delivery

  	
   

  	
  USD $2.00 per bar
  per month

  	
   

  	
  USD $5.00 per bar

  
	
  Silver 

  	
   

  	
   

  	
   

  	
  Barsdeposited or
  withdrawn

  

 

MISCELLANEOUS
CHARGES:

 

	
  Transfer of Allocated Storage

  	
  USD $50.00per
  transfer

  
	
  Repacking of Pallet

  	
  USD $50.00per
  pallet packing fee

  
	
  Auditing Fee

  	
  USD $500 per hour

  

 

19

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