Case Doc 226 Filed 11/25/15 Entered 11/25/15 13:27:37 Desc Main Document Page 1 of 9

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1 Document Page 1 of 9 Matiin J. Brill (Calif. Bar No ) Krikor J. Meshefejian (Calif. Bar No ) LEVENE, NEALE, BENDER, YOO & BRILL, L.L.P Constellation Blvd., Suite 1700 Los Angeles, California Telephone: (310) Facsimile: (310) mjb@)lnbvb.com Counsel for Creditors Caldera Mineral Resources, LLC and Caldera Holdings, LLC Pro Hae Vice Application To Be Submitted M. Darin Hammond- Bar No SMITH KNOWLES, P.C Washington Blvd., Suite 200 Ogden, UT Telephone: (801) Facsimile: (801) dhammond@,smitbknowles.com Local Counsel for Creditors Caldera Mineral Resources, LLC and CalderaHoldings, LLC IN THE UNITED STATES BANKRUPTCY COURT DISTRICT OF UTAH, CENTRAL DIVISION Jointly adtninistered under Bankruptcy Case No (Chapter 11) In re FEDERAL RESOURCES CORPORATION and CAMP BIRD COLORADO, INC. Debtors. Judge Kevin R. Anderson THIS DOCUMENT RELATES TO: In re Federal Resources Corporation In re Camp Bird Colorado, Inc. X Both Debtors DECLARATION OF A.. JOHN A. BRYAN, JR. IN SUPPORT OF OPPOSITION TO DEBTORS' MOTION FOR ORDER {A) APPROVING BID PROCEDURES FOR SALE OF CAMP BIRD COLORADO, INC.'S MINING EQUIPMENT AND INVENTORY; (B) AUTHORIZING THE SALE OF CAMP BIRD COLORADO, INC.'S MINING EQUIPMENT AND INVENTORY FREE AND CLEAR OF LIENS; AND (C) ABANDONING THE MOTION FLOW EQUIPMENT TO MOTION FLOW 1

2 Document Page 2 of 9 I, John A. Bryan, Jr., hereby declare as follows: 1. I am the Chief Executive Officer of Caldera Mineral Resources, LLC ("Caldera") which is a subsidiary of Caldera Holdings, LLC ("Holdings"). I have personal knowledge of the facts set forth herein, and, if called as a witness, could and would testify competently with respect thereto. 2. I make this declaration in support of Caldera's and Holdings' Opposition to the Debtors' Motion For Order (A) Approving Bid Procedures For Sale Of Camp Bird Colorado, Inc. 's Mining Equipment And Inventory; (B) Authorizing The Sale Of Camp Bird Colorado, Inc. 's Mining Equipment And inventory Free And Clear Of Liens; And (CJ Abandoning The Motion Flow Equipment To Motion. Flow (the "Motion") (Doc 202) filed by Federal Resources Corporation (''FRC") and Camp Bird Colorado, Inc. ("CBCI" and collectively with FRC, the "Debtors"). Capitalized terms not otherwise defined have the same meaning ascribed to such terms in the Motion. 3. The Motion should be denied for the following reasons: a. The Equipment the Debtors propose to sell does not belong to the Debtors. Rather, Caldera and Holdings own the Equipment. The Debtors cannot sell property that the Debtors do not own. Prior to authorizing the Debtors to sell the Equipment, the Court must first determine, and the Debtors must first demonstrate, that the Debtors actually own the Equipment. b. Even if the Debtors have an ownership interest in the Equipment, the Debtors have not demonstrated that the sale of the Equipment is in the best interests of the Debtors' estates. The Debtors have not demonstrated how the proposed sale comports with the Debtors' plan of liquidation. Further, the Debtors have not provided any evidence for the purported reasons why the Equipment should be sold now. Finally, the Debtors 2

3 Document Page 3 of 9 piecemeal sale of Equipment for a :fraction of its value will severely harm the Debtors' estates and critically harm the value of the Camp Bird Mine. c. If it is determined that the Debtors have an ownership interest in the Equipment, such interest is subject to the liens and interests of Caldera and/or Holdings. Moreover, there is no "bona fide" dispute as to Holding's lien interests. Indeed, the complaint filed by the Debtors against Caldera and Holdings establishes that Caldera has a valid, perfected and enforceable lien against the Equipment. d. To the extent the Court permits the sale of the Equipment, any liens should attach to the proceeds of such sale, and the proceeds of such sale should be segregated from any other funds and the use of such proceeds should remain subject to further Court order. e. To the extent the Court permits the sale of the Equipment to proceed, any order approving the bidding procedures proposed by the Debtors should not alter or affect Caldera's and or Holdings' right to credit bid pursuant to 11 U.S.C. 363(k). f. To the extent that the Court authorizes the Debtors to abandon the Motion Flow Equipment, such abandonment should not impact any interest that Caldera may have in such Motion Flow Equipment (for example, if Caldera has a lien against such equipment, the Debtor's abandonment of the equipment should not have any effect upon the validity, enforceability or priority of Caldera's interest if any, in the Motion Flow Equipment). 4. On or about September 20, 2012, Caldera and CBCI entered into a "Mining Lease And Option To Purchase" (the "Lease") concerning several mining claims owned by CBCI totaling approximately 1, acres (the "Camp Bird Mine"). A true and correct copy of the Lease is attached as Exhibit A to the Opposition. Caldera is a subsidiary of Holdings. 5. Pursuant to section 17 of the Lease, CBCI acknowledged that certain first and prior 3

4 Document Page 4 of 9 Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement (the "Deed of Trust") in favor of Holdings. A true and correct copy of the Deed of Trust is attached as Exhibit B to the Opposition. 6. The Deed of Trust secured the obligations of CBC! and Camp Bird Tunnel, Mining and Transportation ("CBTMT") owed to Holdings and Caldera pursuant to that certain "Non Recourse Repayment Guarantee and Security Agreement" (the "Guarantee") up to the amount of $20,000,000. A true and correct copy of the Guarantee is attached hereto as Exhibit C to the Opposition. 7. To secured repayment of any amounts owed under the Guarantee, CBC! and CBTMT granted to Holdings a security interest in, among other things, their equipment, trade fixtures, materials, and other general intangibles. See Guarantee, paragraph 5, Deed of Trust, section (I). 8. On or about March 15, 2013, Holdings filed a UCC-1 Financing Statement (the "Camp Bird UCC") identifying Camp Bird as the debtor with the Colorado Secretary of States, File No , in connection with the collateral described therein. A true and correct copy of the Camp Bird UCC is attached hereto as Exhibit D to the Opposition. 9. The rights of Caldera and Holdings to the Camp Bird Mine are further augmented by that certain Supplemental Agreement Regarding Tailings dated September 20, 2012 (the "Tailings Agreement"). A true and correct copy of the Tailings Agreement is attached as Exhibit E to the Opposition. 10. The security interests of Holdings and Caldera under the Deed of Trust and the Guarantee are senior to any security interest on the collateral of Holdings and 'caldera held by CHH Operating Corp. pursuant to that certain Subordination Agreement dated September 20,

5 Document Page 5 of 9 by and between Holdings and CHH Operating Corp. (the "Subordination Agreement"). A true and correct copy of the Subordination Agreement is attached as Exhibit F to the Opposition. 11. CBCI scheduled the Deed of Trust as a disputed debt in the amount of $6,200,000. See Amended Schedule D, Doc 41 in bankruptcy case of CBCI, at page 11. Holdings and Caldera dispute this scheduled amount. However, the full amount of the secured claim of Holdings pursuant to the Deed of Trust, including all pre- and post-petition interest, fees, charges, and attorneys' fees, is presently undetermined. Furthermore, the Lease remains in effect. The full amount of the Caldera claims totals in excess of $11 million. 12. Pursuant to section 6(a) of the Lease, Caldera and Holdings incurred costs and expenses related to certain personal property and equipment to be located at the Camp Bird Mine, including the Equipment at issue in the Motion. The Equipment was purchased by Caldera and Holdings, and Caldera and Holdings claim and possess an ownership interest in the Equipment. Furthermore, to the extent that Caldera and/or Holdings do not own or possess an ownership interest in the Equipment, Holdings possesses a security interest in the Equipment pursuant to the Guarantee and Deed of Trust. 13. On December 29, 2014, the Debtors filed for bankruptcy protection. 14. On March 27, 2015, the Debtors filed that certain Joint Plan Of Liquidation dated March 27, 2015 (Doc 96) (the "Plan"). The Plan proposes to auction the Camp Bird Mine within 180 days of the effective date of the Plan. See Plan, Section On May 6, 2015, Caldera and Holdings each separately filed proofs of claim against CBCI. A true and correct copy of Caldera's proof of claim is attached as Exhibit G to the Opposition (without duplicative exhibits), and a true and correct copy of Holdings' proof of claim is attached as Exhibit H to the Opposition (without duplicative exhibits). 5

6 Document Page 6 of On November 4, 2015, the Debtors filed the Motion, which seeks to sell the Equipment. The Motion contends that "the Debtors have concluded in their business judgment that a prompt sale of the Equipment is in the best interests of the Debtors' bankruptcy estates and their creditors. The Equipment is not being used, is at risk of damage, destruction or theft, is being stored in a remote location, that is difficult to access during the Winter months, and is costly to insure. The Debtors have no prospects for the use of the Equipment in the foreseeable future." See Motion, paragraph 5. The Debtors have not provided any evidence in support of the Motion or the Debtors' contentions. None of the Debtors contentions are supported by any testimony or documentary evidence. On that basis alone, the Motion should be denied. 17. In reality, Caldera spent in excess of many hundreds of thousands of dollars purchasing the Equipment. Moreover, Caldera built a facility at the Camp Bird Mine to house many of the larger pieces of Equipment (such as the locomotives proposed to be sold). Some of the equipment can be safely stored outdoors but only in accordance with the IMSHA regulations of mining operations. 18. The Debtors do not possess, and have not demonstrated that they possess, title to the Equipment. 19. The Debtors have not disclosed if they are paying to insure the Equipment, the cost to insure the Equipment, and how the sale of such Equipment will affect the Debtors' insurance costs. 20. The Debtors have not established that the Equipment is at risk of damage, destruction or theft particularly considering that some of the Equipment is being stored in covered locations. 21. The Debtors have not demonstrated with any evidence that the Equipment is 6

7 Document Page 7 of 9 difficult to access during winter months, or why it needs to be accessed at all during Winter months, particularly considering that the Equipment either is, or should be, stored. Notably, the Debtors do not contend that the Equipment is currently outdoors or exposed to the elements. 22. The Debtors do not address how the sale of the Equipment now will affect the overall value of the Camp Bird Mine, or whether any potential purchasers of the Camp Bird Mine would require the Equipment as a part of the purchase of the Camp Bird Mine. Caldera and Holdings intend to serve as bidders for the Camp Bird Mine, and, setting aside that fact that they own the Equipment, if this Court finds that the Equipment belongs to the Debtors (and such a ruling is not overturned on an appeal), then Caldera and Holding would require the Equipment in connection with a purchase of the Camp Bird Mine. The Equipment is vital to the proper operation of the Camp Bird Mine. 23. Additionally, the Debtors appear to be attempting to sell "tailings" which are not considered equipment (though they are improperly defined by the Debtors as "Equipment"). Such tailings cost hundreds of thousands of dollars to obtain and they would be vital for any potential purchaser of the mine to use to evaluate a variety of characteristics about the Camp Bird Mine, demonstrate the ability to comply with environmental regulations, defend against any environmental lawsuits, and evaluate the ability of the Camp Bird Mine to produce minerals. 23. On November 4, 2015, CBCI and CBTMT filed that certain "Complaint" against Caldera and Holdings, as adversary proceeding number On November 11, 2014, CBCI and CBTMT filed that certain "First Amended Complaint" against Caldera and Holdings. A true and correct copy of the First Amended Complaint ("F AC"), without exhibits, is attached as Exhibit I hereto. 24. CBCI admits that "[t]o secure repayment of any amounts owed under the Guarantee 7

8 Document Page 8 of 9 Agreement, Camp Bird and CBTMT granted to Holdings a security interest in, among other things, their equipment, trade fixtures, materials, and other general intangibles." See FAC, para CBCI further admits the existence of the Camp Bird UCC. See FAC, para The FAC's causes of action are primarily premised upon CBCl's allegations that "Caldera breached the Option Agreement and Stipulation" (see F AC, para. 52). CBC! further alleges that the proofs of claim filed by Caldera and Holdings "are unenforceable under 11 U.S.C. 502(b)(l)[.]" See FAC, para CBC! requests, pursuant to the FAC (see FAC, paras , and request for relief therein), among other declaratory relief, the following declaratory relief (which reinforces Caldera's and Holdings' argument that the Debtors should not be authorized to sell property whose title is in dispute): a. That it be declared that the Deed of Trust, UCC's, and any other lien or claim held by Caldera and Holdings in property of the Plaintiffs is hereby cancelled and expunged; b. That under section 15 of the Lease, the title to any and all machinery and equipment or other materials installed at the Camp Bird Mine site by Caldera in connection with the Phase 1 Plan has vested in Camp Bird; and c. That CBCI owns the "Personal Property" and Camp Bird Mine free and clear of any security interest of Caldera Holdings. 28. On November 4, 2015, despite acknowledging the fact that title to the Equipment is in dispute (but not a bona fide dispute), the Debtors filed the Motion, seeking to sell the Equipment free and clear of Caldera's and Holdings' interests. The Debtors contend that the Equipment may be sold free and clear of interests, including Caldera's and Holdings' interests, because such interests are in "bona fide" dispute. 8

9 Document Page 9 of However, the Debtors may not sell property when such property belongs to Caldera. That is, prior to selling the Equipment, the Debtors must first demonstrate that they actually own the Equipment. The Debtors have not done so and have not presented any evidence which supports the notion that the Debtors actually own the Equipment. In fact, Caldera paid for the Equipment and the Equipment belongs to Caldera. 30. Furthermore, if it is determined that Caldera and Holdings do not own the Equipment, at the very least, Holdings has a security interest in the Equipment, and the validity, priority, and enforceability of such security interests are not in "bona fide" dispute. Indeed, the FAC remains subject to dismissal under Rule 12(b)(6) of the Federal Rules of Bankruptcy Procedure, and subject to summary adjudication in favor of Caldera and Holdings. I declare under penalty of perjury that the foregoing is true and correct. 9