Dissolution of Joint Operating Agreement between Lepanto Consolidated Mining Co. and Filmag (Phils.)

May 5, 1999 BIR RULING NO. 063-99 52 (C)-000-00-063-99 Diaz Murillo Dalupan 5/F Don Jacinto building Dela Rosa corner Salcedo Streets Legaspi Village, Makati City Attention: Atty . Millard M . Manseguiao Gentlemen : This refers to your letter dated January 14, 1999 requesting for a ruling that dissolution of the joint operating agreement entered into on January 14, 1974 between Lepanto Consolidated Mining Company and Filmag (Phils.), Inc. is not an aspect of corporate dissolution requiring prior clearance from the Securities and Exchange Commission and from the Bureau of Internal Revenue under Section 52(C) of the Tax Code of 1997. It is represented that under the proposed plan of dissolution of the Joint Operating Agreement for the mining and marketing of Bentonite ore from the mineral lobe and placer claims of Lepanto, the respective parties will retain their corporate existence; that each separate corporation shall receive their respective share from receivables and likewise be separately liable to future obligations and liabilities arising from the conduct of their business under the Joint Operating Agreement; that the specific terms and conditions of their dissolution agreement states: "1.0 Disposition of Assets All property, plant & equipment, inventories, material & supplies and other assets obtained by virtue of the JOA and reflected in the Filmag Holdings, Inc. Bentonite Project, Schedule of Assets and Liabilities as of July 31, 1998 (attached hereto as Schedule 1 made integral part hereof) will to the extent possible, be sold or disposed at such terms and conditions as mutually agreed upon by the parties. FILMAG is hereby designated and authorized, on behalf of both parties, to negotiate the terms and conditions of the sale or disposition, to execute, sign and deliver the requisite instruments, deeds or papers, to receive and receipt for the proceeds of the sale or disposition, to each and negotiate any checks or negotiable instruments delivered by the buyer or transferee, and to perform any and all acts as may be necessary in connection with the sale or disposition. The written consent of LEPANTO to the terms and conditions of the sale and disposition shall be obtained prior to the execution by FILMAG of the deed of sale or transfer. "2.0 Collection of Receivables FILMAG will, to the extent possible collect or cause to be collected the accounts receivable and accrued interest receivable reflected in Schedule I. FILMAG is authorized to effect any compensation or set-off. Other than the authority to effect any compensation or set-off, FILMAG shall not cause anything to be done that would tend to diminish, discharge, delay or prevent collection of all outstanding debts owing to LEPANTO. To the extent applicable, FILMAG is granted the same powers and authority stated in 1.0 above. "3.0 Payment of Obligations All outstanding obligations and liabilities of the Bentonite Project as reflected in Schedule 1 shall be fully liquidated and paid out of existing cash in order of their burden. In the event on hand is not sufficient, so much of the proceeds from 1.0 above and receivable collected pursuant to 2.0 above shall be paid. FILMAG is authorized to effect the payment and to obtain the necessary quitclaim or waiver of liability. To the extent applicable, FILMAG is granted the same powers and authority stated in 1.0 and 2.0 above. "4.0 Disposition of Net Proceeds After liquidation of all outstanding obligations and liabilities as provided in 3.0 above, any net proceeds left will be distributed to the parties hereto equally or share alike, subject to the execution by each party of the Deed of Assumption of Liabilities required in 5.0 below. "5.0 Assumption of Liabilities Prior to remittance of whatever net proceed each party hereto is entitled pursuant to 4.0 above, such party is required to execute a Deed of Assumption of Liabilities, wherein it assumed to the extent of its one-half share any obligations and/or liability, including but not limited to taxes of any nature, which the Bentonite Project may be held liable or accountable or which the parties hereto may be held liable or accountable pursuant to or under or reason of the JOA and this Agreement. Each party hereto shall cooperate with each other in case any claim, case or action is lodged or filed against either or both of them in relation to or arising from the Bentonite Project, the JOA, this Agreement and the Deed of Assumption of Liabilities. LLpr "6.0 Representations and Warranties Each of the parties hereto represents and warrants to each other that (I) it has the full power, authority and legal right to execute, deliver and perform this Agreement and the Deed of Assumption of Liabilities, (ii) this Agreement and the Deed of Assumption of Liabilities constitute its legal, valid and binding obligation, enforceable in accordance with the terms thereof, and (iii) the execution, delivery and performance of this Agreement and the Deed of Assumption of Liabilities will not violate any provision of law or other governmental directive having the force of law, or conflict with the result in the breach of or constitute a default under any agreement or instrument to which is party or is subject or by which any of its assets may be legally bound. "7.0 Taxes, Costs, Fees and Expenses All taxes, fees, costs and expenses incidental to, arising from or in relation to the execution, delivery, resignation and in any manner connected with this Assignment and the Deed of Assumption of Liabilities shall be borne by the parties hereto equally. "8.0 Further Documents The parties hereto agree to execute and deliver such other instruments, documents and notices, and to make such acknowledgments as may be necessary in order to fully effectuate the foregoing provisions. In reply, please be informed that based on the foregoing facts, the dissolution of the Joint Operating Agreement entered into on January 14,1974 between Lepanto Consolidated Mining Company and Filmag (Phils.), Inc. for the mining and marketing of Bentonite ore from the mineral lobe and placer claims of Lepanto, with Filmag as the operator, is not within the scope of Section 52 (C) of the Tax Code of 1997. cdlex Since the dissolution of the Joint Operating Agreement will not result in the corporate dissolution of any or all of the parties in the Joint Operating Agreement, the parties are not required to secure a dissolution clearance from the Securities and Exchange Commission and a tax clearance from the Bureau of Internal Revenue. This ruling is being issued on the basis of the foregoing facts as represented However, if upon investigation it will disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue