-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JLbgF6bFh1DEacDfVgLMjJt62aK061pH5cOyqZkgtE8/Fj049C3DqXK8nvFz66XR YWdd6LqK9OoWApJJUmWYDA== 0001214305-10-000022.txt : 20101101 0001214305-10-000022.hdr.sgml : 20101101 20101101133150 ACCESSION NUMBER: 0001214305-10-000022 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20101101 DATE AS OF CHANGE: 20101101 GROUP MEMBERS: PORTSMOUTH SQUARE, INC. GROUP MEMBERS: SANTA FE FINANCIAL CORPORATION GROUP MEMBERS: THE INTERGROUP CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: Comstock Mining Inc. CENTRAL INDEX KEY: 0001120970 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 650955118 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-79707 FILM NUMBER: 101154218 BUSINESS ADDRESS: STREET 1: 1200 AMERICAN FLAT ROAD CITY: GOLD HILL, STATE: NV ZIP: 89440 BUSINESS PHONE: 480-505-4040 MAIL ADDRESS: STREET 1: P.O. BOX 1118 CITY: VIRGINIA CITY, STATE: NV ZIP: 85255 FORMER COMPANY: FORMER CONFORMED NAME: GOLDSPRING INC DATE OF NAME CHANGE: 20040730 FORMER COMPANY: FORMER CONFORMED NAME: GOLDSPRING DATE OF NAME CHANGE: 20030821 FORMER COMPANY: FORMER CONFORMED NAME: STARTCALL COM INC DATE OF NAME CHANGE: 20010305 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WINFIELD JOHN V CENTRAL INDEX KEY: 0000935390 FILING VALUES: FORM TYPE: SC 13D MAIL ADDRESS: STREET 1: THE INTERGROUP CORPORATION STREET 2: 10940 WILSHIRE BLVD., SUITE 2150 CITY: LOS ANGELES STATE: CA ZIP: 90024 SC 13D 1 jw13d102010.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No ______) Comstock Mining, Inc. ------------------------------ Name of Issuer Common Stock --------------------------------------- (Title of Class of Securities) 205750102 ------------ CUSIP Number John V. Winfield The InterGroup Corporation 10940 Wilshire Blvd., Suite 2150 Los Angeles, California 90024 (310) 889-2500 -------------------------------------------- Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications October 20, 2010 ------------------ Date of Event which Requires Filing of this Statement If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. [ ] CUSIP No. 205750102 Page 2 - ----------------------------------------------------------------------------- 1. Name of Reporting Person Tax Identification Number John V. Winfield - ----------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) [ ] (b) [x] - ----------------------------------------------------------------------------- 3. SEC Use Only - ----------------------------------------------------------------------------- 4. Source of Funds PF - ----------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(d) or 2(e) [ ] - ----------------------------------------------------------------------------- 6. Citizenship or Place of Organization U.S. - ----------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 66,540,464(Item 5) Beneficially ----------------------------------- Owned by 8. Shared Voting Power Each 103,113,303 (Item 5) Reporting ----------------------------------- Person 9. Sole Dispositive Power With 66,540,464 (Item 5) ----------------------------------- 10. Shared Dispositive Power 103,113,303 - ----------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 169,653,767 Voting Shares of Common Stock (See Item 5) - ----------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row 11 Excludes Certain Shares [ ] - ----------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row 11 76.0% (See Item 5) - ----------------------------------------------------------------------------- 14. Type of Reporting Person IN - ----------------------------------------------------------------------------- CUSIP No. 205750101 Page 3 - ----------------------------------------------------------------------------- 1. Name of Reporting Person Tax Identification Number The InterGroup Corporation 13-3293645 - ----------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) [ ] (b) [x] - ----------------------------------------------------------------------------- 3. SEC Use Only - ----------------------------------------------------------------------------- 4. Source of Funds WC - ----------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(d) or 2(e) [ ] - ----------------------------------------------------------------------------- 6. Citizenship or Place of Organization Delaware - ----------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 0 Beneficially ----------------------------------- Owned by 8. Shared Voting Power Each 51,137,530 (Item 5) Reporting ----------------------------------- Person 9. Sole Dispositive Power With 0 ----------------------------------- 10. Shared Dispositive Power 51,137,530 (Item 5) - ----------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 51,137,530 Voting Shares of Common Stock (See Item 5) - ----------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row 11 Excludes Certain Shares [ ] - ----------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row 11 22.9% (See Item 5) - ----------------------------------------------------------------------------- 14. Type of Reporting Person CO - ----------------------------------------------------------------------------- CUSIP No. 205750101 Page 4 - ----------------------------------------------------------------------------- 1. Name of Reporting Person Tax Identification Number Santa Fe Financial Corporation 95-2452519 - ----------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) [ ] (b) [x] - ----------------------------------------------------------------------------- 3. SEC Use Only - ----------------------------------------------------------------------------- 4. Source of Funds WC - ----------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(d) or 2(e) [ ] - ----------------------------------------------------------------------------- 6. Citizenship or Place of Organization Nevada - ----------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 0 Beneficially ----------------------------------- Owned by 8. Shared Voting Power Each 17,553,166 (Item 5) Reporting ----------------------------------- Person 9. Sole Dispositive Power With 0 ----------------------------------- 10. Shared Dispositive Power 17,553,166 (Item 5) - ----------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 17,553,166 Voting Shares of Common Stock (See Item 5) - ----------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row 11 Excludes Certain Shares [ ] - ----------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row 11 7.9% (See Item 5) - ----------------------------------------------------------------------------- 14. Type of Reporting Person CO - ----------------------------------------------------------------------------- CUSIP No. 205750102 Page 5 - ----------------------------------------------------------------------------- 1. Name of Reporting Person Tax Identification Number Portsmouth Square, Inc. 94-1674111 - ----------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) [ ] (b) [x] - ----------------------------------------------------------------------------- 3. SEC Use Only - ----------------------------------------------------------------------------- 4. Source of Funds WC - ----------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(d) or 2(e) [ ] - ----------------------------------------------------------------------------- 6. Citizenship or Place of Organization California - ----------------------------------------------------------------------------- Number of 7. Sole Voting Power Shares 0 Beneficially ----------------------------------- Owned by 8. Shared Voting Power Each 34,422,607 (Item 5) Reporting ----------------------------------- Person 9. Sole Dispositive Power With 0 ----------------------------------- 10. Shared Dispositive Power 34,422,607 (Item 5) - ----------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 34,422,607 Voting Shares of Common Stock (See Item 5) - ----------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row 11 Excludes Certain Shares [ ] - ----------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row 11 15.4% (See Item 5) - ----------------------------------------------------------------------------- 14. Type of Reporting Person CO - ----------------------------------------------------------------------------- Item 1. Security and Issuer ------------------- The class of equity securities to which this Schedule 13D relates is the Common Stock ("the Common Stock") of Comstock Mining, Inc., a Nevada corporation ("Comstock" or the "Issuer"). The address of the principal executive offices of the Issuer is 1200 American Flat Road, Virginia City, Nevada 89440. Item 2. Identity and Background ----------------------- John V. Winfield's business address is 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. Mr. Winfield principal occupation is President, Chief Executive Officer and Chairman of the Board of The InterGroup Corporation and its consolidated subsidiaries Santa Fe Financial Corporation and Portsmouth Square, Inc. Mr. Winfield has not been subject to any proceedings requiring disclosure under sections (d) and (e) of this Item. Mr. Winfield is a citizen of the United States. The InterGroup Corporation ("InterGroup") is a Delaware corporation with its principal place of business at 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. InterGroup is a public company (NASDAQ: INTG) The principal business of InterGroup is to own and operate multi-family residential property and other real estate. Attached hereto as Appendix A is a schedule setting forth the executive officers and directors of InterGroup. InterGroup and/or any of its named executive officers and directors have not been subject to any of the proceedings requiring disclosure under sections (d) or (e) of this Item. The Santa Fe Financial Corporation ("Santa Fe") is a Nevada corporation with its principal place of business at 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. Santa Fe is a public company (OTCBB: SFEF) and a 76%-owned subsidiary of InterGroup. The principal business of Santa Fe is to own and operate real estate. Attached hereto as Appendix B is a schedule setting forth the executive officers and directors of Santa Fe. Santa Fe and/or any of its named executive officers and directors have not been subject to any of the proceedings requiring disclosure under sections (d) or (e) of this Item. The Portsmouth Square, Inc. ("Portsmouth") is a California corporation with its principal place of business at 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. Portsmouth is a public company (OTCBB: PRSI) and a 68.8%-owned subsidiary of Santa Fe. InterGroup owns an additional 11.7% of Portsmouth. The principal business of Portsmouth is to own and operate real estate, primarily a San Francisco hotel, through a limited partnership. Attached hereto as Appendix C is a schedule setting forth the executive officers and directors of Portsmouth. Portsmouth and/or any of its named executive officers and directors have not been subject to any of the proceedings requiring disclosure under sections (d) or (e) of this Item. -6- Item 3. Source and Amount of Funds or Other Consideration. -------------------------------------------------- Mr. Winfield used personal funds to purchase the shares of Common Stock reported herein. InterGroup, Santa Fe and Portsmouth used working capital as its source of funds to purchase the shares of Common Stock. See Item 4 below regarding the exchange of notes, convertible notes and debt instruments for preferred stock. Item 4. Purposes of Transactions. ------------------------ On October 20, 2010, Mr. Winfield, InterGroup, Santa Fe and Portsmouth exchanged an aggregate of approximately $20,912,000 in notes, convertible notes and debt instruments that they held in Comstock for a total of 20,912 shares of newly created 7 1/2% Series A-1 Convertible Preferred Stock (the "A-1 Preferred") of the Issuer. Of that amount, 7,681 shares of A-1 Preferred were issued to Mr. Winfield, 6,572 shares were issued to InterGroup, 2,249, shares were issued to Santa Fe and 4,410 shares were issued to Portsmouth. Together, Mr. Winfield, InterGroup, Santa Fe and Portsmouth constitute all of the holders of the A-1 Preferred. Each share of A-1 Preferred has a stated value of $1,000 per share and a liquidation and change of control preference equal to the stated value plus accrued and unpaid dividends. Commencing January 1, 2011, the holders are entitled to semi-annual dividends at a rate of 7.5% per annum, payable in cash, common stock preferred stock or any combination of the foregoing, at the election of Comstock. At the holder's election, each share of A-1 Preferred is convertible at a fixed conversion rate (subject to anti dilution) into 1,536 shares of common stock of Comstock, therefore converting into common stock at a conversion price of $0.6510. Each share of A-1 Preferred will entitle the holder to vote with the holders of common stock as a single class on all matters submitted to the vote of the common stock (on an as converted basis) and, for purposes of voting only, each share of A-1 Preferred shall be entitled to five times the number of votes per common share to which it would otherwise be entitled. Each share of Series A-1 Preferred shall entitle its holder to one (1) vote in any matter submitted to vote of holders of Preferred Stock, voting as a separate class. The A-1 Preferred, in conjunction with the other series of newly created Preferred Stock of Comstock discussed below, also has certain rights requiring consent of the Preferred Stock holders for Comstock to take certain corporate and business actions. The holders will have registration rights with respect to the shares of common stock underlying the A-1 Preferred and also preemptive rights, In addition, so long as the holders of the A-1 Preferred hold 25% or more of the total Preferred Stock of Comstock, (i) Mr. Winfield will be a member of Comstock's board of directors and (ii) the A-1 Preferred holders will have the right, upon written request to Comstock, to nominate a member of Comstock's board of directors who meet the definition of an "independent" director" and other requirements. The foregoing description of the Certificate of Designation of Preferences and Rights and Limitations of 7 1/2% Series A-1 Convertible Preferred Stock, attached to this report as Exhibit A. -7- Concurrent with the exchange of the convertible debt held by Mr. Winfield, InterGroup, Santa Fe and Portsmouth for A-1 Preferred, Comstock also exchanged approximately $8,483,000 of other senior indebtedness for 8,483 shares of newly created 7 1/2% Series A-2 Convertible Preferred Stock (the A-2 Preferred") and issued 35,750 shares of 7 1/2% Series B Convertible Preferred Shares (the "B Preferred") as part of a new equity raise of $35.75 million in gross proceeds ($32 million, net of commissions and transaction related expenses). Each share of A-2 Preferred is convertible into 1,536 shares of common stock and each share of B Preferred is convertible into 606 shares of common stock, both at a fixed conversion rate (subject to anti dilution adjustments). Each share of A-2 Preferred and B Preferred will entitle the holder to vote with the holders of common stock as a single class on all matters submitted to the vote of the common stock on an as converted basis. Each share of A-2 Preferred and B Preferred shall also entitle its holder to one (1) vote in any matter submitted to vote of holders of Preferred Stock, voting as a separate class. Following these transactions, the A-1 Preferred will constitute approximately 32.1% of the total Preferred stock of Comstock. As long as 25% or more of the Preferred Stock issued on or prior to October 20, 2010 is outstanding, Comstock will not be permitted (subject to limited exceptions) without the consent of the Preferred Stock, to incur indebtedness, grant liens, repurchase more than 5% of the common stock outstanding, enter into any transaction with an affiliate of Comstock which is not on an arm's length basis, enter into transactions with affiliates of officers or directors that provide for the payment of services in securities of Comstock, amend its certificate of incorporation, by-laws, or a certificate of designations of the Preferred Stock in a manner that adversely affects the interests of the Preferred Stock, issue new series of preferred stock, pay dividends on equity junior to the Preferred Stock, adopt an executive equity incentive plan which provides for the issuance of not greater than 6.0% of the fully diluted equity of the Company, enter into any transaction for the sale or pledge of a material asset of Comstock, approve or consent to the initiation of a bankruptcy proceeding or issue any securities of the Comstock in exchange for services to a consultant. A majority of the Preferred Stock is generally required to provide consent; provided, that the holders of the A-1 Preferred must be part of that majority so long as they hold 25% or more of the Preferred Stock. In addition, as long as at least 25% of the Preferred Stock issued on or prior to October 20, 2010, is still outstanding, and as long as the holders of the A-1 Preferred still hold at least 25% of the Preferred Stock, Comstock shall not, without the affirmative vote of the holders of the A-1 Preferred, enter into any transaction for the acquisition of any business, property or asset pursuant to which Comstock will incur indebtedness to finance such acquisition in principal amount in excess of $500,000, pay any dividends to holders of Preferred Stock in cash in an amount to exceed $500,000, engage in a private placement or public offering of any common stock or common stock equivalents of the Comstock, enter into a Change of Control Transaction (as defined in each certificate of designation) or enter into any transaction that would constitute a Fundamental Transaction (as defined in each certificate of designation). On October 20, 2010, Mr. Winfield and DWC Resources, Inc. (a company controlled by Mr. Winfield) entered into a Limited Liability Company Operating Agreement ("Operating Agreement") for Northern Comstock LLC ("Northern -8- Comstock"), a newly formed Nevada limited liability company. Pursuant to the Operating Agreement, Comstock will obtain the exclusive rights of production and exploration over certain property owned by DWC Resources, Inc. in Storey County, Nevada (the "DWC Property") and two parcels leased by Mr. Winfield from the Sutro Tunnel Company in Storey County, Nevada (the "Sutro Property") and Virginia City Ventures, Inc. (the "VCV Property"). Pursuant to the terms of the Operating Agreement, DWC Resources, Inc. will contribute the DWC Property to Northern Comstock, Mr. Winfield will contribute his rights to the Sutro Property and the VCV Property to Northern Comstock and Comstock will contribute 862.5 shares of A-1 Preferred and its services in the area of mine exploration, development and production to Northern Comstock. The terms of the Operating Agreement provide that on each anniversary of the Operating Agreement, up to and including the thirty-ninth (39th) anniversary, the Comstock will make additional capital contributions in the amount of $862,500.00, in the form of shares of A-1 Preferred or cash upon request of Northern Comstock. Under certain circumstances, the additional capital contributions can be accelerated. The Operating Agreement further provides Comstock with the exclusive rights of development, production, mining and exploration on the respective properties and requires the Comstock to make certain capital expenditures toward that end. Under the terms of the Operating Agreement (i) all cash flows from the bullion or other minerals recovered from the ore mined out of the ground but untreated and minerals produced from the milling or reduction of ore to a higher grade produced from the DWC Property, Sutro Property or VCV Property, as applicable, or finished products produced from any such property, will be distributed to Comstock after certain distributions to the other members of Northern Comstock; (ii) an annual distribution of 500 and 362.5 shares of A-1 Preferred will be set aside for distribution to DWC Resources, Inc. and Mr. Winfield, respectively, but such distribution will be retained by Northern Comstock unless DWC Resources, Inc. and Mr. Winfield otherwise instruct the Company to distribute the shares to them; and (iii) all other distributions of cash or other property of Northern Comstock shall be permitted only with the prior written consent of all members. The foregoing description of the Operating Agreement, and the specific terms of the Operating Agreement, is qualified in its entirety by reference to the provisions of the Operating Agreement attached to this report as Exhibit B. On October 20, 2010, Comstock made its contribution of 862.5 shares of A-1 Preferred to Northern Comstock. As the Manager of Northern Comstock, Mr. Winfield has the sole voting power over the shares of A-1 Preferred owned by Northern Comstock and the Common Stock represented thereby. Mr. Winfield, InterGroup, Santa Fe have acquired the securities of Issuer for investment purposes. Although neither Mr. Winfield nor InterGroup have any present intention to do so, Mr. Winfield or InterGroup may make additional purchases of the securities of Issuer either in the open market or in privately negotiated transactions depending on an evaluation of the Issuer's business prospects and financial condition, the market for securities, other available investment opportunities, money and other stock market conditions and other future developments. Depending on these factors, Mr. Winfield and/or InterGroup may decide at any time to sell all or part of their holdings of the Issuer's securities in one or more public or private transactions. Other than discussed above, Mr. Winfield, InterGroup, Santa Fe and/or Portsmouth do not have any present plan or proposal that relate to or would result in any of the events set forth in clauses (a) through (j) of Item 4 of Schedule 13D. -9- Item 5. Interest in the Securities of the Issuer ---------------------------------------- (a) As of October 29, 2010, Mr. Winfield owns the following securities of the Issuer: (1) 607,634 shares of Common Stock; (2) 318,750 vested warrants to purchase 318,750 shares of Common Stock; (3) 7,681 shares of A-1 Preferred, representing 11,798,016 shares of Common Stock (on an as converted basis) and which have the voting power of 58,990,080 shares of Common Stock on matters to be voted on by the holders of Common Stock. In addition, Mr. Winfield has the sole voting power over 862.5 shares of A-1 Preferred owned by Northern Comstock, representing 1,324,800 shares of Common Stock (on an as converted basis) and which have the voting power of 6,624,000 shares of Common Stock on matters to voted on by the holders of Common Stock. Those securities represent a total of 66,540,464 voting shares and constitute approximately 29.8% of the voting power of the Common Stock of the Issuer. As of October 29, 2010, InterGroup owns the following securities of the Issuer: (1) 537,070 shares of Common Stock; (2) 127,750 vested warrants to purchase 127,500 shares of Common Stock; (3) 6,572 shares of A-1 Preferred, representing 10,094,592 shares of Common Stock (on an as converted basis) and which have the voting power of 50,472,960 shares of Common Stock on matters to be voted on by the holders of Common Stock. Those securities represent a total of 51,137,530 voting shares and constitute approximately 22.9% of the voting power of the Common Stock of the Issuer. As of October 29, 2010, Santa Fe owns the following securities of the Issuer: (1) 217,096 shares of Common Stock; (2) 63,750 vested warrants to purchase 63,750 shares of Common Stock; (3) 2,249 shares of A-1 Preferred, representing 3,454,464 shares of Common Stock (on an as converted basis) and which have the voting power of 17,272,320 shares of Common Stock on matters to be voted on by the holders of Common Stock. Those securities represent a total of 17,553,166 voting shares and constitute approximately 7.9% of the voting power of the Common Stock of the Issuer. As of October 29, 2010, Portsmouth owns the following securities of the Issuer: (1) 426,307 shares of Common Stock; (2) 127,750 vested warrants to purchase 127,500 shares of Common Stock; (3) 4,410 shares of A-1 Preferred, representing 6,773,760 shares of Common Stock (on an as converted basis) and which have the voting power of 33,868,800 shares of Common Stock on matters to be voted on by the holders of Common Stock. Those securities represent a total of 34,422,607 of the voting shares and constitute approximately 15.4% of the voting power of the Common Stock of the Issuer. (b) Mr. Winfield has the sole voting and disposition power over the shares of Common Stock, warrants and A-1 Preferred owned by him. As Chairman, Present and CEO of InterGroup, Santa Fe and Portsmouth, Mr. Winfield can be deemed to have shared power with those entities to direct the voting and disposition of the Common Stock, warrants and A-1 Preferred of Issuer owned by InterGroup, Santa Fe and Portsmouth. Thus, Mr. Winfield may be deemed to beneficially own for purposes of Section 13D of the Exchange Act, approximately 76% of the voting power of the Common Stock of the Issuer. -10- The above percentages were determined based on the Issuer's disclosures in its Current Report on Form 8-K, dated October 20, 2010, that it would have approximately 88,600,000 shares of Common Stock outstanding (on a converted basis) after the transactions discussed above. After giving effect to the five times voting rights afforded the holders of the A-1 Preferred and assuming the exercise of the warrants, Comstock would have approximately 223,046,000 voting shares outstanding. (c) In addition to the transactions discussed above, the following transactions in the Common Stock were effected during the past 60 days by InterGroup, Santa Fe and Portsmouth. Average Price per Identity Date Amount Share Nature of Transaction - ---------- -------- ------- --------- --------------------- InterGroup 10/20/10 265,792 $2.00 Exercise of Warrants* Santa Fe 10/20/10 173,883 $2.00 Exercise of Warrants* Portsmouth 10/20/10 365,254 $2.00 Exercise of Warrants* * All transactions were cashless exercises of warrants. (d) No person other than Mr. Winfield, with respect to his shares, or InterGroup, Santa Fe and Portsmouth with respect to their shares, has the right to receive or the power to direct the receipt of dividends from, and the proceeds from the sale of, the shares beneficially owned by each. (e) Not Applicable. Item 6. Contracts, Agreements, Understandings or Relationships with Respect to Securities of the Issuer ------------------------------------------------------------------- The information disclosed in Item 4 of this Schedule 13D relating to contracts, agreements, understandings or relationships with respect to the securities of the Issuer is incorporated into this Item 6. Item 7. Material to be Filed as Exhibits -------------------------------- The information disclosed in Item 4 of this Schedule 13D is incorporated by reference into this Item 7. The following documents are filed as Exhibits to this report. Exhibit A - Certificate of Designation of Preferences and Rights and Limitations of 7 1/2% Series A-1 Convertible Preferred Stock Exhibit B - Northern Comstock LLC Limited Liability Company Operating Agreement -11- SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 1, 2010 /s/ John V. Winfield ---------------- --------------------------- John V. Winfield THE INTERGROUP CORPORATION Dated: November 1, 2010 by /s/ John V. Winfield ---------------- --------------------------- John V. Winfield, Chairman, President and CEO SANTA FE FINANCIAL CORPORATION Dated: November 1, 2010 by /s/ John V. Winfield ---------------- --------------------------- John V. Winfield, Chairman, President and CEO PORTSMOUTH SQUARE, INC. Dated: November 1, 2010 by /s/ John V. Winfield ---------------- --------------------------- John V. Winfield, Chairman, President and CEO -12- APPENDIX A THE INTERGROUP CORPORATION Executive Officers and Directors* John V. Winfield - Chairman of the Board, President and Chief Executive Officer, The InterGroup Corporation, Santa Fe Financial Corporation and Portsmouth Square, Inc. Citizenship: United States William J. Nance - Director. Principal Occupation: Certified Public Accountant ("CPA") and Consultant. Citizenship: United States Gary N. Jacobs - Secretary and Director. Principal Occupation: Attorney at Law Citizenship: United States John C. Love - Director. Principal Occupation: Retired CPA, Independent consultant to the hospitality and tourism industries; real estate broker. Citizenship: United States Joseph A. Grunwald - Vice Chairman of the Board. Principal Occupation: Industrial, commercial and residential real estate developer. Citizenship: Belgium David C. Gonzalez - Vice President Real Estate, The InterGroup Corporation. Citizenship: United States David T. Nguyen - Treasurer and Controller, Certified Public Accountant. Citizenship: United States. Michael G. Zybala - Assistant Secretary and General Counsel. Citizenship: United States * Business Address: The business address for all executive officers and directors is c/o The InterGroup Corporation, 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. APPENDIX B SANTA FE FINANCIAL CORPORATION Executive Officers and Directors* John V. Winfield - Chairman of the Board, President and Chief Executive Officer, The InterGroup Corporation, Santa Fe Financial Corporation and Portsmouth Square, Inc. Citizenship: United States William J. Nance - Director. Principal Occupation: Certified Public Accountant ("CPA") and Consultant. Citizenship: United States John C. Love - Director. Principal Occupation: Retired CPA, Independent consultant to the hospitality and tourism industries; real estate broker. Citizenship: United States David T. Nguyen - Treasurer and Controller, Certified Public Accountant. Citizenship: United States. Michael G. Zybala - Vice President, Secretary and General Counsel. Citizenship: United States * Business Address: The business address for all executive officers and directors is c/o Santa Fe Financial Corporation, 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. APPENDIX C PORTSMOUTH SQUARE, INC. Executive Officers and Directors* John V. Winfield - Chairman of the Board, President and Chief Executive Officer, The InterGroup Corporation, Santa Fe Financial Corporation and Portsmouth Square, Inc. Citizenship: United States William J. Nance - Director. Principal Occupation: Certified Public Accountant ("CPA") and Consultant. Citizenship: United States Jerold R. Babin - Director. Principal Occupation: Retail Securities Broker, Retired First Vice President Wells Fargo Advisors. Citizenship: United States John C. Love - Director. Principal Occupation: Retired CPA, Independent consultant to the hospitality and tourism industries; real estate broker. Citizenship: United States Joseph A. Grunwald - Director. Principal Occupation: Industrial, commercial and residential real estate developer. Citizenship: Belgium David T. Nguyen - Treasurer and Controller, Certified Public Accountant. Citizenship: United States. Michael G. Zybala - Vice President, Secretary and General Counsel. Citizenship: United States * Business Address: The business address for all executive officers and directors is c/o Portsmouth Square, Inc., 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. EX-99 2 exa13d102010.txt EXHIBIT A Exhibit A COMSTOCK MINING INC. CERTIFICATE OF DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS OF 7 1/2% SERIES A-1 CONVERTIBLE PREFERRED STOCK PURSUANT TO SECTION 78.1955 OF THE NEVADA REVISED STATUTES The undersigned, Corrado De Gasperis, does hereby certify that: 1. He is the President and Chief Executive Officer of Comstock Mining Inc., a Nevada corporation (the "Corporation"). 2. The Corporation is authorized to issue up to 50,000,000 shares of its preferred stock, none of which have been issued. 3. The following resolutions were duly adopted by the board of directors of the Corporation (the "Board of Directors"): WHEREAS, the certificate of incorporation of the Corporation provides for a class of its authorized stock known as the "Preferred Stock," consisting of up to 50,000,000 shares, $0.000666 par value per share, issuable from time to time in one or more series; WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of the Preferred Stock and the number of shares constituting any series and the designation thereof, of any of them; and WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the Preferred Stock, which shall consist of up to 1,500,000 shares of the Preferred Stock which the Corporation has the authority to issue, to be designated as "7 1/2% Series A-1 Convertible Preferred Stock," as follows: NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of Preferred Stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of Preferred Stock as follows: TERMS OF 7 1/2% SERIES A-1 CONVERTIBLE PREFERRED STOCK Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings: "Additional Dividend" shall have the meaning set forth in Section 3(b). "Additional Shares of Common Stock" shall have the meaning set forth in Section 7(b). 1 "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act. "Aggregate Consideration" received by the Corporation with respect to any issuance of Additional Shares of Common Stock shall: (a) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issuance and without deduction of any expenses payable by the Corporation, (b) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (c) with respect to Common Stock Equivalents, the purchase price or other consideration received by the Corporation in connection with the issuance of such Common Stock Equivalents, together with the amount of any exercise price or other additional consideration payable to the Corporation in connection with the exercise or conversion (as applicable) of such Common Stock Equivalents. "Alternate Consideration" shall have the meaning set forth in Section 7(d). "Automatic Conversion Date" shall have the meaning set forth in Section 6(b). "Bankruptcy Proceeding" means (i)(a) a voluntary case, action, proceeding or petition or (b) the consent to the institution of, or failure to contest in a timely and appropriate manner, any involuntary case, action, proceeding or petition seeking the liquidation, reorganization or other relief in respect of the Corporation, or of a substantial part of its assets, under any Federal or state bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the application or consent to the appointment of a receiver, interim receiver, receiver manager, trustee, custodian, sequestrator, conservator or similar official for the Corporation or for a substantial part of its assets and, in any such case, such case, action, proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered. "Base Conversion Price" shall have the meaning set forth in Section 7(b) "Business Day" means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. "Change of Control Transaction" means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by any Person or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of a majority of the voting securities of the Corporation (other than by means of conversion or exercise of Series A-1 Preferred Stock and the Parity Securities or upon conversion of any currently outstanding convertible securities in accordance with the terms thereof as in effect on the date hereof), (b) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation as of immediately prior to such transaction do not own a majority of the aggregate voting power of the Corporation or the successor entity of such transaction, (c) the Corporation sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation as of immediately prior to such transaction do not own a majority of the aggregate voting power of the acquiring entity immediately after the transaction, (d) the Corporation, directly or indirectly, transfers a majority of the asset value and/or enterprise value of the Corporation (whichever is lower) to another Person and the stockholders of the Corporation 2 as of immediately prior to such transaction do not own a majority of the aggregate voting power of the acquiring entity immediately after the transaction, or (e) a replacement at one time or within a one year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Closing Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the Closing Date), in each case that has been approved by the stockholders of the Corporation as required under: (i) the Nevada corporate law, (ii) the Corporation's certificate of incorporation, (iii) this Certificate of Designation or (iv) any other agreement to which the Corporation is a party, as applicable. "Closing" means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement. "Closing Date" means the date on which the Closing occurs pursuant to Section 2.1 of the Purchase Agreement. "Common Stock" means the Corporation's common stock, par value $0.000666 per share, and stock of any other class of securities into which such common stock may hereafter be reclassified or changed. "Common Stock Equivalents" means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. "Confidential Information" means any non-public information regarding the Corporation or the Subsidiaries (whether in oral or written form), including, but not limited to, business plans and business prospects, financial information, sales, sales categories, operating methods, inventory, gross margin, profit, expense or other data, reports, surveys or similar information. "Conversion Date" means an Elective Conversion Date or the Automatic Conversion Date, as applicable. "Conversion Price" shall have the meaning set forth in Section 6(c). "Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A-1 Preferred Stock in accordance with the terms hereof. "Conversion Shares Registration Statement" means a registration statement that registers the resale of all Conversion Shares, so long as such Conversion Shares are Registrable Securities (as such term is defined in the Registration Rights Agreement) of the Holders, who shall be named as "selling stockholders" therein, and meets the requirements of the Registration Rights Agreement. "Dilutive Issuance" shall have the meaning set forth in Section 7(b). "Dilutive Issuance Notice" shall have the meaning set forth in Section 7(b). "Dividend Payment Date" shall have the meaning set forth in Section 3(a). "Effective Date" has the meaning set forth in the Purchase Agreement. 3 "Elective Conversion Date" shall have the meaning set forth in Section 6(a). "Equity Conditions" means, as of the date in question: (a) the Corporation shall have duly honored all conversions of Series A-1 Preferred Stock occurring pursuant to one or more Notices of Elective Conversion provided by the applicable Holder to the Corporation, if any; (b) the Corporation shall have paid all amounts owing to the applicable Holder under this Certificate of Designation in respect of its Series A-1 Preferred Stock, if any; (c) the Common Stock is trading on a Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future); (d) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the Conversion Shares; (e) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated; (f) the applicable Holder is not in possession of any information provided by the Corporation that constitutes, or may constitute, material non-public information; and (g) a Bankruptcy Proceeding shall not be pending against the Corporation. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exempt Issuance" shall have the meaning set forth in the Purchase Agreement. "Fundamental Transaction" shall have the meaning set forth in Section 7(d). "GAAP" means United States generally accepted accounting principles. "Holder" shall have the meaning given such term in Section 3(a). "Indebtedness" means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Corporation's balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. "Junior Securities" means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities that are explicitly senior or pari passu to the Series A-1 Preferred Stock in dividend rights or liquidation preference. "Liens" means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. "Liquidation" shall have the meaning set forth in Section 5. "New York Courts" shall have the meaning set forth in Section 11(d). "Notice of Automatic Conversion" shall have the meaning set forth in Section 6(b). "Notice of Elective Conversion" shall have the meaning set forth in Section 6(a). "Originally Issued" means that number of shares of the Series A-1 Preferred Stock issued on the date of the first issuance of such shares, 4 regardless of the number of transfers of any particular shares of Series A-1 Preferred Stock thereafter and regardless of the number of certificates which may be issued to evidence such Series A-1 Preferred Stock. "Parity Securities" means the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and all other capital stock of the Corporation, whether now or hereafter authorized, that is explicitly stated to be pari passu with the Series A-1 Preferred Stock and the Series A-2 Preferred Stock in dividend rights or liquidation preference. "Participation Maximum" shall have the meaning set forth in Section 9(a). "Permitted Indebtedness" means, with respect to the Corporation, any: (a) indebtedness and other obligations arising in the ordinary course of operations or business such as those in respect of business expense reimbursements, workers' compensation claims, bid or performance bonds, reclamation or appeal bonds, surety bonds or letters of credit, leases or deferred purchase price of equipment, trade credit, endorsement of checks, and completion guarantees, (b) indebtedness under a revolving credit facility from banks or similar financial institutions in a principal amount of up to $5,000,000, (c) indebtedness incurred to finance the acquisition, construction or improvement of any newly acquired business, property or asset so long as recourse with respect to such indebtedness is limited solely to such newly acquired business, property or asset; and (d) indebtedness existing as of immediately after the Closing that is set forth on the Disclosure Schedule to the Purchase Agreement. "Permitted Lien" means Liens incurred in connection with Permitted Idebtedness. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "Pre-Notice" shall have the meaning set forth in Section 9(b). "Pro Rata Portion" shall have the meaning set forth in Section 9(e). "Purchase Agreement" means Securities Purchase Agreement, dated on or about the Closing Date, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Corporation and the original Holders, in the form of Exhibit B attached to the Purchase Agreement, as amended, modified or supplemented from time to time in accordance with its terms. "Securities" has the meaning set forth in the Purchase Agreement. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Series A-1 Preferred Stock" shall have the meaning set forth in Section 2. "Series A-2 Preferred Stock" means the Series A-2 Convertible Preferred Stock of the Corporation, with the rights, preferences and privileges set forth in the Certificate of Designation of Preferences, Rights and Limitations of 7 1/2% Series A-2 Convertible Preferred Stock, filed contemporaneously herewith in the Office of the Secretary of State of the State of Nevada. 5 "Stated Value" shall have the meaning set forth in Section 2. "Subsequent Financing" shall have the meaning set forth in Section 9(a). "Subsequent Financing Notice" shall have the meaning set forth in Section 9(b). "Subsidiary" shall have the meaning set forth in the Purchase Agreement. "Successor Entity" shall have the meaning set forth in Section 7(d). "Trading Day" means a day on which the principal Trading Market is open for business. "Trading Market" means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Toronto Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing). "Transaction Documents" has the meaning set forth in the Purchase Agreement. "VWAP" means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the "Pink Sheets" published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Corporation, the fees and expenses of which shall be paid by the Corporation. "Winfield Group" means John V. Winfield, his heirs, personal representatives and family trusts created and controlled by Mr. Winfield, any individual retirement accounts held by Mr. Winfield, Santa Fe Financial Corporation, Portsmouth Square, Inc., and InterGroup Corporation, and any Affiliates of Mr. Winfield; provided, that the Winfield Group shall also include all transferees and assigns of the Winfield Group at any time that a default has occurred under Section 4.2 of the Purchase Agreement and such default has not been cured pursuant to Section 5.13(b) of the Purchase Agreement. Section 2. Designation, Amount and Par Value. The series of Preferred Stock designated by this Certificate of Designation shall be the Corporation's 7 1/2% Series A-1 Convertible Preferred Stock (the "Series A-1 Preferred Stock") and the authorized number of shares so designated shall be up to 1,500,000. Each share of Series A-1 Preferred Stock shall have a par value of $0.000666 per share and a stated value equal to $1,000 (the "Stated Value"). 6 Section 3. Dividends. a) Dividends in Cash or in Kind. Subject to Section 3(f) below, Holders of Series A-1 Preferred Stock (each, a "Holder" and collectively, the "Holders") shall be entitled to receive, and the Corporation shall pay, cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 7 1/2% per annum, payable semiannually on January 1 and July 1, commencing on January 1, 2011 and on each Conversion Date (with respect only to Series A-1 Preferred Stock being converted) (each such date, a "Dividend Payment Date") (if any Dividend Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day), as set forth below in this Section 3(a). The form of dividend payments to each Holder shall be, at the election of the Corporation: (i) if funds are legally available for the payment of dividends, in cash, (ii) subject to the satisfaction of the Equity Conditions, in shares of Common Stock, which shall be valued solely for such purpose at the average of the VWAPs for the 5 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Dividend Payment Date, (iii) subject to the satisfaction of the Equity Conditions, in additional shares (including, without limitation, fractional shares) of Series A-1 Preferred Stock, in an amount equal to the dollar amount of such dividend payment divided by the Stated Value per share, or (iv) subject to the satisfaction of the Equity Conditions, in any combination of the property described in the foregoing clauses (i), (ii), and (iii). The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued upon conversion of Series A-1 Preferred Stock pursuant to Section 6. b) Dividends Upon an Automatic Conversion of Series A-2 Preferred Stock. In the event of the automatic conversion of Series A-2 Preferred Stock into shares of Common Stock pursuant to Sections 6(b) or Section 6(c) of the Series A-2 Certificate of Designation (as defined in the Purchase Agreement), in each case prior to August 31, 2013, the Corporation shall also pay to the Holders of Series A-1 Preferred Stock an additional dividend, for each share of Series A-1 Preferred Stock, equal to: (i) the net present value, as of the COC Automatic Conversion Date (as defined in the Series A-2 Certificate of Designation) or VWAP Automatic Conversion Date (as defined in the Series A-2 Certificate of Designation), as the case may be, of such Series A-2 Preferred Stock, of a payment equal to 22 1/2% of the Stated Value of one (1) share of Series A-1 Preferred Stock occurring on August 31, 2013 (calculated assuming a discount rate of 7 1/2%) minus (ii) the aggregate amount of any semi-annual dividends paid on one (1) share of Series A-1 Preferred Stock before the COC Automatic Conversion Date or VWAP Automatic Conversion Date, as the case may be (the "Additional Dividend"); provided, however, that in the event the Holders of Series A-1 Preferred Stock receive an Additional Dividend payment, then dividends to be paid pursuant to Section 3(a) hereof shall not resume to be paid until January 1st of the calendar year next following the Additional Dividend payment. c) Corporation's Payment of Dividends in Cash or in Additional Shares of Stock. The Corporation shall promptly notify the Holders at any time the Corporation shall become unable to legally pay semi-annual dividends in cash. The Corporation shall provide the Holders with at least 20 Trading Days' notice of its election to pay a semi-annual dividend in shares of Common Stock or additional shares of Series A-1 Preferred Stock (the Corporation may indicate, in any such notice, that the election contained in such notice shall continue for later periods until revised by a subsequent notice). d) Dividend Calculations. Dividends on the Series A-1 Preferred Stock shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Closing Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Payment of dividends in shares of Common Stock or additional shares of Series A-1 Preferred Stock (as applicable) shall be made in a manner consistent with Section 6(d)(i) herein and, solely for purposes of the payment of dividends in shares, the Dividend Payment Date shall be deemed to be the Conversion Date. Dividends shall cease to accrue with respect to any Series A-1 Preferred Stock when converted. 7 Except as otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially in shares of Common Stock and/or Series A-1 Preferred Stock, then such payment shall be distributed ratably among the Holders based upon the number of shares of Series A-1 Preferred Stock held by each Holder on such Dividend Payment Date. e) Other Securities. So long as any Series A-1 Preferred Stock shall remain outstanding: (i) neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities; and (ii) the Corporation and any Subsidiaries thereof shall only redeem, repurchase or otherwise acquire, directly or indirectly, any Parity Securities ratably with the Series A-1 Preferred Stock on a pari passu basis. So long as any Series A-1 Preferred Stock shall remain outstanding: (i) neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities (other than a dividend or distribution solely in additional shares of Junior Securities), in each case as long as any dividends due on the Series A-1 Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities; and (ii) the Corporation and any Subsidiaries thereof shall only, directly or indirectly, pay or declare any dividend or make any distribution upon any Parity Securities, or set aside or apply any monies for the purchase or redemption (through a sinking fund or otherwise) of any Parity Securities, if it simultaneously, on a pari passu basis and ratably among the holders of the Series A-1 Preferred Stock and the holders of all Parity Securities, pays or declares a dividend or distribution, or sets aside or applies monies for the purchase or redemption (through a sinking fund or otherwise), of the Series A-1 Preferred Stock. f) Payment of Dividends in Kind. During the period commencing on the Closing Date and ending on the eighteen (18) month anniversary of the Closing Date, in the event on any Dividend Payment Date the Registration Statement (as defined in the Registration Rights Agreement) has not been declared effective in accordance with Section 2(b) of the Registration Rights Agreement, any dividend payable in Common Stock or Series A-1 Preferred Stock shall accrue and be payable to the Holders of the Series A-1 Preferred Stock within five (5) business days following the date that such Registration Statement is declared effective. In the event on any Dividend Payment Date following the eighteen (18) month anniversary of the Closing Date, the Registration Statement has not been declared effective or the Corporation has failed to maintain its effectiveness during the Effectiveness Period (as defined in the Registration Rights Agreement), all dividends payable to the Holders of the Series A-1 Preferred Stock shall be payable, if funds are legally available for payment, in cash only. If such funds are not legally available for payment, any dividend payable shall accrue and be immediately payable to the Holders of the Series A- 1 Preferred Stock in cash, when such funds become legally available, or, at the option of the Corporation, subject to the effectiveness on such date of the Registration Statement, as otherwise provided for herein; provided however, that if such funds are not legally available and the Registration Statement is not effective, the Holders of the Series A-1 Preferred Stock can waive the requirement that the Registration Statement be effective and elect to received dividend payments as otherwise provided for herein. Section 4. Voting Rights. a) Except as otherwise provided herein or as otherwise required by law, each Holder of Series A-1 Preferred Stock shall: (i) be entitled to notice of any annual or special meeting of the stockholders of the Corporation, at the same time and in the same manner as of the holders of Common Stock in accordance with the by-laws of the Corporation; and (ii) vote together with the Common Stock at any annual or special meeting of the stockholders of the Corporation, or in any action by written consent of stockholders of the Corporation in lieu of meeting, on an as-converted to Common Stock basis, with each share of Series A-1 Preferred Stock entitling its Holder to the number of votes equal to five (5) times the number of shares of Common Stock into which 8 such share of Series A-1 Preferred Stock could be converted under this Certificate of Designation as of the close of business on the record date fixed for such meeting or the effective date of such written consent; provided, however, that any share of Series A-1 Preferred Stock held by any Person other than a member of the Winfield Group shall instead only entitle its holder to the number of votes equal to the number of shares of Common Stock into which such share of Series A-1 Preferred Stock could be converted under this Certificate of Designation as of the close of business on the record date fixed for such meeting or the effective date of such written consent. b) Each share of Series A-1 Preferred Stock shall entitle its holder to one (1) vote in any matter submitted to vote of the holders of Preferred Stock, voting as a separate class (as opposed to voting with the holders of Common Stock as provided in Section 4(a)). Section 5. Liquidation. Upon any liquidation, dissolution or winding- up of the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the greater of: (i) the Stated Value, plus any accrued and unpaid dividends on the Series A-1 Preferred Stock or (ii) the amount the Holders would have been entitled to receive as holders of the number of shares of Common Stock for which the shares of Series A-1 Preferred Stock are convertible immediately prior to such Liquidation, together with any other fees then due and owing thereon under this Certificate of Designation, for each share of Series A-1 Preferred Stock, on a pari passu basis with any distribution or payment upon a Liquidation to the holders of Parity Securities and before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full the respective liquidation preference amounts to the Holders of Series A-1 Preferred Stock and the holders of any Parity Securities, then the entire assets of the Corporation shall be ratably distributed among the Holders of Series A-1 Preferred Stock and the holders of any Parity Securities, in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder. Section 6. Conversion. a) Conversions at Option of Holder. Each share of Series A-1 Preferred Stock shall be convertible, at any time and from time to time from and after the Closing Date at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series A-1 Preferred Stock by the Conversion Price then in effect. Holders shall effect voluntary conversions pursuant to this Section 6(a) by providing the Corporation with the form of conversion notice attached hereto as Annex A (a "Notice of Elective Conversion"). Each Notice of Elective Conversion shall specify the number of shares of Series A-1 Preferred Stock to be converted, the number of shares of Series A-1 Preferred Stock owned prior to the conversion at issue, the number of shares of Series A-1 Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers such Notice of Conversion to the Corporation (such date, the "Elective Conversion Date"). If no Elective Conversion Date is specified in a Notice of Elective Conversion, the Elective Conversion Date shall be the date that such Notice of Elective Conversion is delivered hereunder. The calculations and entries set forth in the Notice of Elective Conversion shall control in the absence of manifest or mathematical error. To effect elective conversions of shares of Series A-1 Preferred Stock pursuant to this Section 6(a), a Holder shall not be required to surrender the certificate(s) representing the shares of Series A-1 Preferred Stock to the Corporation unless all of the shares of 9 Series A-1 Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series A- 1 Preferred Stock promptly following the Elective Conversion Date at issue. Any certificate representing shares of Series A-1 Preferred Stock that have been converted in whole or part by such Holder shall be void and should be destroyed upon receipt of replacement certificate(s) from the Corporation. Shares of Series A-1 Preferred Stock converted into Common Stock pursuant to this Section 6(a) shall be canceled and shall not be reissued. b) Automatic Conversion. All outstanding shares of Series A-1 Preferred Stock shall automatically be converted into shares of Common Stock, based on the then-effective Conversion Price, effective immediately prior to, and conditioned upon, consummation of a Change of Control Transaction. The Corporation shall provide each Holder with reasonable advance notice (a "Notice of Automatic Conversion") of the occurrence of an automatic conversion of the Series A-1 Preferred Stock pursuant to this Section 6(b), which shall specify, for each Holder, the number of shares of Series A-1 Preferred Stock owned prior to the automatic conversion at issue, the number of shares of Common Stock issuable upon conversion of such Series A-1 Preferred Stock and the date on which such automatic conversion is to be effected, which date may not be prior to the date the Corporation delivers such Notice of Automatic Conversion to the Holders (such date, the "Automatic Conversion Date"). The calculations and entries set forth in the Notice of Automatic Conversion shall control in the absence of manifest or mathematical error. Each Holder shall deliver the certificate(s) representing all of its shares of Series A-1 Preferred Stock to the Corporation promptly following the Automatic Conversion Date. Shares of Series A-1 Preferred Stock converted into Common Stock pursuant to this Section 6(b) shall be canceled and shall not be reissued. c) Conversion Price. The conversion price for the Series A-1 Preferred Stock shall initially equal $0.6510, subject to adjustment herein (the "Conversion Price"). d) Mechanics of Conversion i. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date, the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the earlier of: (1) the one (1) year anniversary of the Closing Date; or (2) the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of the Series A- 1 Preferred Stock, and/or (B) a bank check in the amount of accrued and unpaid dividends (to the extent that the Corporation has elected to pay accrued dividends in cash). On or after the earlier of: (1) the one (1) year anniversary of the Closing Date or (2) the Effective Date, the Corporation shall use commercially reasonable efforts to deliver any certificate or certificates required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. ii. Obligation Absolute. The Corporation's obligation to issue and deliver the Conversion Shares upon conversion of Series A-1 Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any other provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder or such other Person. In the event a 10 Holder shall elect to convert any or all of its Series A-1 Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series A-1 Preferred Stock of such Holder shall have been sought and obtained. In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. Nothing herein shall limit a Holder's right to pursue actual damages or all other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. iii. Liquidated Damages. If the Corporation fails to deliver to a Holder such certificate or certificates representing Conversion Shares within five (5) Trading Days after the Elective Conversion Date provided in a Notice of Elective Conversion pursuant to Section 6(a), the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each share of Series A-1 Preferred Stock elected to be converted, $50 per Trading Day for each Trading Day after such fifth (5th) Trading Day after the Elective Conversion Date until such certificates are delivered or such Holder is reimbursed in accordance with Section 6(d)(iv). Nothing herein shall limit a Holder's right to pursue actual damages for the Corporation's failure to deliver Conversion Shares and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. iv. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. If the Corporation fails to deliver to a Holder the applicable certificate or certificates within five (5) Trading Days after the Elective Conversion Date, and if after such date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Notice of Elective Conversion (a "Buy-In"), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount by which (x) such Holder's total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series A-1 Preferred Stock equal to the number of shares of Series A-1 Preferred Stock submitted for conversion or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with the Notice of Elective Conversion. For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy- In with respect to an attempted conversion of shares of Series A-1 Preferred Stock with respect to which the actual sale price (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation's failure to timely deliver certificates representing shares of Common Stock upon conversion of the shares of Series A-1 Preferred Stock as required pursuant to the terms hereof. v. Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will, at all times while any Series A-1 Preferred 11 Stock: (A) remains outstanding or (B) is reserved for issuance or otherwise issuable under any promissory note or agreement to which the Corporation is a party, reserve and keep available out of its authorized and unissued shares of Common Stock, for the sole purpose of issuance upon conversion of such Series A-1 Preferred Stock, free from preemptive rights or any other purchase rights of Persons other than the Holder (and the other holders of the Series A-1 Preferred Stock), not less than 130% of the aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section 7) upon: (A) the conversion of such Series A-1 Preferred Stock; and (B) payment of dividends on such Series A-1 Preferred Stock in shares of Common Stock hereunder. The Corporation covenants that it will, at all times while any Series A-1 Preferred Stock: (A) remains outstanding or (B) is reserved for issuance or otherwise issuable under any promissory note or agreement to which the Corporation is a party, reserve and keep available out of its authorized and unissued shares of Preferred Stock, for the sole purpose of issuance upon payment of dividends on such Series A-1 Preferred Stock in additional shares of Series A-1 Preferred Stock as herein provided, free from preemptive rights or any other purchase rights of Persons other than the Holder (and the other holders of the Series A-1 Preferred Stock), not less than 130% of the aggregate number of shares of the Series A-1 Preferred Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the payment of dividends on such Series A-1 Preferred Stock in additional shares of Series A-1 Preferred Stock hereunder. The Corporation covenants that all shares of Common Stock and Series A-1 Preferred Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, shall be, with respect to such Common Stock and the Common Stock issuable upon conversion of such Series A-1 Preferred Stock, registered for public resale in accordance with such Conversion Shares Registration Statement (subject to such Holder's compliance with its obligations under the Registration Rights Agreement). vi. Fractional Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of the Series A-1 Preferred Stock. As to any fraction of a share of Common Stock, which the Holder would otherwise be entitled to receive upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. The Corporation may issue fractional shares of Series A-1 Preferred Stock. vii. Transfer Taxes. The issuance of certificates for shares of the Common Stock upon conversion of the Series A-1 Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Series A-1 Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. Section 7. Certain Adjustments. a) Stock Dividends and Stock Splits. If the Corporation, at any time while any Series A-1 Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, the Series A-1 Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock 12 split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. b) Subsequent Equity Sales. If, at any time while any Series A-1 Preferred Stock is outstanding, the Corporation or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or reprice or other disposition), any Common Stock or Common Stock Equivalents ("Additional Shares of Common Stock") at an effective price per share of Common Stock that is lower than the lower of: (i) 93% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the date of issuance of the Additional Shares of Common Stock; or (ii) the then effective Conversion Price (such lower price, the "Base Conversion Price" and such issuances, collectively, a "Dilutive Issuance") (if the holder of the Additional Shares of Common Stock so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock or Common Stock Equivalents at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on the date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the price determined by multiplying the Conversion Price in effect immediately prior to such issuance by a fraction: i. the numerator of which shall be: (A) the number of shares of Common Stock issuable upon the conversion of the Series A-1 Preferred Stock immediately prior to such Dilutive Issuance, plus (B) the number of shares of Common Stock or Common Stock Equivalents which the Aggregate Consideration received or deemed to be received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such then- existing Base Conversion Price; and ii. the denominator of which shall be the number of shares of Common Stock issuable upon the conversion of the Series A-1 Preferred Stock immediately prior to such Dilutive Issuance plus the total number of Additional Shares of Common Stock actually so issued. Such adjustment shall be made upon any issuance of Additional Shares of Common Stock; provided, however, that no adjustment will be made under this Section 7(b) in respect of an Exempt Issuance. The Corporation shall notify the Holders in writing, no later than the Trading Day following the issuance of any Additional Shares of Common Stock subject to this Section 7(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice"). For purposes of clarification, whether or not the Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b), upon the occurrence of any Dilutive Issuance, the Holders are entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether a Holder accurately refers to the Base Conversion Price in the Notice of Conversion. c) Pro Rata Distributions. If the Corporation, at any time while any Series A-1 Preferred Stock is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets 13 (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 7(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors of the Corporation in good faith. In either case the adjustments shall be described in a statement delivered to the Holders describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. d) Fundamental Transaction. If, at any time while any Series A-1 Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), in each case other than a Change of Control Transaction (each, a "Fundamental Transaction"), then, upon any subsequent conversion of Series A-1 Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which Series A-1 Preferred Stock is convertible immediately prior to such Fundamental Transaction. For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of Series A-1 Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions as those hereof, and issue to the Holders new Series A-1 Preferred Stock consistent with the foregoing provisions and evidencing the Holders' right to convert such Series A-1 Preferred Stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the 14 Corporation is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(d), pursuant to written agreements in form and substance reasonably satisfactory to the Holders of a majority (with such majority to include the Winfield Group as long as the Winfield Group continues to hold Series A-1 Preferred Stock) of the then outstanding shares of Series A-1 Preferred Stock issued pursuant to the Purchase Agreement and approved by such Holders (without unreasonable delay) prior to such Fundamental Transaction, and shall deliver to each Holder in exchange for its Series A-1 Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Series A-1 Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Series A-1 Preferred Stock prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Series A-1 Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holders of a majority (with such majority to include the Winfield Group as long as the Winfield Group continues to hold Series A-1 Preferred Stock) of the then outstanding shares of Series A-1 Preferred Stock issued pursuant to the Purchase Agreement. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the "Corporation" shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein. e) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding. f) Notice to the Holders. i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the Series A-1 Preferred Stock, and shall cause to be delivered to each Holder at its last 15 address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non- public information regarding the Corporation or any of the Subsidiaries, the Corporation shall, as required by applicable federal securities law, file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Series A-1 Preferred Stock during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice, except as may otherwise be expressly set forth herein. Section 8. Negative Covenants. a) As long as at least 25% of the Parity Securities that were Originally Issued are still outstanding, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly, without the affirmative vote of the holders of a majority of the then outstanding Parity Securities (which shall, as long as the Winfield Group still holds at least 25% of the Parity Securities that were Originally Issued, include the Winfield Group): i) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness for borrowed money; ii) other than Permitted Liens, grant, assume or allow to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; iii) repay, repurchase or offer to repay, repurchase or otherwise acquire Common Stock constituting more than 5% of the outstanding shares of Common Stock (measured as of immediately after the Closing), other than as to (i) the Conversion Shares as permitted or required under this Certificate of Designation or any other Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing officers and directors of the Corporation, provided that such repurchases shall not exceed an aggregate of $100,000 for all officers and directors for so long as the Parity Securities are outstanding; iv) enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm's-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); v) enter into any transaction with any Affiliate of an Officer or Director of the Corporation, if such transaction provides for the payment of services in Securities of the Corporation; 16 vi) amend the Corporation's certificate of incorporation, by-laws or the Certificate of Designation of any of the Parity Securities in any manner that materially adversely affects any of the rights, preferences or privileges of the Holders of such Parity Securities; vii) approve the issuance of any Preferred Stock, other than the Series A-1 Preferred Stock and the Series A-2 Preferred Stock issued in connection with the transactions contemplated under the Transaction Documents; viii) pay any dividends or make any distributions on any Junior Securities (except in additional shares of Junior Securities); ix) adopt an executive equity incentive plan which provides for the issuance of greater than 6.0% of the fully diluted equity of the Corporation after taking into account the transactions contemplated under the Transaction Documents; x) enter into any transaction for the sale or pledge of a material asset of the Corporation; xi) approve or consent to the initiation of a Bankruptcy Proceeding; xii) issue any securities of the Corporation in exchange for services to a consultant; or xiii) enter into any agreement with respect to any of the foregoing. b) As long as at least 25% of the Parity Securities that were Originally Issued are still outstanding, and as long as the Winfield Group still holds at least 25% of the Parity Securities that were Originally Issued, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly, without the affirmative vote of the Winfield Group: i) enter into any transaction for the acquisition of any business, property or asset pursuant to which the Corporation will incur Indebtedness to finance such acquisition in principal amount in excess of $500,000; ii) pay any dividends pursuant to Section 3(a) hereof in cash in an amount to exceed $500,000; iii) engage in a private placement of any Common Stock or Common Stock Equivalents of the Corporation; iv) enter into any transaction that would constitute a Change of Control Transaction; vii) enter into any transaction that would constitute a Fundamental Transaction; or viii) engage in a registered offering of any Common Stock or Common Stock Equivalents of the Corporation. c) If the Corporation defaults in complying with the covenants set out in subsection (a) or (b) above, the Corporation shall have thirty (30) days following notice by the holders of the Parity Securities and/or the Winfield Group, respectively, specifying the nature of the such default, to remedy such default by (i) taking all necessary corporate action to void the action that is 17 the subject of such default; (ii) obtaining the requisite approval of the holders of the Parity Securities and/or the Winfield Group, respectively, for such action consistent with the provisions of this Section 8; or (iii) obtaining a waiver of such default from the holders of the Parity Securities and/or the Winfield Group, respectively. Section 9. Preemptive Rights. a) From the date hereof until such time as all Holders no longer hold any shares of Series A-1 Preferred Stock, upon any issuance by the Corporation or any of its Subsidiaries of Common Stock, Common Stock Equivalents for cash consideration, or a combination of units hereof (a "Subsequent Financing"), each Holder, collectively with all holders of Parity Securities, shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the "Participation Maximum") on the same terms, conditions and price provided for in the Subsequent Financing. b) At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Corporation shall deliver to each Holder a written notice of its intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Holder if it wants to review the details of such financing (such additional notice, a "Subsequent Financing Notice"). Upon the request of a Holder, and only upon a request by such Holder, for a Subsequent Financing Notice, the Corporation shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Holder. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment. c) Any Holder desiring to participate in such Subsequent Financing must provide written notice to the Corporation by not later than 5:30 p.m. (New York City time) on the fourth (4th) Trading Day after all of the Holders have received the Pre-Notice that the Holder is willing to participate in the Subsequent Financing, the amount of the Holder's participation, and representing and warranting that the Holder has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Corporation receives no such notice from a Holder as of such fourth (4th) Trading Day, such Holder shall be deemed to have notified the Corporation that it does not elect to participate. d) If by 5:30 p.m. (New York City time) on the fourth (4th) Trading Day after all of the Holders have received the Pre-Notice, notifications by the Holders and holders of Parity Securities of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Corporation may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice. e) If by 5:30 p.m. (New York City time) on the fourth (4th) Trading Day after all of the Holders have received the Pre-Notice, the Corporation receives responses to a Subsequent Financing Notice from Holders and holders of Parity Securities seeking to purchase more than the aggregate amount of the Participation Maximum, each such Holder shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. "Pro Rata Portion" of a Holder means the ratio of: (x) the aggregate Stated Value of the Parity Securities issued to such Holder on the Closing Date; and (y) the aggregate Stated Value of the Parity Securities issued to all holders of Parity Securities participating in such Subsequent Financing under this Section 9. f) The Corporation must provide the Holders with a second Subsequent Financing Notice, and the Holders will again have the right of participation 18 set forth above in this Section 9, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice. g) Notwithstanding the foregoing, this Section 9 shall not apply in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock. Section 10. Board Nomination Rights. a) Promptly after the occurrence of the Closing Date (as defined in the Purchase Agreement): (i) the Corporation shall take any and all actions so that John V. Winfield is elected as a member of the Board; and (ii) upon written request of the Winfield Group, the Corporation shall, if the Winfield Group holds at least 25% of the Parity Securities Originally Issued at the time of such request, take or cause to be taken any and all actions so that the Board Nominee (as defined below) is elected by the Board as a member of the Board. If the Board Nominee ceases to be a member of the Board, and as long as the Winfield Group shall have continuously held at least 25% of the Parity Securities Originally Issued from the date of the first election of a Board Nominee through the date of such request, the Winfield Group shall have the right, by written request of the Winfield Group to the Corporation, to nominate another Board Nominee to become a member of the Board. b) "Board Nominee" means a designee of the Winfield Group reasonably acceptable to the Board. c) If John V. Winfield and the Board Nominee shall have been elected as a member of the Board pursuant to Section 10(a), and as long as the Winfield Group shall have continuously held at least 25% of the Parity Securities Originally Issued from the date of such election through the December 31 immediately preceding each meeting of stockholders of the Corporation at which directors are to be re-elected, then the Corporation shall take or cause to be taken any and all actions so that John V. Winfield and the Board Nominee are nominated and recommended for re-election to the Board at each such meeting, in the same manner and to the same extent that such action is taken in respect of the other nominees of the Board. Such right shall terminate immediately at such time as the Winfield Group ceases for any reason to hold at least 25% of the Parity Securities Originally Issued. Upon and at any time following termination of such right, the Corporation may in its sole discretion cease taking any and all such actions, the Board may in its sole discretion withdraw any nomination or recommendation for re-election previously made and John V. Winfield and the Board Nominee may resign from the Board. d) Actions to be taken as described above include, as necessary, increasing the size of the Board, nominating for election, recommending for election, and soliciting proxies (and, if applicable written consents) for election. 19 e) Notwithstanding anything contained herein to the contrary, (i) the Board Nominee shall not be required to be elected, or nominated or recommended for re-election, to the Board unless such Board Nominee meets the requirements for an "independent director" under the listing rules of the principal exchange or market on which Common Stock is then listed, satisfies the requirements set forth in the Company's Corporate Governance Guidelines and Nominating and Governance Committee Charter as reasonably determined by the Nominating and Governance Committee of the Board, is not prohibited from serving as a director of the Corporation under Section 8 of the Clayton Antitrust Act or any other applicable law and is not affiliated or associated with or related to (A) a material competitor of the Corporation or (B) a customer, supplier or other supply chain participant of the Corporation where membership of a Board Nominee on the Board could reasonably be expected, in the reasonable judgment of the Board, to result in a material burden or disadvantage to the Corporation, and (ii) the Board Nominee shall resign from the Board upon request by the Board if (A) the Board Nominee fails at any time to satisfy the criteria set forth in the preceding sentence, (B) just cause for his removal exists or (C) the Winfield Group ceases at any time for any reason to hold at least 25% of the Parity Securities Originally Issued. Such a request by the Board may be made at any time after the occurrence of an event described in clause (ii) of the preceding sentence. Nothing herein shall excuse the Board Nominee from tendering his resignation from the Board or restrict the Board from accepting any such resignation when and as provided in the Company's Corporate Governance Guidelines. Notwithstanding the criteria in (e)(i) herein, the Winfield Group may designate as the Board Nominee a member of the Board existing as of the Closing Date. f) John V. Winfield and the Board Nominee, for so long as each serves as a member of the Board and for three (3) years thereafter, shall keep all Confidential Information of the Corporation confidential and not disclose or use any of such Confidential Information except in connection with performing his duties as a member of the Board. At any time after he ceases to be a member of the Board for any reason, upon written notice from the Corporation, John V. Winfield and the Board Nominee shall, at his election, either (i) promptly destroy at his expense all of such Confidential Information (in any form other than oral) in his possession (including all copies) and confirm such destruction to the Corporation in writing or (ii) promptly deliver to the Company at his expense all of such Confidential Information (in any form other than oral) in his possession (including all copies). All of such Confidential Information in oral form will continue to be subject to this Section 10(f). If John V. Winfield or the Board Nominee becomes required by law to disclose any of such Confidential Information, John V. Winfield or the Board Nominee will, to the extent permitted by applicable law, as promptly as possible give written notice to that effect to the Corporation. The Corporation, in its sole discretion, shall be entitled to seek a protective order or other appropriate remedy. If the Corporation seeks such an order or remedy, John V. Winfield or the Board Nominee will, upon request, use all reasonable efforts to fully cooperate with the Corporation at its expense. Regardless of whether such protective order or other remedy is obtained, John V. Winfield or the Board Nominee will furnish only that portion of such Confidential Information that he is legally required to furnish. If such a protective order or remedy is not obtained, John V. Winfield or the Board Nominee will exercise reasonable best efforts to obtain reliable assurance that confidential treatment will be accorded such Confidential Information. If such a protective order or other remedy is obtained, John V. Winfield or the Board Nominee will exercise reasonable efforts to obtain reliable assurance that such Confidential Information is furnished in accordance with and subject to such protective order or remedy. To the extent that John V. Winfield or the Board Nominee furnishes Confidential Information in accordance with this Section 10(f), such furnishing will not constitute a breach of this Section 10(f). g) John V. Winfield and the Board Nominee, for so long as each serves as a member of the Board, shall be entitled to the same rights, privileges and compensation as the other members of the Board in their capacity as such, including with respect to indemnification, insurance coverage and reimbursement for meeting participation and related expenses. 20 h) John V. Winfield, the Board Nominee and the Winfield Group shall provide prompt written notice at such time as any event occurs of which they are aware that would reasonably be expected to terminate the obligation of the Corporation to nominate or renominate John V. Winfield or the Board Nominee (including the Board Nominee's failure to meet the qualifications set forth in Section 10(e)). i) The obligations of the Corporation under this Section 10 shall terminate upon the consummation of a Change in Control Transaction. Section 11. Miscellaneous. a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at P.O. Box 1118, 1200 American Flat Road, Virginia City, NV 89440, Attention: President, or such other address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 11(a). Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, or sent by a nationally recognized overnight courier service addressed to each Holder at the address of such Holder appearing on the books of the Corporation, or if no such address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (ii) upon actual receipt by the party to whom such notice is required to be given. b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay accrued dividends on the shares of Series A-1 Preferred Stock at the time, place, and rate, and in the coin, currency or shares (as applicable), herein prescribed. c) Lost or Mutilated Series A-1 Preferred Stock Certificate. If a Holder's Series A-1 Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series A-1 Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation. d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflict of laws thereof. The Corporation and each Holder agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). The Corporation and each Holder hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute 21 hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. The Corporation and each Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to it at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. The Corporation and each Holder hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby. If the Corporation or any Holder shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys' fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding. e) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing. f) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof. i) Status of Converted or Redeemed Series A-1 Preferred Stock. Shares of Series A-1 Preferred Stock may only be issued pursuant to the Transaction Documents. If any shares of Series A-1 Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of Preferred Stock and shall no longer be designated as 7 1/2% Series A-1 Convertible Preferred Stock. ********************* 22 IN WITNESS WHEREOF, the undersigned has executed this Certificate this 20th day of October 2010. /s/ Corrado De Gasperis - ------------------------------------- Name: Corrado De Gasperis Title: Presiedent and Chief Executive Officer 23 ANNEX A NOTICE OF ELECTIVE CONVERSION (TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF 7 71/2% SERIES A-1 CONVERTIBLE PREFERRED STOCK) The undersigned hereby elects to convert the number of shares of 71/2% Series A-1 Convertible Preferred Stock indicated below into shares of common stock, par value $0.000666 per share (the "Common Stock"), of Comstock Mining Inc., a Nevada corporation (the "Corporation"), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes. Conversion calculations: Date to Effect Conversion: ____________________________________________ Number of shares of Series A-1 Preferred Stock owned prior to Conversion: ____________ Number of shares of Series A-1 Preferred Stock to be Converted: _______________ Stated Value of shares of Series A-1 Preferred Stock to be Converted: _______________________ Number of shares of Common Stock to be Issued: ______________________________ Applicable Conversion Price:_______________________________________________ Number of shares of Series A-1 Preferred Stock subsequent to Conversion: ___________________ Address for Delivery: _________________________________________________________ or DWAC Instructions: Broker no: _______________ Account no: ______________ [HOLDER] By: ___________________________________ Name: Title: EX-99 3 exb13d102010.txt EXHIBIT B Exhibit B NORTHERN COMSTOCK LLC LIMITED LIABILITY COMPANY OPERATING AGREEMENT LIMITED LIABILITY COMPANY OPERATING AGREEMENT dated as of October 19, 2010 among the undersigned signatories hereto. W I T N E S S E T H: WHEREAS, the undersigned have caused a Certificate of Formation to be filed with the Secretary of State of the State of Nevada for the purpose of forming a limited liability company under Chapter 86 of the Nevada Revised Statutes Act and such Certificate of Formation has become effective; and WHEREAS, the name of such limited liability company is Northern Comstock LLC; and WHEREAS, the undersigned desire to set forth in this Agreement the terms and conditions which shall govern the affairs of such limited liability company; NOW, THEREFORE, in consideration of the premises, representations and warranties and the mutual covenants and set forth herein and other good, valuable and sufficient consideration, the receipt of which is hereby acknowledged, the undersigned, intending to be legally bound, hereby agree as follows: ARTICLE 1 DEFINITIONS; REPRESENTATIONS 1.1 Definitions. As used herein, the following terms shall have the following meanings: "Accelerated Capital Call" has the meaning set forth in Section 3.2(c). "Additional Member" means a Person who is admitted to the Company as a Member pursuant to Section 7.3. "Adjusted Capital Account Balance" of a Member means the balance in such Member's Capital Account (a) increased by any amount such Member is deemed to be obligated to contribute to the Company pursuant to Treasury Regulation section 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) or 1.704-2(i)(5) and (b) reduced by any allocations or distributions to such Member described in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4), (5) or (6). "Affiliate" means, with respect to any Person, any other Person that controls, is controlled by or is under common control with, directly or indirectly, such Person, and, if such Person is a natural person, includes any member of such Person's immediate family, or, if such Person is an entity, includes (a) any trustee, general partner, manager, director or executive officer of, or any Person performing similar functions for, such entity and (b) any Person with the power directly or indirectly to vote or direct the voting of more than 50% of the voting shares in such entity, to elect or appoint a majority of the trustees, directors, general partners or managers of such entity or to otherwise manage or direct the management of the business and affairs of such entity, whether by reason of ownership of securities, contractual rights or otherwise. "Agreement" means this Limited Liability Company Operating Agreement. "Assign" an Ownership Interest means to assign, transfer, sell, pledge, donate, bequeath, hypothecate, mortgage or otherwise encumber or dispose of such Ownership Interest by any means, whether voluntarily or involuntarily and including by merger, by transfer of ownership of an entity that holds such Ownership Interest, in connection with any Proceeding under any Law relating to bankruptcy, insolvency or the rights of creditors generally, and by operation of Law. "Bankruptcy" of a Person means: (a) the filing by such Person of a petition commencing a voluntary Proceeding under any applicable bankruptcy, insolvency or similar Law; (b) the entry against such Person of an order for relief under any applicable bankruptcy, insolvency or similar Law, if such order shall not have been vacated or stayed within 120 days after such entry; (c) the written admission by such Person of its inability to pay its debts as they mature or the assignment by such Person of all or substantially of its assets for the benefit of creditors; or (d) the appointment of a trustee, receiver or similar representative to manage or wind up the affairs, or manage or liquidate all or substantially all of the assets, of such Person. "Book Value" of any asset of the Company means the adjusted basis of such assets for federal income tax purposes, except that: (a) the initial Book Value of any asset contributed by a Member to the Company will be the Fair Market Value of such asset as of the date of contribution; and (b) the Book Values of all assets (including intangible assets such as goodwill) will be adjusted to equal their respective Fair Market Values as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis capital contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of cash or property as consideration for an interest in the Company; and (iii) the liquidation of the Company within the meaning of Treasury Regulation section 1.704-1(b)(2)(ii)(g). This definition is intended to comply with the provisions of Treasury Regulation section 1.704-1(b)(2)(iv) and will be interpreted and applied consistently therewith. "Capital Account" of a Member means the account maintained by the Company for such Member pursuant to Section 3.4. "Capital Contribution" of a Member means the Fair Market Value of property contributed by such Member to the capital of the Company. "Certificate" means the Certificate of Formation of Northern Comstock LLC filed with the Secretary of State of the State of Nevada. "Claim" means a complaint, allegation, charge, petition, appeal, demand, notice, filing or claim of any kind that commences, alleges a basis to commence or threatens to commence any Proceeding by or before any Governmental Authority or Judicial Authority or that asserts, alleges a basis to assert or threatens to assert any right, breach, default, violation, noncompliance, termination, cancellation or other action or omission that could reasonably be expected to result in a Liability or Loss. "Code" means the Internal Revenue Code of 1986. "Company" means the limited liability company formed pursuant to the Certificate and governed by this Agreement. "Company Business" has the meaning set forth in Section 2.3. "Company Expenses" mean expenses, costs, fees and other charges incurred by the Company. Company Expenses shall include: (a) costs and expenses incurred in connection with the offices of the Company; (b) salaries, bonuses and other compensation and benefits of employees of the Company; (c) fees and expenses of consultants, accountants, counsel and other third-party professionals engaged by the Company; (d) premiums and fees for insurance coverage maintained with respect to the Company Business or the Managers, Managing Directors or employees of the Company; (e) taxes, fees and governmental charges assessed or levied against the Company or imposed on property owned or used by the Company; (f) indemnification payments and expense advancements by the Company; (g) royalty expenses of 1% of Net Smelter Returns to Art Wilson with respect to the DWC Property; (h) royalty expenses of 5% of Net Smelter Returns to Sutro Tunnel Company with respect to the Sutro Property; (i) royalty expenses of 5% of Net Smelter Returns, pre-production rent of $500 per month and post-production rent of $1,000 per month (credited against royalty payments, if applicable), in each case, with respect to the VCV Property; and (j) fees, expenses and costs incurred in connection with the formation of the Company. "Company Minimum Gain" means the aggregate amount of gain (of whatever character), determined for each nonrecourse liability of the Company, that would be realized by the Company if it disposed of the property subject to such liability in a taxable transaction in full satisfaction thereof, determined in accordance with Treasury Regulation section 1.704-2(d). "Company Nonrecourse Deductions" mean the excess, if any, of the net increase, if any, in the amount of Company Minimum Gain during a fiscal year over the aggregate amount of any distributions during that fiscal year of proceeds of a nonrecourse liability as defined in Treasury Regulation section 1.704-2(c). "Comstock Mining" means Comstock Mining Inc., a Nevada corporation. "Contract" means a written or oral contract, agreement, note, bond, mortgage, indenture, deed of trust, lease, sublease, license, sublicense, purchase or sale order, or other commitment, obligation or instrument of any kind that is legally binding or enforceable under applicable Law. "DWC" means DWC Resources, Inc., a Nevada corporation. "DWC Property" means the real property and improvements, and all patented and unpatented lode mining claims located in Storey County, Nevada as more particularly described on Exhibit A attached hereto. "Fair Market Value" of any asset of the Company, any Ownership Interest or the Company Business means the value thereof determined in accordance with Article 9. "Fiscal Year" has the meaning set forth in Section 8.3. "Force Majeure" has the meaning set forth in Section 6.11(b). "Governmental Authority" means a government (including any federal, foreign, state, provincial, city, municipal, cantonal or county government), a political subdivision thereof and a governmental, administrative, ministerial, regulatory, central bank, self-regulatory, quasi-governmental, taxing, executive or legislative department, commission, body, agency, authority or instrumentality of any thereof. "Indemnified Action" has the meaning set forth in Section 6.7(a). "Indemnified Party" has the meaning set forth in Section 6.7(a). "Information" of a Person (the "Disclosing Party"), in relation to any other Person (the "Receiving Party"), means all information (whether in written, electronic, oral or other form and including trade secrets and non- public, confidential or proprietary information), including information relating to technology, intellectual property, financing sources, business opportunities, contact information, ideas, developments, strategies and plans, developed or acquired by or for such Disclosing Party and all files, books, records, notes, compilations, analyses, forecasts, studies, reports and other documents (whether in written or electronic form) prepared by or for such Disclosing Party or any of its Representatives, to the extent they contain or reflect any of such information. "Information" of a Disclosing Party, in relation to a Receiving Party, includes any of such information obtained through visual inspection of properties or through meetings. "Information" does not, however, include information which (i) is at the time of receipt by the Receiving Party or becomes after such time publicly available or in the public domain, other than as a result of a disclosure by the Receiving Party or its Representatives which constitutes a breach of this Agreement, (ii) is at the time of receipt or becomes after such time known on a non-confidential basis from a source which is not prohibited from disclosing such information by a contractual, statutory, fiduciary or other obligation or (iii) was or is developed independent of any information furnished by or for the Disclosing Party or any of its Representatives. Information will not be deemed to be (i) so publicly available if it relates to business opportunities or contact information and was directly or indirectly brought to the attention of the Receiving Party or any of its Representatives by, for or through the Disclosing Party or any of its Representatives (unless it is so widely known that a reasonable individual could not consider it to be valuable confidential information) or (ii) so known on a non-confidential basis or so independently developed unless such knowledge or development is clearly demonstrated by dated written records of a type customarily generated and maintained in the ordinary course of business. "Judicial Authority" means a court, arbitrator, special master, receiver, tribunal or similar body of any kind. "Law" means a treaty, code, statute, law (including common law of any Judicial Authority), rule, regulation or ordinance of any kind of any Governmental Authority. "Leased Property" means the Sutro Property and the VCV Property. "Liability" means a liability, duty, responsibility, obligation, assessment, cost, expense, expenditure, charge, fee, penalty, fine, contribution, premium or obligation of any kind, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due. "Liquidator" has the meaning set forth in Section 10.2(a). "LLC Act" means Chapter 86 of the Nevada Revised Statutes. "Loss" means a Liability, shortage, damage, diminution in value, deficiency or loss of any kind. "Majority Interest" means one or more Ownership Interests which, taken together, represent more than 50% of the aggregate of all of the Ownership Interests as measured by the aggregate value of Members' Capital Accounts, without regard to any special allocations, bonuses or similar adjustments of any kind. "Manager" has the meaning set forth in Section 6.1(a). "Managing Director" has the meaning set forth in Section 6.1(c). "Member" means, initially, each of the undersigned (an "Initial Member") and, at any time thereafter, each of the undersigned and each of the other Persons who at such time shall have become an Additional Member or a Substituted Member in accordance herewith, but excluding each of the undersigned and each of such other Persons who, at such time, shall have ceased to be a Member in accordance herewith. "Member Nonrecourse Debt" has the meaning set forth in Treasury Regulation section 1.704-2(b)(4). "Member Nonrecourse Debt Minimum Gain" means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a nonrecourse liability, determined in accordance with Treasury Regulation section 1.704-2(i). "Member Nonrecourse Deductions" mean the excess, if any, of the net increase, if any, in the amount of Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during a Fiscal Year over the aggregate amount of any distributions during such Fiscal Year to the Member that bears the economic risk of loss for the related Member Nonrecourse Debt to the extent such distributions are made from the proceeds of such Member Nonrecourse Debt and are allocable to an increase in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation section 1.704-2(i). "Membership Period" has the meaning set forth in Section 7.6(b). "Minerals" has the meaning set forth in Section 6.10(a). "Minerals Produced" means the bullion or other minerals recovered from the ore mined out of the ground but untreated and minerals produced from the milling or reduction of ore to a higher grade produced from the DWC Property or Leased Property, as applicable, or finished products produced from any such property. "Net Income" and "Net Loss" for each Fiscal Year or part thereof means the Company's taxable income or loss for such Fiscal Year determined in accordance with Code section 703(a) (and for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code section 703(a)(1) will be included in taxable income or loss), with the following adjustments: (a) any income of the Company that is exempt from federal income tax will be added to such taxable income or loss; (b) any expenditures of the Company described in Code section 705(a)(2)(B) or treated as such pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(i) (to the extent such expenditures are not taken into account in computing the Members' shares of Company Nonrecourse Deductions or Member Nonrecourse Deductions) will be subtracted from such taxable income or loss; (c) gain or loss resulting from any disposition of property of the Company with respect to which gain or loss is recognized for federal income tax purposes will be computed with reference to the Book Value of the property disposed, rather than the adjusted tax basis of such property; (d) such taxable income or loss will not be deemed to include any income, gain, loss, deduction or other item thereof allocated pursuant to Section 5.1(b) (relating to allocations caused by the occurrence of deficit Adjusted Capital Account Balances or the presence of nonrecourse debt); (e) if any property of the Company is distributed in kind to any Member, the difference between its Fair Market Value and its Book Value at the time of distribution will be treated as Net Income or Net Loss, as the case may be, recognized by the Company as if it arose from a sale of such property; and (f) if the value of any assets of the Company are adjusted pursuant to clause (b) of the definition of Book Value, the difference between their Fair Market Value and their Book Value at the time will be treated as Net Income or Net Loss, as the case may be, recognized by the Company as if from a sale of such assets. "Net Smelter Returns" shall mean the actual financial proceeds received from any mint, smelter, refinery, or other purchaser from the sale of bullion, dore, concentrates or finished products produced from the relevant property, less the following costs: shipping, all minting, smelter or refinery costs. In the event smelting or refining are carried out in facilities owned or controlled, in whole or in part, by Comstock Mining, charges, costs and penalties for such operations shall mean the amount Comstock Mining would have incurred if such operations were carried out at facilities not owned or controlled by Comstock Mining then offering comparable services for comparable products on prevailing terms. "Order" means a judgment, writ, decree, directive, decision, injunction, ruling, award or order (including any consent decree or cease and desist order) of any kind of any Governmental Authority or Judicial Authority. "Ownership Interest" of a Member means the legal and beneficial ownership interest of such Member in the Company, including all of such Member's rights in and obligations to the Company. "Person" means an individual, a partnership, a sole proprietorship, a company, a firm, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a union, a group acting in concert, a Judicial Authority, a Governmental Authority or any other entity or association of any kind. "Proceeding" means an action, suit, arbitration, mediation, litigation, hearing, investigation, inquiry or other proceeding of any kind involving any Governmental Authority, any Judicial Authority or any other Person. "Representatives" of a Person mean controlling persons, trustees, general partners, managers, directors, officers, employees, representatives, advisors, attorneys, consultants, accountants and agents of such Person. "RRA" means the Registration Rights Agreement dated August 31, 2010 among Comstock Mining and the other parties thereto. "Securities Purchase Agreement" means the Securities Purchase Agreement dated as of August 31, 2010, among Comstock Mining and the other parties thereto. "Series A-1 Certificate of Designation" means the 7 1/2% Series A-1 Convertible Preferred Stock Certificate of Designation filed by Comstock Mining with the Secretary of State of Nevada on October 19, 2010. "Series A-1 Preferred Stock" means Comstock Mining's 7 1/2% Series A-1 Convertible Preferred Stock having the rights, preferences and privileges set forth in the Series A-1 Certificate of Designation. "Subsidiary" means, with respect to any Person, any other Person which, directly or indirectly, is a controlled Affiliate of such Person. "Substituted Member" means a Person who is admitted to the Company as a Member pursuant to Section 7.2. "Sutro Property" means the real property that is the subject of the Mineral Exploration and Mining Lease Agreement dated January 1, 2008 between Sutro Tunnel Company and John V. Winfield as more fully described in the lease attached hereto as Exhibit B. "VCV Property" means the real property that is the subject of the Mineral Exploration and Mining Lease Agreement dated January 1, 2008 between Virginia City Ventures, Inc. and John V. Winfield as more fully described in the lease attached hereto as Exhibit C. "Winfield" means John V. Winfield, a resident of the State of California. "Yearly Distribution Date" has the meaning set forth in Section 5.2(a)(i). 1.2 Interpretations. Unless otherwise expressly stated in this Agreement: (a) the words "hereof", "hereby" and "hereunder," and correlative words, refer to this Agreement as a whole and not any particular provision; (b) the words "includes" and "including", and correlative words, are deemed to be followed by the phrase "without limitation"; (c) the word "written" and the phrase "in writing," and correlative words and phrases, include e-mail, pdf and facsimile transmissions; (d) the words "asset" and "property" are synonymous and include owned, leased and licensed real, personal and intangible property of every kind, including contractual rights, tort claims, cash, securities and information; (e) the masculine, feminine or neuter form of a word includes the other forms of such word and the singular and plural forms of a word have correlative meanings; (f) the word "or" is not exclusive; (g) the words "will" and "shall" shall be construed to have the same meaning and effect; (h) references to any Contract or Order mean such Contract or Order as amended and, in the case of any Law, mean such Law as amended, supplemented or modified and any successor Law and, in the case of any Contract, includes any and all exhibits, annexes, schedules and documents attached thereto, incorporated therein or constituting a part thereof; (i) references to an Article, Section, Schedule or Exhibit mean an Article or Section of, or a Schedule or Exhibit to, this Agreement; (j) references to "amendments" of a Contract or other document, and correlative terms, include amendments, modifications, supplements, novations, waivers, releases, discharges and other changes to such Contract or document; and (k) capitalized terms that are correlative to terms defined in Section 1.1 shall have correlative meanings. 1.3 Representations and Warranties of All Members. Each Member represents and warrants to the Company and the other Members, as of the date such Person becomes a Member, as follows: (a) If it is a Person other than an individual, such Member is duly organized or formed, validly existing and in good standing under the laws of its jurisdiction of organization or formation. (b) Such Member has all power and authority necessary to execute, deliver and perform his or its obligations under this Agreement and consummate the transactions contemplated hereby to be consummated by him or it. (c) If it is a Person other than an individual, the execution and delivery by it of this Agreement, the performance by it of its obligations hereunder and the consummation by it of the transactions contemplated hereby to be consummated by him or it have been duly authorized by all necessary action required to be taken by it. (d) This Agreement constitutes the legal, valid and binding obligation of such Member, enforceable against him or it in accordance with its terms. The execution and delivery by such Member of this Agreement, the performance by such Member of his or its obligations hereunder and the consummation by such Member of the transactions contemplated hereby by him or it will not conflict with, result in any violation of or constitute a default under any Contract or Order to which he or it is a party or by which he or it is bound or, if such Member is a Person other than individual, under its operating agreement, certificate or articles of formation, by-laws or other organizational instruments. (e) No approval, consent, exemption, authorization or license is required to be obtained from, no notice is required to be given to and no filing is required to be made with any third party (including, without limitation, financial institutions and governmental and quasi-governmental agencies, commissions, boards, bureaus and instrumentalities) by such Member in order (i) for this Agreement to constitute his or its legal, valid and binding obligation or (ii) to authorize or permit the consummation by his or it of the transactions contemplated hereby to be consummated by him or it. 1.4 Representations and Warranties of Comstock Mining to each other Member. Comstock Mining hereby makes all of the representations and warranties set forth in Section 3.1 of the Securities Purchase Agreement mutatis mutandis, as if such representations and warranties were set forth in this Agreement in their entirety. 1.5 Representations and Warranties of DWC to each other Member. DWC hereby represents and warrants to each other Member that (a) it solely owns all right, title and interest in and to the DWC Property and has not conveyed any interest or other right in the DWC Property to any other Person or otherwise subjected, or allowed to be subject, the DWC Property to any liens, easements, restrictions on use, or other encumbrances, except as set forth on Schedule 1.5 and (b) the transactions contemplated by this Agreement will result in Comstock Mining (on behalf of the Company) having the exclusive rights to mine and explore the DWC Property, free and clear of any and all liens, easements, restrictions on use, or other encumbrances, except as set forth on Schedule 1.5. 1.6 Representations and Warranties of Winfield to each other Member. Winfield hereby represents and warrants to each other Member that (a) he holds valid and enforceable leasehold interests in the Leased Property, free and clear of any and all liens and other encumbrances, all of the terms and conditions of which leasehold interest are set forth in the Mineral Exploration and Mining Lease Agreements, each dated January 1, 2008, between Sutro Tunnel Company and Winfield, and Virginia City Ventures, Inc. and Winfield, correct and complete copies of which, including any amendments, supplements and other documents relating thereto, are attached as Exhibit B and Exhibit C hereto, (b) none of Sutro Tunnel Company, Virginia City Ventures, Inc. or Winfield is in breach of, or default under, the lease agreements pertaining to the Leased Property and no event or occurrence has occurred that, with or without the passage of time or the giving or receipt of notice, will result in any breach of or default under either lease, (c) this Agreement will convey to Comstock Mining (on behalf of the Company) the sole right to use all of the Leased Property, (d) there are no other restrictions on use by Comstock Mining of the Leased Property and (e) Winfield is permitted to contribute the Leased Property to the Company pursuant to the terms of his leases of the Leased Property. ARTICLE 2 FORMATION; GENERAL PROVISIONS 2.1 Formation. The Company has been formed as a limited liability company under the Certificate pursuant to the LLC Act. When and as required under the LLC Act, the Manager shall cause the Certificate to be properly amended. 2.2 Name. The name of the Company is "Northern Comstock LLC" or such other name as may be determined from time to time by the Manager. 2.3 Business. The business of the Company (the "Company Business") shall be to: (a) explore, analyze, permit, drill, excavate, produce and sell gold and silver ore from the DWC Property and the Leased Property; (b) develop and engage in any and all businesses and activities which are incidental, ancillary, supplementary or complementary to, or may be associated with or related to, the businesses described in Section 2.3(a); and (c) engage in any lawful activity for which a limited liability company may be formed under the LLC Act as determined by the Manager. 2.4 Powers. The Company shall have the power to: (a) acquire, own, lease, license, sell and otherwise deal with real, personal and intangible property of any kind; (b) hire, engage, compensate, provide benefits to, award interests in the Company to, discharge and otherwise deal with employees, agents, consultants, counsel, accountants, advisers, independent contractors, partners, investors, creditors and other Persons in any manner; (c) incur, guaranty, pay, satisfy, discharge, defend against, commence, prosecute, settle and otherwise deal with Liabilities, Losses, Claims and Proceedings; (d) prepare, file, publish, acknowledge, execute, deliver, undertake, perform and terminate Contracts and reports, applications, registrations, returns and other documents of any kind; and (e) exercise any and all powers which a limited liability company may be permitted to exercise under the LLC Act. 2.5 Offices. The principal offices of the Company shall be located at 1200 American Flat Road, Virginia City, Nevada 89440 and such other locations as may be determined by the Manager. 2.6 Term. The term of the Company commenced upon the date hereof and shall continue in perpetuity, unless earlier terminated pursuant to Article 10. 2.7 Ownership of Company Property. Except as otherwise provided in this Agreement, all property now held or hereafter acquired by the Company shall be owned by the Company as an entity, and no Member, individually, shall have any ownership interest therein. Each Member hereby expressly waives the right to require partition of any Company property or any part thereof. 2.8 No Partnership; No Agency. The Members desire the Company to be treated as a limited liability company, and not as a partnership, limited partnership or joint venture of any kind. No Member shall be an agent, partner or joint venturer of any other Member by virtue of this Agreement or admission to or membership in the Company, except that a Member may act as an agent of any other Member for tax purposes pursuant to tax elections duly made. ARTICLE 3 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 3.1 Initial Capital Contributions. On or promptly after the date hereof, each of the Initial Members shall contribute either real property rights or capital stock to the capital of the Company as set forth on Schedule A opposite its name in consideration for its initial Ownership Interest. 3.2 Additional Capital Contributions. (a) On each anniversary of this Agreement, up to and including the thirty-ninth (39th) anniversary of this Agreement, Comstock Mining shall make Capital Contributions to the Company in the amount of Eight-Hundred Sixty-Two Thousand Five-Hundred and 00/100 Dollars ($862,500.00). Such annual Capital Contributions shall be made in the form of: (i) subject to the Equity Conditions (as defined in the Series A-1 Certificate of Designation), in shares of Series A-1 Preferred Stock; or (ii) if such stock is unavailable, or if the Equity Conditions have not been satisfied, or if the Company requests the same (but subject to subsection (b) below), then in the form of cash. Any Member may contribute additional cash or property to the Company in such amount or amounts and at such time or times as, but only as, shall have been approved by the Manager. Except as set forth in this Section 3.2 and Section 3.3, no Member shall be required to make any Capital Contributions to the Company, cure any deficit in such Member's Capital Account or lend any cash or property to the Company. (b) Notwithstanding anything to the contrary set forth in subsection (a) above, if the Company desires that a cash payment be made in lieu of any Series A-1 Preferred Stock, the Company shall notify Comstock Mining no later than six (6) months prior to the date of the next scheduled Capital Contribution. If Comstock Mining's Board of Directors, in good faith and upon reasonable diligence, concludes that payment in cash would have a material adverse effect on Comstock Mining's cash flow or liquidity, then, subject to satisfaction of the Equity Conditions, Comstock Mining may disregard such request and such payment shall be made in Series A-1 Preferred Stock, as set forth in subsection (a) above. (c) Notwithstanding anything to the contrary set forth in subsection (a) above, for each 200,000 ounces of gold equivalent validated after the date hereof through an independent external report (that is, a National Instrument 43-101 Compliant Mineral Resource Estimate Report or its successor of qualified resources (at least measured and indicated) and reserves (probable and proven) on the DWC Property and Leased Property, the Capital Contributions of Comstock Mining shall be automatically accelerated (in reverse order beginning with the last Capital Contribution due on the thirty-ninth (39th) anniversary of this Agreement) equal to $5,000,000 ("Accelerated Capital Call") whereupon the Accelerated Capital Call shall be paid in shares of Series A-1 Preferred Stock within sixty (60 days) after the date of such occurrence. Upon the payment of an Accelerated Capital Call, the amount of the aggregate future Capital Contributions to be made by Comstock Mining to the Company shall be reduced by the difference of $5,000,000 less $862,500 for each such Accelerated Capital Call. (d) Any expenditures made by Comstock Mining pursuant to its obligations set forth in Section 6.10(b) and Section 6.10(c), shall be recorded in Comstock Mining's Capital Account as Capital Contributions to the Company. 3.3. Additional Members. Any Person admitted to the Company as an Additional Member after the date hereof pursuant to Section 7.3 shall contribute cash and property to the capital of the Company in such amount or amounts and at such time or times as shall have been specified by the Manager in connection with such admission. 3.4 Capital Accounts. (a) A separate Capital Account shall be established for each Member and maintained in accordance with the provisions of Treasury Regulation section 1.704-1(b)(2)(iv). Each Member's Capital Account shall be (i) increased by such Member's Capital Contributions and by such Member's allocable share of Net Income and items of Company income and gain, (ii) decreased by such Member's allocable share of Net Loss (calculated in accordance with Section 5.1 herein) and items of Company loss and deduction and by the amount of cash and the net Fair Market Value of property distributed by the Company to such Member and (iii) otherwise adjusted in the manner provided in this Agreement. (b) Immediately prior to any distribution of Company assets in kind, each Member's Capital Account shall be adjusted to reflect the manner in which the unrealized income, gain, loss or deduction inherent in the assets to be distributed (and not already reflected in the Members' Capital Accounts) would be allocated among the Members pursuant to Article 5 if such assets were sold for Fair Market Value on the date of distribution. (c) Immediately prior to (i) any contribution of cash or property to the capital of the Company by a new or existing Member as consideration for an Ownership Interest in the Company, (ii) any distribution of cash or property by the Company to a Member in redemption of all or part of such Member's Ownership Interest or (iii) the liquidation of the Company pursuant to Article 10, each Member's Capital Account shall be adjusted to reflect the manner in which the unrealized income, gain, loss or deduction inherent in all Company assets (and not already reflected in the Members' Capital Accounts) would be allocated among the Members pursuant to Article 5 if such assets were sold for Fair Market Value on the date of such contribution, distribution or liquidation. (d) If any asset is contributed by a Member to the capital of the Company, the amount credited to such Member's Capital Account for such contribution will be equal to the Fair Market Value of such asset as of the date of contribution. 3.5 No Return of Capital; No Interest. No Member will have the right to the return of all or any part of such Member's Capital Account or Capital Contribution, to withdraw all or any part of such Member's Capital Account or Capital Contribution, to require the acquisition of such Member's Capital Account or Ownership Interest by the Company, to receive interest on such Member's Capital Account or Capital Contributions or to receive any distributions or payments of any kind from the Company, except as expressly provided in this Agreement. ARTICLE 4 COMPANY EXPENSES The Company shall be responsible for and shall pay, and shall reimburse the Members and the Manager for their payment of, Company Expenses. Company Expenses shall be paid out of funds of the Company and, subject to the last sentence of this Article 4, shall be paid when and as determined by the Manager. Notwithstanding anything contained in the preceding two sentences or the definition of Company Expenses to the contrary, expenses, costs, fees and other charges incurred for the benefit of the Company by Members, the Manager or employees shall not constitute Company Expenses to the extent that such incurrence or related documentation shall be inconsistent with policies or procedures adopted by the Manager. Promptly after the date hereof, the Company shall pay or reimburse the Members for their payment of all fees, expenses and costs incurred on behalf of the Company in connection with the formation of the Company and, to the extent approved by the Manager, other activities on behalf of the Company prior to the date hereof. ARTICLE 5 ALLOCATIONS; DISTRIBUTIONS; LOANS 5.1 Allocations of Net Income and Net Losses. (a) Subject to Section 5.1(b), the Net Income and Net Losses of the Company for each Fiscal Year will be allocated to the Members in the following manner: (i) Net Income in an amount equal to any distribution made to DWC pursuant to Section 5.2(b)(i) shall be allocated to DWC as Net Income for such Fiscal Year; (ii) Net Income in an amount equal to any distribution made to Winfield pursuant to Section 5.2(b)(ii) shall be allocated to Winfield as Net Income for such Fiscal Year; and (iii) all remaining Net Income or Net Losses of the Company, as the case may be, for each Fiscal Year shall be allocated to Comstock Mining. (b) Notwithstanding the general allocation rules set forth in Section 5.1(a), the following special allocation rules shall apply under the circumstances described therein. (i) If in any Fiscal Year a Member unexpectedly receives an adjustment, allocation or distribution described in Treasury Regulation section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such adjustment, allocation or distribution causes or increases a deficit Adjusted Capital Account Balance for such Member, then, before any other allocations are made under this Agreement, such Member shall be allocated items of income and gain (consisting of a pro rata portion of each item of Company income, including gross income and gain) in an amount and manner sufficient to eliminate such deficit Adjusted Capital Account Balance as quickly as possible. (ii) If there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be allocated items of income and gain for such Fiscal Year (and, if necessary, for subsequent Fiscal Years) in proportion to and to the extent of an amount equal to such Member's share of the net decrease in Company Minimum Gain, in accordance with Treasury Regulation section 1.704-2(f) and (g). (iii) If there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation section 1.704-2(i), will be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation section 1.704-2(i). (iv) Member Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulation section 1.704-2(i). (c) The following tax allocations shall be applicable. (i) Except as set forth in Section 5.1(c)(ii), allocations for tax purposes of items of income, gain, loss, deduction and credit shall be made in the same manner as allocations for book purposes. (ii) In accordance with Code section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Book Value. The Manager will make such allocations in accordance with Treasury Regulation section 1.704-3 using the method selected by the Manager. (iii) Allocations pursuant to this Section 5.1(c) are solely for purposes of federal, state and local taxes and will not affect, or in any way be taken into account in computing, any Member's Capital Account or share of profits, losses, tax items or distributions pursuant to any other provision of this Agreement. (d) Pursuant to Treasury Regulation section 1.752-3(a), Company nonrecourse liabilities shall be allocated in the following order: (i) first, to each Member to the extent of its respective share of Company Minimum Gain; and (ii) second, to each Member in the amount of any taxable gain that would be allocated to that Member under Code section 704(c) or in connection with a revaluation of Company property pursuant to Treasury Regulation section 1.704-1(b)(2)(iv)(f) or (r), if the Company disposed of (in a taxable transaction) all Company property subject to one or more nonrecourse liabilities of the Company in full satisfaction of such liabilities and for no other consideration; and (iii) thereafter, to the Members pro rata in proportion to their respective Capital Accounts. 5.2 Distributions; Record Dates. (a) To the extent the Company holds Series A-1 Preferred Stock, and subject to Section 5.3, the Company shall make: (i) to DWC on the 366th day after the date hereof and on each anniversary of such date thereafter (each such date a "Yearly Distribution Date"), a distribution of five hundred (500) shares of Series A-1 Preferred Stock plus any shares previously retained pursuant to this Section 5.2(a)(i) and not so distributed; provided, that the Company shall not make such distribution unless DWC shall deliver written notice to the Company at least sixty (60) days prior to such Yearly Distribution Date requesting that such shares be distributed; and (ii) to Winfield on each Yearly Distribution Date, a distribution of three hundred sixty two and one half (362.5) shares of Series A-1 Preferred Stock plus any shares previously retained pursuant to this Section 5.2(a)(ii) and not so distributed; provided, that the Company shall not make such distribution unless Winfield shall deliver written notice to the Company at least sixty (60) days prior to such Yearly Distribution Date requesting that such shares be distributed. (b) For as long as the Company shall exist, the Company shall make: (i) to DWC (or its permitted Assigns), a distribution of cash flows as a percentage of the Net Smelter Returns on the Minerals Produced from the DWC Property, as listed in the following table: Up to 500,000 Over 500,000 Gold Price / Ounce oz. oz. - ---------------------- ------------- ------------ $250.00 or less 1.0% 2.0% $250.00 to $500.00 1.5% 3.0% $501.00 to $750.00 2.0% 5.0% $751.00 or over 3.0% 6.0% (ii) to Winfield (or his permitted Assigns), a distribution of cash flows as a percentage of the Net Smelter Returns on the Minerals Produced from the Sutro Property, as listed in the following table: Up to 500,000 Over 500,000 Gold Price / Ounce oz. oz. - ---------------------- ------------- ------------ $250.00 or less 0.5% 1.0% $250.00 to $500.00 1.0% 2.0% $501.00 or over 1.0% 2.0% (iii) to Comstock Mining (or its permitted Assigns), a distribution of the remaining cash flows on the Minerals Produced from the DWC Property and the Sutro Property after any distributions made to DWC or Winfield pursuant to Section 5.2(b)(i) and Section 5.2(b)(ii), and all cash flows on the Minerals Produced from the VCV Property. Distributions made pursuant to Section 5.2(b)(i), Section 5.2(b)(ii) or Section 5.2(b)(iii) shall be made no later than thirty (30) days after receipt of payment from the smelter or other purchaser; provided, that upon request by DWC, Winfield or Comstock Mining, as the case may be (or their respective Assigns), the Company shall give a written instruction to the smelter, refinery or other purchaser that such distributions are to be paid directly to DWC, Winfield or Comstock Mining (or their respective Assigns) from the sums payable to the Company. If any Initial Member shall Assign less than all of its Ownership Interests to another Person in accordance with this Agreement, distributions made pursuant to Section 5.2(b)(i), Section 5.2(b)(ii) or Section 5.2(b)(iii) shall be prorated between or among such Initial Members and its Assign(s) in proportion to the respective Capital Accounts of such Initial Member and its Assign(s) (or as otherwise agreed to by the Initial Members and their Assigns). All payments shall be accompanied by a statement explaining the manner in which the payment was calculated, including a determination of weights and values of the Minerals Produced. (c) Except as provided in Section 5.2(b) or Article 10, without the prior written consent of each Member, the Company shall not be permitted, and none of the Manager(s), any Managing Director or any other Person shall cause the Company, to make any distributions of cash or any other property of the Company to the Members except for distributions in the form of Series A-1 Preferred Stock. To the extent deemed to be necessary or appropriate by the Manager, the Manager may fix a record date for the determination of Members entitled to receive any such distribution. 5.3 Limitation upon Distributions. No distribution shall be made by the Company unless, after the distribution is made, the fair value of the assets of the Company exceeds the liabilities of the Company, except liabilities to Members on account of their Capital Contributions, in each case, as determined by the Manager. 5.4 Loans by Members. Any Member may provide credit of any kind to the Company so long as (but only so long as) such indebtedness by the Company shall have been approved by the Manager. ARTICLE 6 MANAGEMENT OF THE Company 6.1 Manager and Managing Directors. (a) Subject to Section 6.1(b), Section 6.1(c) and Section 6.1(d), the Company shall be managed, and the conduct of its affairs, operations and activities shall be controlled, exclusively by or under the direction of John V. Winfield (the "Manager") in accordance with this Agreement. (b) The number of Managers shall be determined by, and only by, the Members holding a Majority Interest of the Company. The initial number of Managers shall be 1. A Manager must be an individual, but need not be a Member. If there is more than one Manager, each Manager shall have no authority as such, but shall act only as a board. Managers may be elected at any time. Each Manager shall hold office until his or her such successor is elected and qualified or until his or her earlier resignation or removal as such. Removal as such will not affect any rights or obligations of a Manager (i) such as those under Sections 6.4, 6.6 and 6.7 or (ii) as a Managing Director or a Member hereunder or under any other Contract, in each case, except as otherwise expressly provided herein or therein. A Manager may resign as such at any time by giving written notice to that effect to the Members. (c) The Manager may delegate the management and conduct of the Company's day-to-day business affairs, operations and activities to one or more managing directors (the "Managing Directors"). The number of Managing Directors shall be determined by, and only by, the Manager. The initial number of Managing Directors shall be 1. Managing Directors shall be appointed by, and only by, the Manager. Managing Directors may be appointed at any time. Each Managing Director shall hold office until his or her such successor is elected and qualified or until his or her earlier resignation or removal as such. Any or all Managing Directors (including those set forth in Schedule B) may be removed as such at any time by, and only by, the Manager. Removal as such shall not affect any rights or obligations of a Managing Director (i) such as those under Sections 6.4, 6.6 and 6.7 or (ii) as a Manager or a Member hereunder or under any other Contract, in each case, except as otherwise expressly provided herein or therein. A Managing Director may resign as such at any time by giving written notice to the effect to the Members. The initial Managing Directors shall be those Persons set forth on Schedule B. (d) Notwithstanding any provision of this Agreement to the contrary, so long as Winfield is a Member, none of the Company, any Manager or any Managing Director may take any of the following actions without the prior written consent of Winfield: (i) the sale, transfer, conveyance or other disposition of any portion of the DWC Property or the Leased Property; (ii) the distribution of any assets of the Company to any Member; (iii) the admission of any Additional Member; (iv) the issuance of any equity interest in the Company; (v) the incurrence of any indebtedness other than trade payables in the ordinary course of business; or (v) the existence of any lien or other encumbrance on the DWC Property or the Leased Property. 6.2 Action by Multiple Managers. If there is more than one Manager: (a) Regular meetings of the Managers shall be held when and as determined by the Managers. A copy of every resolution fixing or changing the time or place of regular meetings shall be given to all Managers at least 5 days before the first meeting held pursuant thereto. Any and all business may be transacted at a regular meeting. (b) Special meetings of the Managers may be held at any time. Special meetings may be called by, and only by, (i) a Manager or (ii) Members holding a Majority Interest. Written notice of the day, hour and place of each special meeting shall be given to all Managers at least 2 days before the meeting by the Person or Persons calling such meeting. No business shall be transacted at any special meeting except the business described in the notice thereof; provided, however, that, if all of the Managers shall be present, and shall so agree, any other business may be transacted thereat. (c) Meetings shall be held at the principal office of the Company or at such other place as the Managers or the Person or Persons calling such meetings, as the case may be, may reasonably determine. (d) The presence of a majority of the Managers then serving at any duly called meeting of the Managers shall be required in order to constitute a quorum for the transaction of business thereat. If at any meeting of the Managers there shall be less than a quorum, a majority of those Managers present may adjourn such meeting to a different time and place. Any business which could have been transacted at such meeting may be transacted at the adjourned meeting so long as written notice of the adjourned meeting shall have been given to all Managers at least 1 day prior to the adjourned meeting. (e) No proposed or purported act at any meeting of the Managers shall have been duly authorized unless authorized (i) at a duly called meeting at which a quorum is present at either the commencement of such meeting or the time such authorization is given at such meeting and (ii) by a majority of the Managers present at such meeting. (f) Managers may participate in a meeting of the Managers by means of conference telephone or similar communications equipment by means of which all Persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. (g) Any action required or permitted to be taken at any meeting of the Managers may be taken without a meeting if all Managers consent thereto in writing. (h)The Managers shall use good faith reasonable efforts to keep minutes or other records of their actions, decisions and determinations, including those relating to matters that may be within or without the scope of the Company Business, and minutes or other records of actions, decisions and determinations of the Members. 6.3 Duties of the Manager. (a) The Manager shall take or cause to be taken all actions as may be necessary or appropriate for the conduct of the Company Business in accordance with this Agreement and applicable Laws. The Manager shall act at all times in good faith and in such manner as he reasonably believes to be in the best interests of the Company and the Members. (b) Prior to conducting any business in any jurisdiction, the Manager shall use reasonable efforts to cause the Company either to comply with all requirements for the qualification of the Company to conduct business as a limited liability company in such jurisdiction or to conduct business in such jurisdiction through other entities or by such other means as the Manager, upon the advice of counsel, determines to be necessary or appropriate to preserve the Members' limited liability. 6.4 Reliance. Each Manager and Managing Director shall be fully protected in relying in good faith upon the records of the Company and upon information, opinions, reports or statements presented to the Company by any Manager, Managing Director or employee of the Company (other than such Manager or Managing Director) or by any other Person as to matters which such Manager or Managing Director reasonably believes to be within the scope of responsibility and competence of such Manager, Managing Director, employee or other Person and whom such Manager or Managing Director reasonably believes to have been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value or amount of Claims, Liabilities, Losses, profits or assets or as to any facts pertinent to the existence and amount of assets from which distributions to which Members might properly be paid. 6.5 Managing Director's Authority to Act for the Company. Each Managing Director shall have the authority inherent in such position, including the authority to act for and bind the Company (including the authority to execute and deliver any Contract on behalf of the Company) to the extent (but only to the extent) that such act is taken in accordance with this Agreement, except as such authority may be otherwise expanded or limited, generally or in a specific instance, by the Manager. 6.6 Limitation on Liability. Notwithstanding anything contained herein to the contrary, no Manager or Managing Director (i) shall be liable, responsible or accountable in damages or otherwise to the Company or any Member for any action taken or failure to act (including action or failure to act that constitutes a breach of this Agreement), except to the extent that such action or failure to act constitutes gross negligence, bad faith, willful misconduct or fraud, or (ii) shall have any obligation, responsibility or duty (by virtue of this Agreement, as a fiduciary to the Company or the Members, or otherwise) to disclose information, take action or refrain from taking action to the extent that such disclosure, taking or refraining could reasonably be expected to violate or breach an obligation, responsibility or duty owed to another Person. If such an obligation, responsibility or duty to another Person could reasonably be expected to be materially adverse to the Company or to present a material conflict of interest with the Company, such Manager or Managing Director shall disclose it, in reasonable detail, to all of the Managers prior to the date on which such Manager or Managing Director becomes such or the date on which such service to such other Person commences, whichever is later. Thereafter, such Manager or Managing Director shall seek to establish arrangements satisfactory to the Members in its good faith judgment to minimize any material adverse consequences to the Company (and, if such obligation, responsibility or duty relates to a Managing Director who is not an Affiliate of an Initial Member, the Manager shall have the right to exercise its authority under Section 6.1(c) to limit or change the duties, responsibilities and authority of, or to remove, such Managing Director). 6.7 Indemnification of Managers and Managing Directors. (a) The Company shall indemnify and hold harmless, to the fullest extent permitted by Law, each Manager and Managing Director (an "Indemnified Party") for, from and against any and all Liabilities and Losses from any and all Claims and Proceedings (each, an "Indemnified Action") in which such Indemnified Party may be involved, or threatened to be involved, as a party, a witness or otherwise, as a result of such Person's status as a Manager or Managing Director, regardless of whether such Indemnified Party continued or continues in such capacity at the time of occurrence, assertion, commencement, incurrence or payment thereof, or otherwise, and regardless of whether such Indemnified Action is brought by a third party or a Member or by or in the right of the Company, so long as the Indemnified Party acted in good faith and in a manner the Indemnified Party reasonably believed to be in or not opposed to the best interests of the Company (and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful). (b) The Company shall pay or reimburse, to the fullest extent permitted by applicable Law, in advance of the final disposition of each Indemnified Action, all fees, charges, expenses and costs incurred by an Indemnified Party in connection with any Indemnified Action, when and as incurred. Such Indemnified Party shall repay all amounts received from the Company pursuant to this Section 6.7(b) if such Indemnified Party is a defendant or respondent in such Indemnified Action and it shall ultimately be determined at the final disposition of such Indemnified Action that such Indemnified Party is not entitled to be indemnified by the Company hereunder, unless the relevant Judicial Authority or the disinterested Members shall have determined that repayment is not warranted under the circumstances. Such Indemnified Party may request such a determination at any time before, or within a reasonable time after, such final disposition. The Manager or Members shall promptly afford the Indemnified Party a reasonable opportunity to be heard in respect of such determination and shall make such determination in good faith. If such a request is made, repayment shall not be required until a decision as to such determination shall have been made. (c) The Manager may cause the Company to purchase and maintain insurance or establish other arrangements to protect the Indemnified Parties or the Company against any Claim, Liability or Loss asserted or incurred by reason of a Person's status as a Manager or Managing Director, regardless of whether the Company would have the power to indemnify such Person in respect thereof under this Section 6.7. The indemnification and expense advancement provided by this Section 6.7 shall be in addition to, and shall not be a limitation on, any other rights to which the Indemnified Parties may be entitled under any Contract, by reason of any determination or vote of the Members or the Manager, as a matter of Law, or otherwise, and shall inure to the benefit of the estates, heirs, successors, assigns and legal representatives of the Indemnified Parties. 6.8 Compensation and Reimbursement of Managers and Managing Directors. Each Manager and Managing Director shall be entitled to such compensation for his or her services as such as may determined by the Members holding a Majority Interest. The Company shall reimburse each Manager and Managing Director for all out-of-pocket expenses reasonably incurred by him or her in his or her capacity as such. 6.9 Acceptance by Managers and Managing Directors. Each Manager and Managing Director agrees, by accepting to undertake the duties and accept the rights and benefits as such, to observe and bound by the provisions of this Agreement relating to such capacity as if a party to it. 6.10 Operations. (a) Other than as provided in Section 6.11, for as long as the Company shall exist, Comstock Mining, on behalf of the Company, shall have the exclusive right to: (i) explore, develop and mine all minerals, metals and ores (collectively, the "Minerals") on or in the DWC Property and the Leased Property and, perform such exploration, development and mining in any manner deemed necessary or convenient by Comstock Mining, whether by surface, underground, solution or other mining methods; (ii) temporarily to store, or permanently to dispose of minerals, water, waste rock or other materials produced from or near the DWC Property or the Leased Property; (iii) to crush, grind, or otherwise prepare for transportation to an off-site processing facility all Minerals on the DWC Property or the Leased Property, whether such Minerals were produced from the DWC Property, the Leased Property or other proximate lands; (iv) to use, alter, or destroy, consume and deplete so much of the surface and surface resources of the DWC Property or the Leased Property as Comstock Mining may deem desirable or convenient in connection with its operations on the DWC Property or the Leased Property. Notwithstanding the foregoing, Comstock Mining shall be responsible for the undertaking and completing any and all land reclamation resulting from its activities during the term of this Agreement as required by federal and state law, and county ordinance; and (v) exercise such other rights as are reasonably necessary to accomplish the foregoing. (b) With respect to the DWC Property, Comstock Mining shall expend not less than $150,000 in the first twelve (12) months following the date hereof, and at least $150,000 per year during each of the following four (4) years following the execution of this Agreement. Within thirty (30) days after the end of each twelve (12) month period, Comstock Mining shall deliver to the Members reasonable supporting documentation showing compliance with Comstock Mining's obligations hereunder. (c) With respect to the Sutro Property, Comstock Mining shall expend not less than $100,000 in the first twelve (12) months following the date hereof, and at least $100,000 per year during each of the following five (5) years following the execution of this Agreement, and not less than $750,000 in the aggregate during the five (5) years following the execution of this Agreement. Within thirty (30) days after the end of each twelve (12) month period, Comstock Mining shall deliver to the Members reasonable supporting documentation showing compliance with Comstock Mining's obligations hereunder. (d) Comstock Mining agrees to conduct its operations hereunder in a good and miner-like manner and in compliance with all applicable laws, rules and regulations of any governmental entity having jurisdiction over such operations or the DWC Property or the Leased Property including, but not limited to, mine safety and health, environmental, land-use and zoning and operational permits and consents. (e) Comstock Mining shall continuously engage in exploration, development, mining or processing operations upon the DWC Property and the Leased Property so that at no time will there be any period of 180 consecutive days in which no exploration, development, mining or processing operations are conducted on the respective properties (excluding periods of Force Majeure as defined below). 6.11 Defaults by Comstock Mining; Remedies. (a) If: (i) Comstock Mining fails to make any Capital Contribution pursuant to Section 3.2, and fails to remedy such default within thirty (30) days following notice from the Company; or (ii) Comstock Mining defaults in fulfilling any other covenant of this Agreement and Comstock Mining fails to remedy such default within sixty (60) days after notice by the Company specifying the nature of such default (or, if said default cannot be completely cured or remedied within said sixty (60) day period and Comstock Mining shall not have diligently commenced curing such default within such sixty (60) day period; or (iii) a Bankruptcy of Comstock Mining, and such Bankruptcy shall continue and remain undischarged or unstayed for an aggregate period of one hundred twenty (120) days (whether or not consecutive) or shall not be remedied by Comstock Mining within one hundred twenty (120) days; or (iv) Comstock Mining fails to comply with its obligations set forth in Section 8 of the Series A-1 Certificate of Designation and Comstock Mining fails to remedy such default pursuant to Section 8(c) of the Series A-1 Certificate of Designation within thirty (30) days after notice by the Company; or (v) Comstock Mining defaults under Section 4.2 of the Securities Purchase Agreement and fails to remedy such default under the provisions of Section 5.13(b) of the Securities Purchase Agreement; or (vi) Comstock Mining fails to comply with its obligations under Section 2(a) of the RRA and fails to remedy such default within thirty (30) days after notice by the Company; or (vii) Comstock Mining fails to comply with its obligations under Section 2(b) of the RRA in that the Registration Statement (as defined therein) is not declared effective no later than the one (1) year anniversary of the Closing Date (as defined therein) and Comstock Mining fails to remedy such default within thirty (30) days after notice by the Company; or (viii) a Change of Control Transaction (as defined in the Series A-1 Certificate of Designation) occurs; then the same shall constitute a default by Comstock Mining under this Agreement and, if and so long as such default shall continue uncured or unremedied, the Company shall have and be entitled to exercise, in its sole discretion, by written notice one of the remedies set forth below. If the Company's notice of default shall indicate its election of either remedy set forth in (i) or (ii) of subsection (b) below and the date for expiration of the applicable cure period, then the Company's election of the remedy in subsection (b) below shall be effective as of such date set forth in the default notice (provided, however, that such default remains uncured or unremedied at such date) and, without any further action by or notice from the Company, either (x) this Agreement shall terminate and the Company shall be dissolved in accordance with Article 10 hereof; or (y) this Agreement shall continue in full force and effect and the remaining Capital Contributions to be made by Comstock Mining shall accelerate and be due and payable in the form of shares of Series A-1 Preferred Stock to the Company on such date, as the case may be, as provided by the Company in the notice of default. Notwithstanding the foregoing, it shall be deemed that Comstock Mining is not in default under the terms of this Agreement by reason of mining operations or other required activities having been suspended or prevented or prohibited by Law, by the inability to obtain permits or licenses, by scarcity or inability to obtain equipment, material, power or fuel, by strike, lockout or industrial disturbance, by failure of carriers to transport or furnish facilities for transportation, by operation of any Acts of God (including, without limitation, lightning, earthquake, fire, storm, flood, washout), by breakage or accident to machinery or facilities, or by any cause beyond Comstock Mining's control (the foregoing are collectively referred to as "Force Majeure"); provided, however, that Comstock Mining shall exercise reasonable diligence to resume mining operations. (b) In case of any such default, the Manager shall have the right to either: (i) terminate this Agreement and dissolve the Company in accordance with Article 10 hereof; or (ii) continue this Agreement in full force and effect and accelerate the remaining Capital Contributions to be made by Comstock Mining in the form of shares of Series A-1 Preferred Stock from such date until the thirty ninth (39th) anniversary of the execution of this Agreement. If this Agreement is terminated, Comstock Mining may remove all of its personal property within three (3) months after said termination. The 3- month period may be extended for periods when inclement weather will not allow the removal of equipment. All such items not removed within six months shall become the property of the then holder of the DWC Property or the lessee of the Leased Property, as applicable. 6.12 Rights of First Refusal; Right to Purchase. (a) The Company hereby assigns to Comstock Mining, subject to the condition of limitation and termination that no default by Comstock Mining shall have occurred and be continuing under Section 6.11 of this Agreement, (i) all of its rights under Section 29 of the lease with Sutro Tunnel Company set forth in Exhibit B and, the Company shall cause the Sutro Tunnel Company to recognize Comstock Mining's right of first refusal with respect to any sale of the Sutro Property and (ii) all of its rights under Section 13 of the lease with Virginia City Ventures, Inc. set forth in Exhibit C and, the Company shall cause Virginia City Ventures, Inc. to recognize Comstock Mining's right of first refusal with respect to any sale of the VCV Property. (b) Notwithstanding subsection (a) above, if Comstock Mining is unwilling or unable to purchase either Leased Property in connection with the right of first refusal, or a default by Comstock Mining shall have occurred and be continuing under Section 6.11 of this Agreement, the Company shall have the right to do so as if the right of first refusal had never been assigned. (c) In the event the Company proposes to sell the DWC Property or any patents or lots therein to a bona fide third party, it shall give Comstock Mining written notice of its intention to sell, describing the property, the parcel number(s), the price and the general terms upon which the Company proposes to sell the same. Comstock Mining shall then have ten (10) days from receipt of notice sent by registered mail to Comstock Mining to agree to purchase same under substantially the same terms and conditions. If Comstock Mining does not exercise its rights within such ten (10) day period then Comstock Mining shall be deemed to have waived its right of first refusal with respect to the offer which was the subject of the Company's notice; provided, that Comstock Mining's right of first refusal shall not be deemed waived in connection with any subsequent offer to purchase the DWC Property received by the Company or any successor-in-interest to the Company. Notwithstanding the foregoing if, following Comstock Mining's waiver of its right of first refusal hereunder, the terms of the underlying transaction change in any material respect, the Company shall, again, send a notice to Comstock Mining describing the modified terms and conditions of the offer and Comstock Mining shall have a right of first refusal with respect to such modified offer. (d) The Company hereby assigns to Comstock Mining, subject to the condition of limitation and termination that no default by Comstock Mining shall have occurred and be continuing under Section 6.11 of this Agreement, all of its rights to purchase the VCV Property subject to the terms and conditions set forth in Section 14 of the lease with Virginia City Ventures, Inc. set forth in Exhibit C. 6.13 Company Covenants. (a) Promptly following the execution and delivery of this Agreement by the parties, Winfield and/or the Company shall furnish to Comstock Mining copies of any and all records, reports, studies, analyses, permits, approvals, licenses, notices sent to and from Sutro Tunnel Company, Virginia City Ventures, Inc. and all other documents in Winfield's or the Company's possession which relate to the Leased Property including, without limitation, all title abstracts under Section 4 of the leases for each Leased Property, all current exploration data described in Sections 20 and 22 of the leases for the Sutro Property and the VCV Property, respectively, and all maps, reports and other data described in Sections 22 and 24 of the lease for the Sutro Property and the VCV Property, respectively. (b) As long as no default by Comstock Mining shall have occurred and be continuing under Section 6.11 of this Agreement, the Company shall not enter into any amendment or otherwise modify or amend the lease set forth in Exhibit B without the prior written consent of Comstock Mining in its sole discretion; provided, however, that the foregoing shall not preclude the Company from extending the term of or reducing its payment obligations under such lease. (c) As long as no default by Comstock Mining shall have occurred and be continuing under Section 6.11 of this Agreement, the Company shall not terminate the lease set forth in Exhibit B in accordance with Sections 17 or 18(a) of such lease, or otherwise, without the prior written consent of Comstock Mining in its sole discretion. (d) The Company shall furnish to Comstock Mining copies of any notices issued to or received from Sutro Tunnel Company or Virginia City Ventures, Inc. immediately upon issuing or receiving such notices. Comstock Mining shall have the right, but not the obligation, to cure any default by the Company under the leases set forth in Exhibit B or Exhibit C, and the Company shall promptly reimburse Comstock Mining for all costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by Comstock Mining in connection with such cure. (e) As long as no default by Comstock Mining shall have occurred and be continuing under this Agreement, the Company shall not alienate its interest or encumber its interests in the leases set forth in Exhibit B or Exhibit C, the Leased Property or this Agreement or otherwise deal or attempt to deal with its right, title and interest in the leases set forth in Exhibit B or Exhibit C, the Leased Property, or this Agreement in any way that is adverse to Comstock Mining's rights under this Agreement. (f) As long as no default by Comstock Mining shall have occurred and be continuing under Section 6.11 of this Agreement, the Company shall not do anything or suffer or permit anything to be done that would result in a default under the leases set forth in Exhibit B or Exhibit C, or permit such leases to be canceled or terminated. ARTICLE 7 MEMBERS 7.1 Initial Members; Limited Liability. (a) The Initial Members shall be those Persons set forth on Schedule A on the date hereof. (b) The Members as such will not have any responsibility or obligation in any way or of any kind for any Liabilities or Losses of the Company or to make contributions to the Company in excess of their respective Capital Contributions. 7.2 Assignment of Ownership Interests; Substituted Members. A Member may Assign all or any part of its Ownership Interest with, but only with, the approval of each Member. An Assignee will become a Member when, but only when, the Members shall have approved substitution of such Assignee for the Assigning Member and the Assignee shall have executed and delivered a joinder agreement to become a party to this Agreement in form and substance reasonably satisfactory to the Manager. Any Substituted Member admitted to the Company will succeed to all rights and be subject to all obligations, including with respect to Comstock Mining the rights and obligations set forth in Section 6.10 hereof, of the Assigning Member with respect to the Ownership Interest Assigned. Notwithstanding anything contained herein (other than the next sentence) to the contrary, the Members shall promptly give approval to: (a) the Assignment of an Ownership Interest to the estates, heirs, legal representatives and Affiliates of Members to whom such Ownership Interests are Assigned in connection with the transfer of all or a majority of, or the restructuring or reorganization of, their businesses or ownership interests or in connection with tax and estate planning, or by reason of disability or death; and (b) the admission of any such Assignee as a Substituted Member. Notwithstanding anything contained herein to the contrary, no Person shall be admitted as a Substituted Member unless such admission would not result in (i) a violation of any applicable Law, including applicable securities Laws, or this Agreement or (ii) a change in the Members' limited liability. 7.3 Admission of Additional Members. One or more Persons may be admitted as Members with, but only with, the consent of each Member. The terms of any such admission, including such Person's Capital Contributions, shall be determined by the Members. Notwithstanding anything contained herein to the contrary, no Person shall be admitted as an Additional Member unless such Additional Member shall have executed and delivered a joinder agreement to become a party to this Agreement in form and substance reasonably satisfactory to each Member and such admission would not result in (i) a violation of any applicable Law, including applicable securities Laws, or this Agreement or (ii) a change in the Members' limited liability. 7.4 No Acquisition of Ownership Interests by the Company. The Company shall not acquire, by purchase, redemption or otherwise, all or any part of the Ownership Interest of any Member, without the consent of each Member. Notwithstanding anything contained herein to the contrary, no Ownership Interest shall be acquired unless such acquisition would not result in (i) a violation of any applicable Law, including applicable securities laws, or this Agreement or (ii) a change in the Members' limited liability. 7.5 Action by the Members. (a) Meetings of the Members may be held at any time. Meetings of the Members may be called by, but only by, (i) the Manager, (ii) Members holding a Majority Interest or (iii) an Initial Member. Written notice of the day, hour and place of each special meeting shall be given to all Members at least 2 days before such meeting by the Person or Persons calling such meeting. To the extent deemed necessary or appropriate by the Manager, the Manager may fix a record date for the determination of Members entitled to receive such notice and to act at such meeting and their respective Ownership Interests at the time of such meeting. The Manager may change the day and time of such meeting to the extent necessary or appropriate to fix such record date and give written notice thereof to all Members. No business shall be transacted at any meeting except business which Members are expressly permitted to take hereunder and which is described in the notice thereof. (b) The presence of Members holding a Majority Interest at any duly called meeting of the Members shall be required in order to constitute a quorum for the transaction of business thereat. If at any meeting of the Members there shall be less than a quorum present, a majority of those Members present may adjourn such meeting to a different time and place. Any business which could have been transacted at such meeting may be transacted at the adjourned meeting so long as written notice of the adjourned meeting shall have been given to all Members at least 1 day prior to the adjourned meeting. (c) No proposed or purported act at any meeting of the Members shall have been duly authorized unless authorized (i) at a duly called meeting at which a quorum is present at either the commencement of such meeting or the time such authorization is given at such meeting and (ii) by Members holding a Majority Interest (or such other interest as may be set forth herein). (d) Members may participate in a meeting of the Members by means of conference telephone or similar communications equipment by means of which all Persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. (e) Any action required or permitted to be taken at any meeting of the Members may be taken without a meeting if Members holding the requisite number of Ownership Interests necessary to take such action consent thereto in writing. Notice of such action shall be given by the Company to the other Members, but no failure to give or delay in giving such notice, and no defect in such notice, shall impair or limit the validity of such action. 7.6 Independent Conduct. (a) Except as provided in Section 6.6 or 7.6(b), each Member and its Affiliates shall have the right to (i) engage in any and all businesses and activities of any kind (irrespective of whether such businesses and activities compete with the businesses and activities of the Company, the other Members or any of their respective Affiliates), (ii) use, lease and own any and all rights and properties of any kind, however used, leased or owned and wherever used, leased or owned, and (iii) receive compensation or profit therefrom for its or their own account and without in any manner being obligated to disclose or offer such businesses, activities, rights, properties, compensation or profit to the Company, the other Members or any of their respective Affiliates. (b) So long as a Member or any of its Affiliates is a member of the Company or a Manager or Managing Director (the "Membership Period") and for 2 years thereafter, unless otherwise approved by the Manager, such Member shall not and shall not permit its Affiliates to, directly or indirectly, either individually or on behalf of or through any other Person (other than the Company), (i) solicit or induce, or in any manner attempt to solicit or induce, any customer of the Company or any Person who during the Membership Period had been specifically identified as a prospective customer of the Company to become a customer or client of another Person in respect of any business, transaction or opportunity within the scope of the Company Business, (ii) solicit or induce, or in any manner attempt to solicit or induce, any Person who is employed by, a material agent or representative of or a material service provider to the Company to terminate such Person's relationship with the Company, (iii) divert, or in any manner attempt to divert, any Person from doing business with the Company or pursuing any business opportunity within the scope of the Company Business with the Company, (iv) induce, or in any manner attempt to induce, any Person to reduce the business such Person does with the Company or to cease being a customer of, or maintaining such Person's other business relationships with, the Company or (v) compete with or take or divert to itself the Company Business, any material part thereof or any material opportunity within the scope thereof. 7.7 Confidentiality. (a) During the Membership Period in relation to a Member and for 2 years thereafter, such Member will keep, and with cause its Affiliates and its and their Representatives to keep, all Information of the Company, each other Member and each Affiliate of each other Member confidential and will not disclose or use, or permit any of its Affiliates or its or their Representatives to disclose or use, any of such Information in any manner; provided, however, that such Information may be disclosed to Representatives of such Member who (i) need to know such Information for the conduct of the affairs of the Company in accordance with this Agreement (or for the purpose of assisting such Member to meet or comply with legal requirements (e.g., the preparation and filing of tax returns)), (ii) are informed in writing by such Member of the confidential nature and restricted use of such Information and (iii) agree in writing to observe the terms of this Section 7.7 as if they were such Member. Such Member will and will cause its Representatives to only make that number of copies of such Information (whether in written, electronic or other form) that is necessary for the purpose set forth in clause (i) of the preceding sentence. (b) The Company will keep, and will cause its Subsidiaries and its and their Representatives (including the Managers and the Managing Directors) to keep, all Information of the Members confidential and will not, and will not permit its Subsidiaries or its or their Representatives (including the Managers and the Managing Directors) to, disclose or use such Information in any manner; provided, however, that such Information may be used by the Company and disclosed to and used by its Subsidiaries and its and their Representatives who (i) need to know such Information for the conduct of the Company Business and the affairs of the Company in accordance with this Agreement and (ii) are informed by the Company of the confidential nature and restricted use of such Information. (c) At any time after such Membership Period, upon written of the Person to whom Information belongs, such Member will, at its election, either (i) promptly cause to be destroyed at its expense all of such Information (in any form other than oral) in the possession of it, its Affiliates or its or their Representatives (including all copies) and confirm such destruction to such Person in writing or (ii) promptly cause to be delivered to such Person at such Member's expense all of such Information (in any form other than oral) in the possession of it, its Affiliates or its or their Representatives (including all copies). All of such Information in oral form will continue to be subject to this Section 7.7; provided, that such Member may retain and use any such Information as needed by such Member to meet or comply with legal requirements (e.g., the preparation and filing of tax returns). (d) If a Person subject to this Section 7.7 becomes required by Law to disclose any Information of another Person which such Person is required to keep confidential and not disclose under this Section 7.7, such Person will as promptly as possible give written notice to that effect to such other Person. Such other Person, in its sole discretion, shall be entitled to seek a protective order or other appropriate remedy. If such other Person seeks such an order or remedy, such Person will, upon request, use all reasonable efforts to fully cooperate with such other Person. Regardless of whether such protective order or other remedy is obtained, such Person will furnish only that portion of such Information which it is legally required to furnish. If such a protective order or remedy is not obtained, such Person will exercise best efforts to obtain reliable assurance that confidential treatment will be accorded such Information. If such a protective order or other remedy is obtained, such Person will exercise best efforts to obtain reliable assurance that such Information is furnished in accordance with and subject to such protective order or remedy. To the extent that such Person is an Affiliate of a Member or a Representative of a Member or its Affiliates, such Member will cause them to comply with this Section 7.7(e). To the extent that such Person or its Representatives furnish Information in accordance with this Section 7.7(d), such furnishing will not constitute a breach of this Section 7.7. The Company shall provide such assistance as may be reasonably feasible and necessary to carry out the purposes of this Section 7.7(d). 7.8 Certain Remedies. Each of the parties hereto agrees, on behalf of itself, its Affiliates and its and their Representatives, that money damages for a breach of Section 7.6 or 7.7 by it or them is unlikely to be calculable, that such a breach is likely to cause irreparable harm to the aggrieved Person and that remedies at law are likely to be inadequate to protect the aggrieved Person against any actual or threatened breach of Section 7.6 or 7.7. Accordingly, each of the parties hereto agree, on behalf of itself, its Affiliates and its and their Representatives, to the granting of injunctive relief in favor of the aggrieved Person in the event of any such breach or threatened breach, without proof of actual damages and without the requirement of posting bond or other security. Such relief shall not be the exclusive remedy for a breach or threatened breach of Section 7.6 or 7.7, but shall be in addition to all other rights and remedies available at law, in equity or otherwise to the aggrieved Person. In the event of litigation relating to Section 7.6 or 7.7 wherein a court of competent jurisdiction determines in a final, non-appealable order that Section 7.6 or 7.7 has been breached, then each of the parties hereto agrees, on behalf of itself, its Affiliate and its and their Representatives, that the breaching Person will also be liable to the aggrieved Person for all costs and expenses (including reasonable legal fees and expenses) incurred in connection with such litigation and all other litigation related to such breach. 7.9 Obligations and Material Developments. The Members intend to act in good faith and in close cooperation on all matters relating to this Agreement and the Company Business. Each Member shall use reasonable and good faith efforts to promptly inform the Manager of material developments relating thereto, consult with the Manager as to such developments and act by consensus with respect to such developments. 7.10 Member Books and Records. Each Member shall maintain (and shall cause its respective Affiliates to maintain) accurate and complete books and records, in accordance with generally accepted accounting principles and practices and otherwise, to the extent necessary to demonstrate compliance with this Agreement. 7.11 Further Assurances. Each of the parties hereto will (and will cause its Affiliates and Representatives to) use its respective commercially reasonable efforts to take or cause to be taken all appropriate actions, do or cause to be done all things necessary, proper or advisable, and execute such applications, filings, certificates and other documents to carry out and give effect to this Agreement. ARTICLE 8 ACCOUNTS; RETURNS 8.1 Books. The Manager shall use reasonable efforts to cause the Company to maintain complete and accurate books and records, in accordance with general accepted accounting principles and practice and otherwise, of all transactions, operations and activities of the Company and its Subsidiaries. Each Member shall have the right to inspect the Company's books and records at any reasonable time. 8.2 Reports and Returns. The Manager shall use reasonable efforts to cause to be furnished to each Member: (a) within 90 days after the end of each Fiscal Year, an Internal Revenue Service Schedule K-1 with respect to such Member (and, within the applicable period under applicable foreign Law, any similar information statement with respect to such Member); and (b) within 120 days after the end of each Fiscal Year, a balance sheet of the Company as at the end of such Fiscal Year and statements of income and cash flow of the Company for such Fiscal Year. 8.3 Fiscal Year. The fiscal year of the Company for both financial reporting and tax purposes shall be the calendar year (the "Fiscal Year"). 8.4 Method of Accounting and Reporting. The books and accounts of the Company shall be maintained using the cash method of accounting for both financial reporting and tax purposes. The Company shall elect to be treated as a partnership for federal income tax purposes. 8.5 Tax Returns. The Manager shall use reasonable efforts to cause to be prepared and filed on a timely basis all foreign, federal, state and local tax returns and tax information returns required on the part of the Company. 8.6 Bank Accounts. The Manager shall use reasonable efforts to cause all funds of the Company to be deposited in the name of the Company in an account or accounts maintained with a bank or banks selected by the Manager. Checks shall be drawn upon the Company account or accounts only for the purposes of the Company and must be signed by at least one Managing Director or, if they exceed $1,000, at least two Managing Directors. ARTICLE 9 VALUATION OF ASSETS For purposes of this Agreement, the Fair Market Value of any asset of the Company, of a Member's Ownership Interest or of the Company Business shall be determined by agreement of all Members affected thereby or, at the option of any such Member or if such Members are unable to agree on such value within a reasonable time, by an independent expert selected by the Manager. If required to make such a selection, the Manager shall make any such selection promptly. ARTICLE 10 DISSOLUTION OF COMPANY 10.1 Dissolution. Subject to the LLC Act, the Company shall be dissolved upon the earliest to occur of: (a) the determination, at a duly called and convened meeting of the Members, of Members holding a Majority Interest to dissolve the Company; or (b) the sale or distribution by the Company of all or substantially all of its assets. Except as otherwise expressly provided under the LLC Act, the withdrawal, removal, death or incompetency of a Member, the Bankruptcy of a Member, the reorganization, termination, dissolution or liquidation of a Member, the distribution or sale by a Member of its Ownership Interest, or the occurrence of a similar event or transaction will not effect a dissolution of the Company. 10.2 Liquidation. (a) Upon dissolution and liquidation of the Company pursuant to Section 10.1, the assets, liabilities, business and affairs of the Company will be liquidated and wound up in an orderly manner. The Manager shall select a Person or Persons, any or all of whom may be a Member or a Manager, to serve as liquidator (individually and collectively, the "Liquidator"). The Liquidator shall have the same duties, power and authority, and shall be entitled to the same rights and protections, as those afforded to the Manager and a Managing Director. Upon appointment of the Liquidator, the Manager shall cease to have any duties, power or authority and the Manager shall be discharged as such. (b) Upon dissolution and liquidation of the Company, a final allocation of all items of income, gain, loss and deduction shall be made in accordance with Article 5 and all of the Company's assets, or the proceeds therefrom, shall be distributed or used as follows and in the following order of priority (which order shall be without prejudice to the liability of the Company to its creditors): (i) for the payment of the Company's debts, liabilities and obligations (including liabilities and obligations to the Manager and Managing Directors) and the expenses of its liquidation; (ii) to the setting up of any reserves that the Liquidator may deem necessary or appropriate for any contingent or unforeseen debts, liabilities or obligations (including debts, liabilities and obligations to the Manager and Managing Directors) of the Company; and (iii) to the Members in accordance with the positive balances in their respective Capital Accounts (after adjustments under Articles 3 and 5 have been made to such Capital Accounts, until such balances have been reduced to zero). 10.3 Liability for Return of Capital Contributions. Each Member shall look solely to the assets of the Company for all distributions by the Company, including distributions in connection with the dissolution of the Company. No Member shall have any recourse therefor against any of the other Members, any Manager, any Managing Director or any of the Representatives of the Company (other than by reason of a breach of this Agreement or another Contract between or among any of them and the Company). ARTICLE 11 AMENDMENTS; WAIVER 11.1 Amendments. No addition to, and no cancellation, renewal, extension, modification or amendment of, this Agreement shall be binding upon any party hereto unless such addition, cancellation, renewal, extension, modification or amendment is set forth in a written instrument which states that it adds to, amends, cancels, renews, extends or modifies this Agreement and which is executed and delivered by each party hereto. 11.2 Waivers. No waiver of any provision of this Agreement shall be binding upon a party hereto unless such waiver is expressly set forth in a written instrument which is executed and delivered by such party. Such waiver shall be effective only to the extent specifically set forth in such written instrument. Neither the exercise (from time to time and at any time) by a party hereto of, nor the delay or failure (at any time or for any period of time) to exercise, any right, power or remedy shall constitute a waiver of the right to exercise, or impair, limit or restrict the exercise of, such right, power or remedy or any other right, power or remedy at any time and from time to time thereafter. No waiver of any right, power or remedy or a party hereto shall be deemed to be a waiver of any other right, power or remedy of such party or shall, except to the extent so waived, impair, limit or restrict the exercise of such right, power or remedy. ARTICLE 12 NOTICES All notices, requests, demands and other communications required or permitted to be given pursuant to this Agreement shall be given in writing, shall be transmitted by personal delivery, by a nationally recognized courier service, by registered or certified mail, return receipt requested, postage prepaid, by facsimile, or by email, receipt requested, and shall be addressed as follows: (a) when the Company is the intended recipient, to the address of its principal office set forth in Section 2.5; and (b) when any Member, Manager or Managing Director is the intended recipient, to its address set forth on Schedule A or B. The Company, a Member, a Manager or a Managing Director, or any other party hereto, may designate a new address to which notices, requests, demands and other communications required or permitted to be given pursuant to this Agreement shall thereafter be transmitted by giving written notice to that effect to the Manager. The Manager shall use reasonable efforts to advise all affected Persons of such change. Each notice, request, demand or other communication transmitted in the manner described in this Article 12 shall be deemed to have been given, received and become effective for all purposes at the time it shall have been (a) delivered to the addressee as indicated by the receipt (if transmitted by mail or email), the affidavit of the messenger (if transmitted by personal delivery), the receipt of the courier service (if transmitted by courier service), or the e-mail receipt, answer back or call back (if transmitted by e-mail or facsimile) or (b) presented for delivery to the addressee as so indicated during normal business hours, if such delivery shall have been refused for any reason. ARTICLE 13 MISCELLANEOUS 13.1 Publicity. Each party hereto agrees that it shall not and shall not permit its Affiliates or its or their Representatives to issue any publicity, release or announcement concerning the execution, delivery, performance or termination of this Agreement, the provisions hereof or the transactions contemplated hereby without the prior written consent of the form and content of such publicity, release or announcement by the Manager; provided, however, that no such consent shall be required when such publicity, release or announcement is required by any applicable Law and, provided further, that, prior to issuing any such required publicity, release or announcement without such prior written consent, the party hereto issuing or whose Affiliates or Representatives is issuing such publicity, release or announcement shall have given reasonable prior notice to the Manager of such intended issuance and shall have used good faith efforts to take or cause to be taken into account any comments thereon that it may have. 13.2 Expenses of Members. Except as otherwise provided in this Agreement, each party hereto agrees to pay or cause its Affiliates to pay all expenses, fees and costs (including legal, accounting and consulting expenses) incurred by it or its Affiliates in connection with the transactions contemplated by this Agreement. 13.3 Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and cancels and supersedes all of the previous or contemporaneous agreements, representations, warranties and understandings (whether oral or written) by, between or among the parties hereto with respect to the subject matter hereof (including the Letter of Intent dated August 13, 2008, between GoldSpring, Inc. and DWC Resources, Inc. and the Letter of Intent dated August 13, 2008, between GoldSpring, Inc. and John V. Winfield). 13.4 Governing Law; Forum; Jury Trial. THE VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEVADA (WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW RULE THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE INTERNAL LAWS OF THE STATE OF NEVADA). EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, AGREES THAT ANY CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE BREACH OR THREATENED BREACH OF THIS AGREEMENT SHALL BE COMMENCED AND PROSECUTED IN A COURT IN THE STATE OF NEVADA. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE PERSONAL JURISDICTION OF ANY COURT IN THE STATE OF NEVADA IN RESPECT OF ANY SUCH CLAIM OR PROCEEDING. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, CONSENTS TO SERVICE OF PROCESS UPON IT OR THEM WITH RESPECT TO ANY SUCH CLAIM OR PROCEEDING BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, AND BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAWS. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, WAIVES ANY OBJECTION THAT IT OR THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH CLAIM OR PROCEEDING IN ANY COURT IN THE STATE OF NEVADA AND ANY CLAIM THAT IT OR THEY MAY NOW OR HEREAFTER HAVE THAT ANY SUCH CLAIM OR PROCEEDING IN ANY COURT IN THE STATE OF NEVADA HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO, ON BEHALF OF ITSELF, ITS AFFILIATES AND ITS AND THEIR REPRESENTATIVES, WAIVES TRIAL BY JURY IN ANY SUCH CLAIM OR PROCEEDING. 13.5 Binding Effect; Assignment; Third Party Beneficiaries. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as expressly provided in Section 7.2, no party hereto shall assign any of its rights or delegate any of its duties under this Agreement (by operation of Law or otherwise) without the prior written consent of each Member, and any purported assignment of rights or delegation of duties under this Agreement without such prior written consent, if such consent is required hereby, shall be void. No such assignment or delegation shall relieve the assignor or delegator of its obligations hereunder. No Person (including any employee), other than Indemnified Parties as provided in the next sentence, shall be, or be deemed to be, a third party beneficiary of this Agreement. Each Indemnified Party is intended to be a third party beneficiary of Section 6.6. 13.6 Headings; Counterparts. (a) The headings set forth herein have been inserted for convenience of reference only, shall not be considered a part of this Agreement and shall not limit, modify or affect in any way the meaning or interpretation of this Agreement. (b) This Agreement may be signed in any number of counterparts, each of which (when executed and delivered) shall constitute an original instrument, but all of which together shall constitute one and the same instrument. It shall not be necessary when making proof of this Agreement to account for any counterparts other than a sufficient number of counterparts which, when taken together, contain signatures of all of the parties hereto. Delivery of a counterpart by facsimile, PDF or similar means shall be as effective as delivery of an original. 13.7 Severability. If any provision of this Agreement shall hereafter be held to be invalid, unenforceable or illegal, in whole or in part, in any jurisdiction under any circumstances for any reason, (a) such provision shall be reformed to the minimum extent necessary to cause such provision to be valid, enforceable and legal while preserving the intent of the parties hereto as expressed in, and the benefits and burdens provided by, this Agreement or (b) if such provision cannot be so reformed, such provision shall be severed from this Agreement and an equitable adjustment shall be made to this Agreement (including addition of necessary further provisions to this Agreement) so as to give effect to the intent so expressed and the benefits and burdens so provided. Such holding shall not affect or impair the validity, enforceability or legality of such provision in any other jurisdiction or under any other circumstances. Neither such holding nor such reformation nor severance shall affect or impair the legality, validity or enforceability of any other provision of this Agreement. 13.8 Interpretation. All parties hereto have participated substantially in the negotiation and drafting of this Agreement and no ambiguity herein shall be construed against the draftsman. 13.9 No Consequential Damages. Except for the indemnification provisions specifically set forth in this Agreement, no party hereto shall be liable for any special, indirect, incidental, consequential or punitive damages arising out of any breach of this Agreement, even if informed of the possibility of such damages in advance. IN WITNESS WHEREOF, the undersigned has executed this Agreement effective as of the day and year first above written. COMSTOCK MINING, INC. By: /s/ Corrado De Gasperis ------------------------------ Name: Corrado De Gasperis Title: Chief Executive Officer DWC RESOURCES, INC. By: /s/ John V. Winfield --------------------------- Name: John V. Winfield Title: Chairman JOHN V. WINFIELD By: /s/ John V. Winfield ----------------------------- John V. Winfield SCHEDULE A Capital Contribution Table Member Contribution - ------ ------------ DWC Resources, Inc. The property described in Exhibit A. (Fair Market Value = $20,000,000) John V. Winfield The rights of the "Lessee" under the Leases attached hereto as Exhibit B and Exhibit C. (Fair Market Value = $14,500,000) Comstock Mining, Inc. 862.5 shares of 7 1/2% Series A-1 Convertible Preferred Stock. (Fair Market Value = $862,500) SCHEDULE B Managing Directors 1. Corrado De Gasperis -----END PRIVACY-ENHANCED MESSAGE-----