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Exhibit 10.1

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BRIDGE LOAN AGREEMENT

Among

GOLDEN PHOENIX MINERALS, INC.

as the Borrower,

THE GUARANTORS
FROM TIME TO TIME PARTY HERETO

as the Guarantors,

WATERTON GLOBAL VALUE, L.P.

as the Lender

Dated as of August 3, 2011
 

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TABLE OF CONTENTS
Page

ARTICLE 1 CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES
1
1.1
Certain Defined Terms
1
1.2
Accounting Principles
9
1.3
Other Definitional Provisions; Date and Time References.
9
1.4
Currency Conversions
9
ARTICLE 2 COMMITMENT; USE OF PROCEEDS; FEES
9
2.1
Loan
9
2.2
Borrowing Procedure
9
2.3
Repayment
10
2.4
Use of Proceeds
10
2.5
Structuring Fee
10
ARTICLE 3 PROCEDURE AND PAYMENT
10
3.1
Interest.
10
3.2
Repayment of the Loan.
10
3.3
Priority of Prepayments
11
3.4
Payments and Computations
11
3.5
Taxes.
11
ARTICLE 4 COLLATERAL SECURITY
12
4.1
Security Documents
12
4.2
Recordings and Filings of Security Documents
12
4.3
Protection of Security Document Liens
13
4.4
Security Documents
13
4.5
Right of Set-off
13
ARTICLE 5 CONDITIONS PRECEDENT
13
5.1
Conditions Precedent to the Loan
13
ARTICLE 6 REPRESENTATIONS AND WARRANTIES
15
6.1
Representations and Warranties of the Credit Parties
15
ARTICLE 7 AFFIRMATIVE COVENANTS OF THE CREDIT PARTIES
20
7.1
Compliance with Laws, Etc
20

 
 
 
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TABLE OF CONTENTS
(continued)
Page
 
7.2
Project Permits
20
7.3
Reporting Requirements
21
7.4
Inspection
21
7.5
Maintenance of Insurance
22
7.6
Keeping of Records and Books of Account
22
7.7
Preservation of Existence, Etc
22
7.8
Conduct of Business
22
7.9
Notice of Default
23
7.10
Defense of Title and Rights
23
7.11
Material Agreements
23
7.12
Maintenance of Borrower's Account
23
7.13
Further Assurances
23
ARTICLE 8 NEGATIVE COVENANTS OF THE CREDIT PARTIES
23
8.1
Indebtedness
24
8.2
Liens, Etc
24
8.3
Assumptions, Guarantees, Etc. of Indebtedness of Other Persons
25
8.4
Liquidation; Merger; Change in Ownership
25
8.5
Restrictive and Inconsistent Agreements
25
8.6
Burdens on Production
25
8.7
Investments in Other Persons
25
8.8
Sale of Assets
26
8.9
Nature of Business
26
8.10
Dividends
26
8.11
Material Agreements
26
ARTICLE 9 EVENTS OF DEFAULT
26
9.1
Event of Default
26
9.2
Remedies Upon Event of Default.
28
ARTICLE 10 MISCELLANEOUS
29
10.1
Amendments, Etc
29
10.2
Notices. Etc
29

 
 
 
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TABLE OF CONTENTS
(continued)
Page
 
10.3
No Waiver; Remedies
30
10.4
Costs, Expenses and Taxes
30
10.5
Indemnification
30
10.6
Binding Effect; Assignment
31
10.7
Governing Law
31
10.8
Dispute Resolution
31
10.9
; Waiver of Jury Trial.
31
10.10
Execution in Counterparts; Facsimile and Electronic Signatures
32
10.11
Inconsistent Provisions
32
10.12
Severability
32
10.13
Governing Language
32
10.14
Survival of Representations and Warranties
33
10.15
Entire Agreement; Schedules and Exhibits
33
10.16
Credit Party Joint and Several Liability
33
10.17
Acknowledgements
33

 

 
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SCHEDULES

Schedule 1.1(a)
Borrower’s Account
Schedule 1.1(b)
Mineral Properties
Schedule 1.1(c)
Material Agreements
Schedule 6.1(b)
Subsidiaries
Schedule 6.1(f)
Litigation
Schedule 6.1(g)
Financial Statements
Schedule 6.1(l)
Tax Disclosure
Schedule 6.1(m)
Environmental Disclosures
Schedule 6.1(n)
Indebtedness
Schedule 6.1(q)
Project Permits
Schedule 7.5
Insurance

 
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EXHIBITS

Exhibit A
Form of Omnibus Certificate
Exhibit B
Form of Notice of Borrowing
Exhibit C
Form of Security Agreement
Exhibit D
Form of Pledge Agreement
Exhibit E
Form of Option Agreement
Exhibit F
Form of Consent

 
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BRIDGE LOAN AGREEMENT
 
This BRIDGE LOAN AGREEMENT dated as of August 3, 2011 (the “Closing Date”) is by
and among GOLDEN PHOENIX MINERALS, INC., a corporation organized and existing
under the laws of the State of Nevada, as the borrower (the “Borrower”), each
person that accedes to the terms of this Agreement from time to time by
executing a Guarantee, as guarantor (each a “Guarantor” and, collectively, the
“Guarantors”), and WATERTON GLOBAL VALUE, L.P., by the general partner of its
general partner, Cortleigh Limited, as the lender (“Lender”).
 
Recitals
 
A.           The Borrower desires to borrow, and the Lender is prepared to make
available to the Borrower, a bridge loan of U.S. One Million Dollars
(US$1,000,000) in one advance (the “Loan”), upon the terms hereof and subject to
the satisfaction of the conditions precedent contained herein.
 
B.           This Agreement, including the Loan and all other amounts due
hereunder and all obligations to be performed hereby, will be secured by certain
pledges, guarantees, grants of security and other collateral arrangements,
including a pledge of the Borrower’s right, title and interest in and to Mineral
Ridge Gold LLC, a Nevada limited liability company (“Mineral Ridge LLC”).
 
C.           As a condition precedent to the Loan and this Agreement, and as
consideration therefor, the Borrower has agreed to enter into and grant to the
Lender an exclusive option and right of first refusal to acquire the Borrower’s
interest in Mineral Ridge LLC, which is the owner and operator of that certain
mining property located in Esmeralda County, Nevada commonly referred to as the
Mineral Ridge Project, and such option shall survive the repayment of the Loan
and the term of this Agreement, in accordance with its terms.  The Borrower
shall obtain the consent of Mineral Ridge LLC and Scorpio Gold (US) Corporation
to such option.
 
Agreement
 
NOW, THEREFORE, in consideration of the following mutual covenants and
agreements, the parties hereby agree as follows:
 
ARTICLE 1

 
CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES
 
1.1           Certain Defined Terms.  As used in this Agreement and unless
otherwise expressly indicated, the following terms shall have the following
meanings:
 
“Affiliate” means, with respect to a Person, (i) any partner, director, officer,
ten percent (10%) or more shareholder, manager, member, employee or managing
agent of that Person or that Person’s Affiliates; and (ii) any other Person (A)
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, that Person; (B) that directly
or indirectly owns or holds (legally or beneficially) 10% or more of any class
of voting stock or partnership, membership or other voting interest of that
Person; or (C) 10% or more of the voting stock or partnership, membership or
other voting interest of which is directly or indirectly owned or held (legally
or beneficially) by that Person.
 

 
 

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“Agreed Priority” means, with respect to a Security Document and a Lien made in
favour of the Lender, a senior first priority Lien in favour of the Lender,
meaning that such Security Document and Lien are prior in right to any other
Lien in, on or to the Collateral which is purported to be covered thereby,
subject only, in each case, to Permitted Liens.  For the avoidance of doubt, the
Loan shall be secured by a first ranking perfected encumbrance over (i) all
property and assets of the Borrower, and (ii) all right, title and interest of
the Borrower in and to Mineral Ridge LLC.
 
“Agreement” means this Bridge Loan Agreement, as it may be amended, restated,
supplemented, extended or otherwise modified in accordance with its terms and in
effect from time to time, together with all Schedules and Exhibits hereto, each
of which is incorporated herein by reference.
 
“Bankruptcy Code” shall mean the Bankruptcy Code in Title 11 of the United
States Code, as amended, modified, succeeded or replaced from time to time.
 
“Bankruptcy Laws” shall mean the Bankruptcy Code and all other Governmental
Requirements pertaining or applicable to bankruptcy, insolvency, debtor relief,
debtor protection, liquidation, reorganization, winding up, arrangement,
receivership, administration, moratorium, assignment for the benefit of
creditors or other similar laws applicable in the United States, Canada or other
applicable jurisdictions as in effect from time to time.
 
“Borrower” has the meaning specified in the Preamble to this Agreement.
 
“Borrower’s Account” means the account of the Borrower described in Schedule
1.1(a).
 
“Business Day” means a day on which banks in Toronto, Ontario are open for
business.
 
“Change of Control” means the occurrence of any of the following events, without
the prior written consent of the Lender (not to be unreasonably withheld):
(a) any “person” or “persons acting jointly or in concert” as defined under
applicable securities laws or regulations, other than the Lender, its
Affiliates, successors or related investment funds, becomes the record or
beneficial owner of more than fifty percent (50%) of then outstanding voting
Equity Interests of the Borrower, measured by voting power rather than the
number of shares, or (b) Continuing Directors shall cease for any reason to
constitute a majority of the members of the board of directors of the Borrower
then in office, or (c) the Borrower or any Guarantor shall cease to directly or
indirectly own and control the Equity Interests that any of them has pledged to
the Lender pursuant to a Security Document (except as provided in any such
Security Document).
 
“Closing Date” means the date of this Agreement.
 
“Collateral” means all real and personal property, assets, rights, titles and
interests subject to the Security Documents, whether tangible or intangible,
presently held or hereafter acquired, and all products and proceeds of the
foregoing, including insurance proceeds related to the foregoing.
 

 
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“Commitment” means U.S. One Million Dollars (US$1,000,000).
 
“Consent” means that certain Consent and Subordination of even date herewith by
and among the Borrower, the Lender, Mineral Ridge LLC and Scorpio Gold (US)
Corporation together with all amendments, modifications, supplements and
revisions thereof in accordance with its terms.
 
 “Contingent Liability” means any agreement, undertaking or arrangement by which
any Person guarantees, endorses or otherwise becomes or is contingently liable
upon (by direct or indirect agreement, contingent or otherwise, to provide funds
for payment, to supply funds to, or otherwise to invest in, a debtor, or
otherwise to assure a creditor against loss) the indebtedness, obligation or any
other liability of any other Person (other than by endorsements of instruments
in the course of collection), or guarantees the payment of dividends or other
distributions upon the shares of any other Person.  The amount of any Person’s
obligation under any Contingent Liability shall (subject to any limitation set
forth therein) be deemed to be the outstanding principal amount (or maximum
principal amount, if larger) of the debt, obligation or other liability
guaranteed thereby, less the value of any bonds, letters of credit or cash
collateral of such Person securing such contingent liability.
 
“Continuing Directors” shall mean during any period of 24 consecutive months
commencing after the Closing Date, individuals who at the beginning of such
24 month period were directors of the Borrower (together with any new director
whose election by such Borrower’s board of directors was approved by, or whose
nomination for election by such Borrower’s shareholders was recommended by, a
vote of at least a majority of the directors then still in office who either
were directors at the beginning of such period or whose election or nomination
for election was previously approved or recommended as described in this
parenthetical).
 
“Credit Party” means the Borrower and each Guarantor.
 
“Date of Default” has the meaning specified in Section 9.2(a).
 
“Default” means any Event of Default or any condition or event which, after
notice or lapse of time or both, would constitute an Event of Default.
 
“Default Rate” means the interest rate applicable to the Loan during periods
when any amounts payable by the Borrower, whether as principal repayments,
interest payments, expenses payments or other amounts, are due and payable but
unpaid by the Borrower, which interest rate shall be at a rate per annum equal
to the Interest Rate plus five percent (5%).
 
 “Dollars” and the symbol “US$” or the symbol “$” each mean dollars in lawful
currency of the United States of America.
 
“Environmental Laws” means Governmental Requirements relating to pollution or
protection of the environment, including, without limitation, Governmental
Requirements relating to emissions, discharges, Releases or threatened Releases
of Hazardous Materials or other pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes which are applicable to any
Credit Party, any Mineral Properties or the other activities of and properties
or assets owned, controlled or managed by a Credit Party.
 

 
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“Equity Interests” means, with respect to any Person, shares of capital stock of
(or other ownership or profit interests in) such Person, warrants, options or
other rights for the purchase or acquisition from such Person of shares of
capital stock of (or other ownership or profit interests in) such Person,
securities convertible into or exchangeable for shares of capital stock of (or
other ownership or profit interests in) such Person or warrants, rights or
options for the purchase or acquisition from such Person of such shares (or such
other interests), and all of the other ownership or profit interests in such
Person (including, without limitation, partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares, warrants,
options, rights or other interests are outstanding on any date of determination.
 
“Event of Default” has the meaning set forth in Section 9.1.
 
“Excluded Taxes” means, with respect to the Lender or any other recipient of any
payment to be made by or on account of any obligation of the Borrower hereunder,
income or franchise Taxes imposed on (or measured by) the taxable income of the
Lender or such recipient, as the case may be, or capital Taxes imposed on (or
measured by) the taxable capital of the Lender or such recipient, in each case
by the jurisdiction under the applicable law of which such recipient is
organized or in which its principal office is located, but for greater
certainty, Excluded Taxes do not include withholding taxes imposed on the Lender
or any such recipient in respect of payments or deliveries hereunder.
 
“Expiry Date” means the date that is forty-five (45) days after the Closing
Date, meaning September 19, 2011.
 
“Expropriation Event” means the appropriation, confiscation, expropriation,
cancellation, seizure or nationalization (by Governmental Requirement,
intervention, court order, condemnation, exercise of eminent domain or other
action or form of taking) of ownership or control of a Credit Party or any of
its Subsidiaries or of the Mineral Properties, or any substantial portion
thereof, or any substantial portion of the rights related thereto, or any
substantial portion of the economic value thereof, or which prevents or
materially interferes with the ability of a Person to own or operate the
property subject to such action, including by the imposition of any Tax, fee,
charge or royalty.
 
“GAAP” means generally accepted accounting principles in Canada as recommended
in the Handbook of the Canadian Institute of Chartered Accountants, as
applicable to the Borrower, consistently applied (which shall include IFRS).
 
 “Governmental Authority” means the government of any nation and any state,
provincial, territorial, divisional, county, regional, city and other political
subdivision thereof, any tribal, aboriginal or native government or corporation,
and any union or commonwealth of multiple countries, such as the European Union,
in each case in which any property of a Credit Party is located or which
exercises valid jurisdiction over any such property or Person, or in which a
Credit Party conducts business or is otherwise present, and any entity, court,
arbitrator or board of arbitrators, agency, department, commission, board,
bureau, regulatory authority or instrumentality of any of them exercising
executive, legislative, judicial, regulatory or administrative functions that
exercises jurisdiction over any Credit Party or its properties or assets,
including any Mineral Properties, and any securities exchange or securities
regulatory authority to which a Credit Party is subject.
 

 
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“Governmental Requirement” means any law, statute, code, ordinance, treaty,
order, rule, regulation, judgment, ruling, decree, injunction, franchise,
permit, certificate, license, authorization, approval or other direction or
requirement (including Environmental Laws, the Project Permits, energy
regulations, occupational, safety and health standards or controls, taxation
laws, securities laws and regulations and the rules of any securities exchange)
of any Governmental Authority.
 
“Guarantor” has the meaning specified in the Preamble to this Agreement.
 
“Guarantee” means a guarantee given by a Credit Party for the benefit of the
Lender, in a form acceptable to the Lender, together with all amendments,
modifications, supplements, extensions and restatements thereof in accordance
with its terms.
 
“Hazardous Material” means any substance or mixture of substances, or any
pollutant or contaminant, toxic or dangerous waste, or hazardous material, as
defined in or regulated by any Environmental Law, from time to time, that if
Released to the environment could reasonably be expected to cause, immediately
or at some future time, harm or damage to or impairment of the environment, or
any risk to human health or safety or property.
 
“IFRS” means the International Financial Reporting Standards, which are the
accounting standards and interpretations adopted by the International Accounting
Standards Board, consistently applied.
 
“Indebtedness” means, for any Person, without duplication, all liabilities of
such Person determined in accordance with GAAP or IFRS.
 
“Indemnified Party” has the meaning specified in Section 10.5.
 
“Instrument” means any contract, agreement, undertaking, indenture, mortgage,
certificate, document or writing (whether formal agreement, letter or otherwise)
under which any obligation, duty, covenant, agreement, affirmation, undertaking
or liability is evidenced, assumed or undertaken, or any right or Lien (or right
or interest therein) is granted, authenticated, notarized, authorized or
perfected, and any notice, registration, recordation, or filing associated with
or required by any of the foregoing.
 
“Interest Rate” means six percent (6.0%) per annum.
 
“Interest Payment Date” means (i) the last Business Day of each calendar month
for the period commencing on the Closing Date and ending on the Maturity Date,
(ii) the Maturity Date, and (iii) any date on which the Borrower makes a
prepayment of the Loan.
 
“Lender” has the meaning set forth in the Preamble to this Agreement, together
with its successors and assigns.
 

 
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“Lien” means, as to any Person, any mortgage, deed of trust, lien, pledge,
charge, security interest, hypothecation, indenture, preferential right,
assignment, option, production payment or other lien, encumbrance or collateral
security Instrument in, on or to, or any right or interest, or the title of any
vendor, lessor, the Lender or other secured party to, or interest or title of
any Person under any conditional sale or other title retention agreement or
capital lease with respect to, any property or asset owned or held by such
Person, the signing of any mortgage, deed of trust, pledge, charge, security
agreement, hypothecation, indenture, assignment or similar instrument, or the
signing or filing of a financing statement, personal property security act
filing or other similar Instrument, which names such Person as debtor, or the
signing of any security agreement or other similar Instrument authorizing any
other party as the secured party thereunder to file any financing statement,
personal property security act filing or other similar Instrument.
 
“Loan” means the advance of the loan to the Borrower in the amount of the
Commitment, subject to the satisfaction of the applicable conditions precedent.
 
“Loan Documents” means this Agreement, the Security Documents, the Consent and
each other Instrument executed by the Borrower, a Credit Party or a Subsidiary
of the Borrower and delivered to the Lender in connection with this Agreement or
any of the foregoing Instruments, whether or not specifically identified in this
clause, as any of the foregoing may be amended, modified, supplemented, extended
or restated from time to time in accordance with their respective terms.
 
 “Losses” has the meaning specified in Section 10.5.
 
“Material Adverse Effect” means, with respect to any Person, an effect,
resulting from any event or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), which:
 
(a)           is materially adverse to the consolidated business, assets,
revenues, financial condition, operations or prospects of such Person;
 
(b)           is materially adverse to the ability of such Person to make any
payment or perform any other material obligation required under any Material
Agreement, this Agreement, or any other Loan Document;
 
(c)           is materially adverse to the Mineral Ridge Project or any other
material Mineral Property; or
 
(d)           in the case of any Credit Party, involves a liability or
obligation incurred after the Closing Date without the written consent of the
Lender (other than Permitted Liens or contractual commitments entered into by
such Credit Party in the ordinary course of business which are not in default)
of US$100,000 or more.
 
“Material Agreements” means the contracts, agreements, leases, Instruments and
other binding commitments and undertakings of any Credit Party or any Subsidiary
thereof which are identified in Schedule 1.1(c), and all other contracts,
agreements, leases, Instruments and other binding commitments and undertakings
of any Credit Party or any Subsidiary thereof the performance or breach of which
could reasonably be expected to have a Material Adverse Effect on a Credit
Party.
 

 
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“Maturity Date” means the first to occur of (a) the Expiry Date, (b) the date on
which the Lender elects to accelerate the due date of the Loan based upon the
occurrence of a Repayment Event, as provided in Section 3.2(c), or (c) any date
on which the Lender accelerates the due date of the Loan by reason of an Event
of Default pursuant to Section 9.2.
 
“Mineral Properties” means all surface, subsurface and mineral rights, and all
surface, subsurface and mineral leases, concessions, licenses, claims, rights,
titles or interests, and all related, associated or appurtenant rights, in each
case howsoever characterized or designated, that are owned, leased, held,
controlled or operated, directly or indirectly, by a Credit Party and located in
the United States of America, with such rights, titles and interests described
in Schedule 1.1(b).
 
“Mineral Ridge Project” means the Mineral Ridge Project, located in Esmeralda
County, Nevada, as further described in Schedule 1.1(b) hereto.
 
“Notice of Borrowing” means a written request by the Borrower for a Loan
pursuant to Section 2.2, which shall include the information referenced in
Section 2.2, substantially in the form of Exhibit B hereto.
 
“Obligations” means all duties, covenants, agreements, liabilities, indebtedness
and obligations of the Borrower and each Guarantor (if applicable) with respect
to the repayment, payment or performance of all Indebtedness, liabilities and
obligations (monetary or otherwise) of the Borrower and each Guarantor (if
applicable), whenever arising and whether joint, several, or joint and several,
established by or arising under or in connection with this Agreement and each
other Loan Document, including, in each case, the payment of principal,
interest, fees, expenses, reimbursements and indemnification obligations.
 
“Option Agreement” means that certain Option Agreement of even date herewith
from the Borrower to and in favor of the Lender whereby the Borrower will grant
to the Lender an irrevocable exclusive option and right of first refusal to
acquire the Borrower’s right, title and interest in and to the Mineral Ridge
LLC, substantially in the form of Exhibit E hereto, on the terms and conditions
set forth therein.
 
“Other Taxes” has the meaning specified in Section 3.5(b).
 
“Party” or “party” means each party to this Agreement.
 
“Permitted Liens” means those Liens identified in Schedule 6.1(j)(i) to which
the Lender has consented together with the Liens permitted by clauses (a)
through (h) of Section 8.2.
 
“Person” means an individual, partnership, corporation (including a business
trust), joint venture, limited liability company or other entity, or a
Governmental Authority.
 
“Pledge Agreement” means a pledge agreement, substantially in the form of
Exhibit D hereto, given by the Borrower for the benefit of the Lender, with
respect to all right, title and interest of the Borrower in and to Mineral Ridge
LLC, together with any other Instruments given or to be given by a Credit Party
for the benefit of the Lender that creates a Lien on and with respect to the
Equity Interests of a Credit Party or other Person in order to secure the
Obligations, together, in each case, with all amendments, modifications,
supplements and revisions thereof in accordance with its terms, together with
all other Instruments now or hereafter filed, recorded or delivered to
formalize, authorize and perfect the security interests granted therein.
 

 
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“Project Permits” has the meaning specified in Section 6.1(q).
 
“Prudent Mining Industry Practices” means those practices, standards, methods,
techniques and specifications, as they may evolve, change and modify from time
to time that (a) are commonly used and generally accepted in the mining industry
as good, safe and prudent operational, administrative and engineering practices
in connection with the design, construction, operation, maintenance, repair or
use of mining projects, mining facilities, mining infrastructure, mining
equipment or other components of a mining operation, (b) conform in all material
respects to applicable Governmental Requirements, (c) conform in all material
respects to operational and maintenance guidelines and requirements suggested by
applicable manufacturers, suppliers and insurance providers (taking into account
the size, age, service and type of asset), and (d) are commercially reasonable
based on the nature of the Mineral Properties.
 
“Release” means any release, spill, emission, leaking, pumping, pouring,
injection, escaping, deposit, disposal, discharge, leeching or migration of any
element or compound in or into the indoor or outdoor environment (including the
abandonment or disposal of any barrels, tanks, containers or receptacles
containing any contaminant), or in, into or out of any vessel or facility,
including the movement of any contaminant through the air, soil, subsoil,
surface, water, groundwater, rock formation or otherwise.
 
“Repayment Event” means any one of the following which has not been consented to
by the Lender (in its sole discretion): (a) a Change of Control, or (b) the
agreement by a Credit Party to accept or solicit a Change of Control.
 
“Representative” means any officer, partner, manager, employee, agent,
consultant, advisor, accountant, financial advisor, legal counsel or other
representative of a Person.
 
“Security Agreement” means the general security agreement given by a Credit
Party for the benefit of the Lender, substantially in the form of Exhibit C
hereto, and any other security agreement or other Instrument by which the Lender
obtains a Lien in or on any personal property or assets of a Credit Party to
secure the Obligations, together with all amendments, modifications,
supplements, extensions and restatements thereof in accordance with its terms.
 
“Security Documents” means, initially, the Security Agreement, the Pledge
Agreement,  and any Guarantee (if any), together, in each case, with all
modifications, supplements, amendments, extensions or restatements thereto or
thereof in accordance with their respective terms, all schedules and exhibits
attached thereto and all financing statements, personal property security act
filings and other Instruments required to be filed or recorded or notices
required to be given in order to authenticate and perfect the Liens created by
the foregoing and all other Instruments now or hereafter delivered by any Credit
Party to the Lender in connection with this Agreement or any transaction
contemplated hereby to secure the payment or performance of the Obligations.
 
“Subsidiary” means, in respect of any Person, any corporation, company,
association or other business entity more than 50% of each class of equity or
voting securities of which is owned, directly or indirectly, by such Person.
 

 
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“Structuring Fee” has the meaning specified in Section 2.4.
 
“Taxes” has the meaning specified in Section 3.5(a).
 
1.2           Accounting Principles.  All accounting terms not otherwise defined
herein shall be construed, all financial computations required under this
Agreement shall be made, and all financial information required under this
Agreement shall be prepared, in accordance with GAAP or IFRS, depending on which
accounting principles apply to the Borrower and the Credit Parties at any such
point in time, in each case applied on a basis consistent with the financial
statements referred to in Section 6.1(g) except as specifically provided herein.
 
1.3           Other Definitional Provisions; Date and Time References.
 
(a)           Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the Schedules, the other
Loan Documents and any certificate or other document made or delivered pursuant
hereto.
 
(b)           The words “hereof”, “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
 
(c)           The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
 
(d)           The word “including” means “including without limitation” or
“including, but not limited to,” and does not create or denote a limitation.
 
(e)           Unless otherwise expressly indicated, each reference to a time or
date in any Loan Document shall be to the date and time in Toronto, Ontario,
Canada.
 
1.4           Currency Conversions.  For purposes of application of the
provisions of this Agreement and the other Loan Documents, United States
Dollars, Canadian Dollars and any other relevant currency amounts will be
converted by the Lender, acting in good faith.
 

ARTICLE 2

 
COMMITMENT; USE OF PROCEEDS; FEES
 
2.1           Loan.  Subject to all of the terms and conditions of this
Agreement, upon satisfaction of the Loan conditions precedent set forth in
Article 5, the Lender agrees to advance the Loan to the Borrower.  Any part of
the Loan that has been repaid by the Borrower may not be re-borrowed and shall
not be re-advanced to the Borrower.
 
2.2           Borrowing Procedure.  The Borrower shall request the borrowing of
the Loan by delivering to the Lender a written Notice of Borrowing signed by the
Borrower, which shall be delivered to the Lender concurrently herewith.  The
Notice of Borrowing shall be irrevocable and shall specify (i) that a Loan is
requested by the Borrower, (ii) the date of the requested borrowing, (iii) the
specific purposes to which the proceeds of such Loan shall be applied (as
permitted by Section 2.4 below), and (iv) such other information and
certifications as set forth in the form of Notice of Borrowing and as the Lender
shall otherwise have reasonably requested.

 
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2.3           Repayment.  The principal amount of the Loan, together with
interest thereon, shall be due and payable in full on the Maturity Date.  The
Borrower covenants and agrees to repay the Loan, together with interest thereon,
in accordance with the terms of this Agreement.
 
2.4           Use of Proceeds.  The Borrower will utilize the Loan to fund
general corporate activities and purposes.
 
2.5           Structuring Fee.  In consideration of establishing this Agreement,
the Borrower agrees to pay to the Lender a structuring fee (the “Structuring
Fee”) of Twenty Thousand Dollars ($20,000) payable in cash at the Closing
Date.  No portion of the Structuring Fee is refundable to the Borrower, in whole
or in part, under any circumstances.  Payment of the Structuring Fee shall be
deemed satisfied by the Borrower upon irrevocable payment of Twenty Thousand
Dollars ($20,000).
 
ARTICLE 3

 
PROCEDURE AND PAYMENT
 
3.1           Interest.
 
(a)           General.  On each Interest Payment Date, the Borrower shall pay to
the Lender interest on the Loan with respect to the calendar month ending on the
Interest Payment Date, at a rate of interest per annum based on a 360-day year
basis equal to (i) the Interest Rate or (ii) the Default Rate, as
applicable.  Interest accruing at the Default Rate shall be payable on
demand.  Accrued but unpaid interest shall be payable in full on the Maturity
Date.
 
(b)           Default Interest.  Interest on the Loan shall accrue and shall be
payable by the Borrower at the Default Rate during all periods when any amounts
payable by the Borrower as principal repayments, interest payments, expense
payments or other amounts are due and payable hereunder, whether by acceleration
or otherwise, but remain unpaid by the Borrower.  Without prejudice to the
rights of the Lender under the preceding sentence, the Borrower shall indemnify
the Lender against any direct loss or expense which the Lender may sustain or
incur as a result of the failure by the Borrower to pay the Loan when due.  A
certificate or other notice of the Lender submitted to the Borrower setting
forth the basis for the determination of Default Rate interest due and of the
amounts necessary to indemnify the Lender in respect of such loss or expense,
shall constitute evidence of the accuracy of the information contained therein
in the absence of error and, absent notice from the Borrower of such error,
shall be conclusive and binding for all purposes.
 
3.2           Repayment of the Loan.
 
(a)           Principal Repayment.  The Loan is due and payable in full on the
Maturity Date.

 
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(b)           Voluntary Prepayment.  Upon not less than five (5) Business Days’
prior written notice to the Lender, the Borrower may at any time prepay all or
any portion of the Loan without penalty.  Upon the giving of notice of
prepayment, which shall be irrevocable, the prepayment, together with all
interest accrued through the prepayment date, shall be due and payable on the
date set forth therein in immediately available funds.  Any such voluntary
prepayment of the Loan shall be in a minimum amount of US Five Hundred Thousand
Dollars (US$500,000) or (if lower) the full amount of the Loan then
outstanding.  Any amount so prepaid by the Borrower cannot again be redrawn or
reborrowed by the Borrower.
 
(c)           Mandatory Prepayment.
 
(i)           The Borrower will prepay the Loan together with accrued interest
thereon in full upon acceleration of the due date thereof by the Lender pursuant
to Section 9.2.
 
(ii)           The Borrower will prepay the Loan together with accrued interest
thereon together with an amount equal to the interest that would have accrued
and been payable if repayment occurred on the Expiry Date, on  the repayment
date specified in a written notice received by the Borrower from the Lender
stating that the Lender requires the Loan to be repaid as a result of the
occurrence of a Repayment Event (such notice having been given at any time
within fifteen (15) Business Days after the Lender has received written notice
from the Borrower that a Repayment Event has occurred).
 
3.3           Priority of Prepayments»
 
.  All prepayments made by the Borrower shall be applied first to any amounts
(other than principal or interest) then payable by any Credit Party hereunder or
under any other Loan Documents, then to accrued and unpaid interest on the Loan
so prepaid, then to the principal amount of the Loan.
 
3.4           Payments and Computations»
 
.  Except as otherwise expressly provided in this Agreement, payments by the
Borrower pursuant to this Agreement or any other Loan Document, whether in
respect of the Loan, interest or otherwise, shall be made by the Borrower to the
Lender not later than 12:00 noon (Eastern time) on the date due by delivery of
United States Dollars in immediately available funds to the Lender.  All
payments hereunder shall be made by the Borrower without set off, deduction or
counterclaim not later than on the date when due.  Any payments received
hereunder after the time and date specified in this Section 3.4 shall be deemed
to have been received by the Lender on the next following Business Day.  All
interest shall be computed on the basis of the actual number of days (including
the first day but excluding the last day) occurring during the period for which
such interest is payable over a year comprised of three hundred sixty
(360) days.  Whenever any payment to be made hereunder shall otherwise be due on
a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest, if any, in connection with such payment.
 
3.5           Taxes.
 
(a)           General.  Any and all payments by the Borrower or any other Credit
Party hereunder shall be made in full, free and clear of and without deduction
or withholding for any and all present or future taxes, levies, duties, imposts,
assessments, deductions, charges, withholdings or other similar amounts, and all
liabilities with respect thereto imposed on the Borrower or any Credit Party
(all such taxes, levies, duties, imposts, assessments, deductions, charges,
withholdings and liabilities being hereinafter referred to as “Taxes”).  If the
Borrower or any other Credit Party shall be required by law to deduct or
withhold any Taxes from or in respect of any such payment payable or deliverable
hereunder to the Lender, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions and withholdings
(including applicable deductions and withholdings) the Lender receives an amount
equal to the amount it would have received had no such deductions or
withholdings been made, (ii) the Borrower shall make such deductions or
withholdings and (iii) the Borrower or other Credit Party shall pay the full
amount required to be deducted or withheld to the relevant taxation authority or
other authority in accordance with applicable law and within the time for
payment prescribed by applicable law.

 
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(b)           Other Taxes.  The Borrower agrees to pay any present or future
stamp, sales, use or documentary taxes or any other excise or property taxes,
charges, duties or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement, any of the Loan Documents, or any Instrument contemplated
thereby (hereinafter referred to as “Other Taxes”).
 
(c)           Tax Indemnity.  The Borrower hereby indemnifies the Lender for,
and agrees to hold the Lender harmless from, the full amount of all Taxes and
Other Taxes payable by the Lender (other than Excluded Taxes) and any liability,
cost or amount (including penalties, interest and expenses) arising therefrom or
with respect thereto.
 
(d)           Payment of Taxes.  Within thirty (30) days after the date required
for payment of any Taxes or Other Taxes required to be deducted or withheld by
the Borrower in respect of any payment or delivery to the Lender, the Borrower
will furnish to the Lender a form of evidence of payment thereof acceptable to
the Lender in its sole discretion, acting reasonably.
 
(e)           Survival.  Without prejudice to the survival of any other
agreement hereunder, the agreements and obligations contained in this
Section 3.5 shall survive the payment in full of the Loan, interest thereon and
any other amounts due hereunder.
 
ARTICLE 4
 
COLLATERAL SECURITY
 
4.1           Security Documents.  As security for the due repayment of the
Loan, the payment of all other amounts due hereunder, and the performance of all
other Obligations, the Borrower and the Guarantors (if any) shall execute and
deliver to the Lender the Security Documents to which each of them is a party,
in each case as and when required by this Agreement or by any of the Loan
Documents.
 
4.2           Recordings and Filings of Security Documents.  The Lender will
record, register or file with or deliver to appropriate Governmental
Authorities, account debtors or other Persons, the Security Documents, as
necessary or appropriate, at the Borrower’s expense, together with all other
Instruments necessary to establish, attach, protect or perfect the Liens of the
Lender, each with the Agreed Priority over all other security interest holders
and mortgages.

 
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4.3           Protection of Security Document Liens.  The Credit Parties hereby
authorize the Lender to file such financing statements and other agreements,
documents, registrations, filings or Instruments with such Governmental
Authorities in such jurisdictions as Lender determines to be desirable and to
take such other actions as the Lender determines to be necessary or desirable to
legalize, authenticate, protect, perfect and maintain the perfection of the
Liens in the Collateral identified in the Security Documents. The Credit Parties
agree to cooperate with the Lender in delivering all share certificates and
other certificates of Equity Interests pledged pursuant to a Security Document,
if any, and in undertaking and completing all recordings, filings, registrations
and other actions required in connection with the Security Documents, and the
Credit Parties further agree to promptly take all such other actions as the
Lender may reasonably determine to be necessary or appropriate to confirm,
perfect, maintain and protect the perfection of the Liens granted by the
Security Documents.
 
4.4           Security Documents.  The Borrower and the Guarantors agree that
notwithstanding any provision of any other Loan Document to the contrary, the
Liens created pursuant to the Security Documents shall secure all
Obligations.  The Security Documents create valid security interests in, and
Liens on, the Collateral purported to be covered thereby, which security
interests and Liens are currently perfected security interests and Liens, or
will be perfected security interests and Liens in accordance with the
requirements specified in such Security Documents or elsewhere in this
Agreement, each with the Agreed Priority.
 
4.5           Right of Set-off.  Upon the occurrence and during the continuance
of any Event of Default, the Lender is hereby authorized at any time and from
time to time, without notice to the Borrower or any other Credit Party (any such
notice being expressly waived by the Borrower and the other Credit Parties), to
set off and apply any and all deposits (general or special, time or demand,
provisional or final), at any time held and other indebtedness at any time owing
by the Lender to or for the credit or the account of any Credit Party against
any and all of the Obligations of any Credit Party now or hereafter existing,
although such Obligations may be contingent and unmatured.  The Lender agrees
promptly to notify the Borrower or the Guarantors, as appropriate, after any
such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application.  The rights of
the Lender under this Section 4.5 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which Lender may have
available to Lender under this Agreement or the Security Documents.
 
ARTICLE 5

 
CONDITIONS PRECEDENT
 
5.1           Conditions Precedent to the Loan.  The obligation of the Lender to
advance the Loan is subject to satisfaction (or waiver by the Lender in its sole
discretion) of each of the following conditions precedent.
 
(a)           The Lender or its counsel shall have received the following, with
each Instrument dated the date of this Agreement (or as otherwise agreed by the
Lender), and in form and substance as shall be satisfactory to the Lender:
 
(i)           this Agreement, duly executed by the Borrower;

 
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(ii)           each of the Security Documents, each duly executed by the
Borrower or other applicable Credit Party, together with any UCC filings or
other Instruments for filing or registration, notarizations thereof, notices
with respect thereto or other Instruments determined by the Lender to be
necessary or desirable to establish and perfect the Liens established pursuant
to the Security Documents;
 
(iii)           the Option Agreement, duly executed by the Borrower;
 
(iv)           the Consent, duly executed by the Borrower, Mineral Ridge LLC and
Scorpio Gold (US) Corporation;
 
(v)           to the extent not specifically referenced, each other Loan
Document, duly executed by the Borrower or the Credit Party that is party
thereto;
 
(vi)           an Omnibus Certificate for each Credit Party, duly executed by
officers thereof substantially in the form of Exhibit A hereto, together with
each Credit Party’s articles of incorporation, bylaws, resolutions, certificates
of good standing and certification of incumbency;
 
(vii)           certificates of issuing insurance companies or brokers,
confirming compliance by the Borrower with the insurance requirements set forth
in Section 7.5;
 
(viii)           accurate and complete copies of the financial statements of the
Credit Parties referred to in Section 6.1(g);
 
(ix)           evidence satisfactory to the Lender confirming the validity of
the Security Documents and their application to the Loan and the Obligations as
well as the validity and perfection of the Liens granted by such Security
Documents with the Agreed Priority;
 
(x)           opinions of legal counsel for the Credit Parties, dated the
Closing Date and addressed to the Lender in form and substance reasonably
acceptable to the Lender; and
 
(xi)           all such other approvals, opinions, documents or Instruments as
the Lender may reasonably request.
 
(b)           all representations and warranties made by the Credit Parties
herein, in any other Loan Documents shall be true and correct on the Closing
Date;
 
(c)           the Borrower shall have paid the Structuring Fee and all other
applicable costs, fees and expenses on and as of the date of this Agreement;
 
(d)           no Default or Event of Default has occurred and is continuing or
would occur as a result of the making of the Loan or the use of the proceeds
thereof;
 
(e)           all approvals, consents and authorizations of Governmental
Authorities, the shareholders of Borrower or other Persons required in
connection with this Agreement and the other Loan Documents shall have been
obtained and remain in effect;

 
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(f)           there is no pending or threatened action or proceeding before any
Governmental Authority against or affecting any Credit Party or any Mineral
Properties, which could reasonably be expected to have a Material Adverse Effect
on any Credit Party;
 
(g)           since December 31, 2010, the date of the Borrower’s most recent
audited financial statements, a copy of which is attached in Schedule 6.1(g)
attached hereto, there shall have been no change, event or occurrence that has
had, or could reasonably be expected to have, a Material Adverse Effect on any
Credit Party;
 
(h)           all data, reports, maps, surveys, financial statements,
Instruments and other information requested by the Lender for its due diligence,
including searches of all Lien filings, registrations and records deemed
necessary by the Lender, and copies of any documents, filings and Instruments on
file in such jurisdictions, shall have been provided, and the Lender shall have
completed its technical, legal, financial, permitting, environmental and other
due diligence investigation of the Credit Parties and the Mineral Properties in
scope, and with results, satisfactory to the Lender;
 
(i)           the Lender shall be satisfied with the form of the Loan Documents;
and
 
(j)           each Credit Party has performed and complied with all agreements
and conditions herein and in the other Loan Documents required to be performed
and complied with on or prior to the date of the proposed Loan, except those
agreements and conditions waived by the Lender.
 
The Borrower’s request for a Loan shall be deemed to constitute a representation
and warranty by the Borrower as of the date of such Loan that the applicable
conditions in paragraphs (a) through (j) of this Section have been, and remain,
satisfied.
 
ARTICLE 6

 
REPRESENTATIONS AND WARRANTIES
 
6.1           Representations and Warranties of the Credit Parties.  Each of the
Credit Parties, for itself and on behalf of each of its Subsidiaries, hereby
represents and warrants to the Lender as follows:
 
(a)           Qualification and Organization.  It has all requisite corporate
power and authority to enter into this Agreement and the other Loan Documents to
which it is a party and to carry out the transactions contemplated hereby and
thereby.  It is otherwise duly qualified to do business as a foreign corporation
or other applicable entity in each jurisdiction where the nature of its business
or properties requires such qualification. With respect to the Borrower, it is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada.
 
(b)           Subsidiaries.  Except as disclosed in Schedule 6.1(b), the
Borrower does not have any direct or indirect Subsidiaries.
 
(c)           Authorization; No Conflict.  The execution, delivery and
performance by it of this Agreement and of the other Loan Documents to which it
is a party have been duly authorized by all necessary shareholder and corporate
action on the part of such Credit Party and do not and will not (i) contravene
such Credit Party’s articles of incorporation, charter or by-laws, or similar
constituent documents; (ii) violate any provision of any Governmental
Requirement, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to such Credit Party; (iii) result in a
breach of or constitute a default under or require the consent of any Person
pursuant to any indenture or loan or credit agreement or any other agreement,
lease or Instrument to which any Credit Party is a party or by which it or any
such Credit Party or its or any such Credit Party’s properties may be bound or
affected; or (iv) result in, or require, the creation or imposition of any Lien
(other than Liens arising under the Security Documents) upon or with respect to
any of the properties now owned by any Credit Party and, to the knowledge of
each Credit Party, no Credit Party is in default in any material respect under
any such Governmental Requirement, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.

 
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(d)           Governmental and Other Consents and Approvals.  No authorization
or approval or other action by or consent of, and no notice to or filing or
registration with, any Governmental Authority is required (i) for the due
execution and delivery of, and the due performance of, the financial obligations
of the Credit Parties under this Agreement or any other Loan Document, or
(ii) for the due performance of all other Obligations of the Credit Parties
under this Agreement or any other Loan Document (other than registrations or
filings to perfect the Liens created by the Security Documents), except for such
authorizations, approvals or other actions as have been obtained or notices or
filings as have been made.
 
(e)           Binding Obligations.  This Agreement and each of the other Loan
Documents constitutes a legal, valid and binding obligation of each of the
Credit Parties that is a party thereto, enforceable against such Credit Parties
in accordance with their respective terms (except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws or equitable
principles affecting enforcement of creditors’ rights generally at the time in
effect).
 
(f)            Litigation.  Except as indicated in Schedule 6.1(f) hereto, there
is no material claim, action, lawsuit, proceeding, arbitration or investigation
pending or threatened in writing against or involving any Credit Party or any
Subsidiary thereof or any Mineral Properties, which (i) alleges the violation of
any Governmental Requirement, (ii) questions the validity of this Agreement or
any of the other Loan Documents or any action taken or to be taken pursuant to
this Agreement or any of the Loan Documents, (iii) involves any Material
Agreement, or (iv) could reasonably be expected to result, either in any case or
in the aggregate, in a Material Adverse Effect on a Credit Party.
 
(g)           Financial Statements; No Material Adverse Change.  The audited
balance sheet of the Borrower as of December 31, 2010, and the related unaudited
statements of operations and deficits of the Borrower for the period then ended,
and the unaudited balance sheet of the Borrower as of March 31, 2011 and the
related unaudited statement of operations and deficits of the Borrower for the
period then ended, copies of which have been furnished to the Lender and which
are attached hereto as Schedule 6.1(g), fairly present the financial condition
of the Borrower as at such dates and the results of the operations of the
Borrower for the period ended on such dates, all in accordance with GAAP
consistently applied.  The Borrower does not have any material Contingent
Liability or liability for taxes, long-term leases or unusual forward or
long-term commitments which are not reflected in such financial
statements.  Since December 31, 2010, neither the business, operations or
prospects of the Borrower or any other Credit Party, nor any of its properties
or assets, have been affected by any occurrence or development (whether or not
insured against) which could reasonably be expected to result, either in any
case or in the aggregate, in a Material Adverse Effect on the Borrower.

 
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(h)           Other Agreements.  No Credit Party is a party to any indenture,
loan or credit agreement or any lease or other agreement or Instrument (other
than the Material Agreements) or subject to any charter or other corporate
restriction which could reasonably be expected, upon a default thereunder or
otherwise, to result in a Material Adverse Effect on a Credit Party.
 
(i)           Information Accurate.  None of the written information delivered
to the Lender by any Credit Party in connection with this Agreement or the
transactions contemplated hereby contains any material misstatement of fact or
omits to state a material fact, and all projections contained in any such
information, exhibits or reports, were based on information which, when
delivered, was, to the knowledge of each Credit Party, true and correct in all
material respects, and to the knowledge of the Credit Parties all calculations
contained in such projections are accurate in all material respects, and such
projections present such Credit Party’s then-current estimate of its future
business, operations and affairs and, since the date of the delivery of such
projections, to the knowledge of the Credit Parties, there has been no material
change in the assumptions underlying such projections, or the basis therefor or
the accuracy thereof.
 
(j)           Title; Liens.
 
(i)           Schedule 1.1(b) accurately and completely sets forth and describes
all real property owned, held or controlled by the Borrower and located in the
United States of America, including all fee interests, patented mining claims,
unpatented mining claims, unpatented millsite claims and other real property
interests;
 
(ii)           The Borrower has good and marketable title to all fee lands,
patented mining claims, and unpatented mining claims and millsite claims set
forth on Schedule 1.1(b), which title is, subject to Permitted Liens, superior
and paramount to any adverse claim or right of title which may be asserted,
subject only to the paramount title of the United States as to any unpatented
mining claims and millsite claims and the rights of third parties to the lands
within such unpatented mining claims pursuant to the Multiple Mineral
Development Act of 1954 and the Surface Resources and Multiple Use Act of 1955;
 
(iii)           With respect to the unpatented mining claims and unpatented
millsite claims listed on the attached Schedule 1.1(b): (A) except as specified
in Schedule 1.1(b), the Borrower is in exclusive possession thereof, free and
clear of all Liens, claims, encumbrances or other burdens on production, other
than Permitted Liens; (B) all such claims were located, staked, filed and
recorded on available public domain land in compliance with all applicable state
and federal laws and regulations; (C) assessment work, intended in good faith to
satisfy the requirements of state and federal laws and regulations and generally
regarded in the mining industry as sufficient, for all assessment years up to
and including the assessment year ending September 1, 1992, was timely and
properly performed on or for the benefit of the claims, and affidavits
evidencing such work were timely recorded; (D) claim rental and maintenance fees
required to be paid under federal law in lieu of the performance of assessment
work, in order to maintain the claims commencing with the assessment year ending
on September 1, 1993 and through the assessment year ending on September 1,
2010, have been timely and properly paid, and affidavits or other notices
evidencing such payments and required under federal or state laws or regulation
have been timely and properly filed and recorded; (E) all filings with the BLM
with respect to such claims which are required under FLPMA have been timely and
properly made; and (F) there are no actions or administrative or other
proceedings pending or to the best of the Borrower’s knowledge threatened
against or affecting any of the claims.  Nothing herein shall be deemed a
representation that any unpatented mining claim contains a discovery of valuable
minerals or that any unpatented millsite claim is located on non-mineral
land.  In addition, with respect to each of the unpatented mining claims listed
on Schedule 1.1(b), the Borrower represents that, to its knowledge, such
unpatented mining claims have been relocated or remonumented as necessary, and
that evidence of such relocation or remonumentation has been timely and properly
recorded, all in compliance with the provisions of N.R.S. Chapter 517;
 

 
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(iv)           As to the patented mining claims listed on Schedule 1.1(b): (A)
the Borrower owns such claims free and clear of all Liens, claims, encumbrances,
royalties or other burdens on production, except for Permitted Liens; (B) except
as specified in Schedule 1.1(b), the Borrower is in exclusive possession of
those claims; and (C) there are no actions or administrative or other
proceedings pending or to the Borrower’s knowledge threatened against those
claims;
 
(v)           Each Credit Party, and each Subsidiary thereof, has good and
marketable title to its owned real property and has valid and effective rights
to its leased property, free and clear of Liens, except for Permitted Liens;
 
(vi)           All taxes, charges, rates, levies and assessments that, if
unpaid, would create a Lien or charge on any Mineral Properties or any portion
thereof, have been paid in full and will be paid in full;
 
(vii)           To the Borrower’s knowledge, all contractors, subcontractors,
agents and other Persons providing services, materials or labor on or for the
benefit of any Mineral Properties have been paid in a timely manner for all work
performed or services, goods or labor provided, on or with respect thereto,
except where such payments are subject to a bona fide dispute, which is being
diligently pursued by a Credit Party pursuant to appropriate procedures; and
 
(viii)           The Security Documents create, or upon their execution and
delivery they will create, valid and effective Liens in and on the Collateral
purported to be covered thereby, which Liens are currently (or will be upon the
filing of appropriate Instruments with appropriate Governmental Authorities)
perfected Liens with the Agreed Priority.
 
 

 
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(k)           Material Agreements; Absence of Default.  The Material Agreements
identified in Schedule 1.1(c) hereto include all of the contracts, agreements,
leases, Instruments and other binding commitments and undertakings of each
Credit Party, the performance or breach of which could reasonably be expected to
have a Material Adverse Effect on a Credit Party, and the Borrower has provided
the Lender with copies of each such Material Agreement.  No Credit Party is in
material default under any of the Material Agreements, none of them has received
any notice of an asserted default thereunder from any other Person, and none of
them has  knowledge of a breach by any counterparty thereto or the inability of
any counterparty thereto to perform its obligations thereunder.
 
(l)           Taxes and Other Payments.  Except for matters which could not
reasonably be expected to have a Material Adverse Effect, which are disclosed on
Schedule 6.1(l) hereto, each Credit Party and each Subsidiary thereof has filed
all Tax returns and reports required by law to have been filed by it and has
paid all Taxes and governmental charges thereby shown to be owing and all claims
for sums due for labor, material, supplies, personal property and services of
every kind and character provided with respect to, or used in connection with
its respective properties and no claim for the same exists except as permitted
hereunder, except any such Taxes, charges or amounts which are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP or IFRS, as applicable, have been set aside on
the books of such Credit Party or such Subsidiary, as applicable.
 
(m)           Environmental Laws.  Except as set forth in Schedule 6.1(n)
hereto:
 
(i)           the Mineral Properties have been owned, developed, operated,
leased, reclaimed and utilized in material compliance with all applicable
Governmental Requirements, including Environmental Laws;
 
(ii)           there are no outstanding or pending consent decrees, clean-up
orders, mitigation orders, compliance orders, remediation orders or other
material orders, decrees, judgments or other administrative or judicial
requirements outstanding under any Environmental Law with respect to any Mineral
Properties;
 
(iii)           no Credit Party or any Subsidiary thereof has received any
written or actual notice of: material violation, alleged material violation,
material non-compliance, investigation, liability or potential liability, or
request for information, with respect to Environmental Laws, Hazardous Materials
or other environmental matters with regard to any Mineral Properties, nor does
any Credit Party have knowledge or reason to believe that any such notice will
be received or is being threatened; and
 
(iv)           with respect to the Mineral Properties, there have been no past,
and there are no pending or threatened, lawsuits, claims, complaints,
injunctions, or any other governmental or judicial actions or proceedings with
respect to any alleged material violation of any Governmental Requirements,
including Environmental Laws, or any Release or alleged Release of Hazardous
Materials.
 
(n)           Indebtedness.  Except as disclosed in Schedule 6.1(n) hereto or
specifically identified in the financial statements identified in
Section 6.l(g), no Credit Party or any Subsidiary thereof has any existing
intercompany Indebtedness, any Indebtedness for borrowed money, or any other
Indebtedness.
 

 
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(o)           Compliance with Laws, Etc.  Each Credit Party and each Subsidiary
thereof is in compliance in all material respects with all Governmental
Requirements applicable to each of them and applicable to each of the Mineral
Properties.
 
(p)           Operation of Projects.  The Credit Parties have heretofore made
available to the Lender all feasibility studies and geological, reserve,
resource, metallurgical, engineering and financial data and evaluations of the
Mineral Properties prepared by or for the benefit of any Credit Party or
otherwise in the possession of any Credit Party.  The Credit Parties are not
aware of any material inaccuracy or omission in such information which has not
been disclosed to the Lender in writing.
 
(q)           Project Permits.  Except for permits, licenses, approvals,
authorizations, certifications, registrations and consents which are to be
obtained by a Credit Party from time to time in the ordinary course of business
and the absence or delay of which will not materially interfere with or delay
development and operation of the Mineral Properties, all permits, licenses,
approvals, authorizations, certifications, registrations and consents of
Governmental Authorities which are necessary to undertake and conduct the
business of the Credit Parties or any Subsidiary thereof as it is currently
being conducted are identified in Schedule 6.1(q) hereto (collectively, the
“Project Permits”).  The Borrower has obtained all Project Permits necessary to
conduct mining operations at its Mineral Properties and all such Project Permits
are in full force and effect in accordance with their terms, free of material
defaults, and no written notice alleging a breach or default under any of the
Project Permits or challenging or questioning the validity of any such Project
Permit has been delivered, except to the extent disclosed to the Lender in
Schedule 6.1(q).

 
ARTICLE 7

 
AFFIRMATIVE COVENANTS OF THE CREDIT PARTIES
 
Until the full and final payment and performance of the Obligations and the
termination of this Agreement, each of the Credit Parties shall, unless Lender
otherwise consents in writing (which consent Lender may grant or withhold in its
sole discretion), perform all covenants in this Article 7.
 
7.1           Compliance with Laws, Etc.  The Credit Parties shall comply, and
shall cause each of their Subsidiaries to comply with all applicable
Governmental Requirements, including Environmental Laws.  Each Credit Party
shall own, operate and manage its Mineral Properties in compliance with all
applicable Governmental Requirements.  The Credit Parties shall pay, and shall
cause each Credit Party to pay, all Taxes, assessments, and governmental charges
imposed upon them or their respective property before the same become
delinquent, except to the extent contested in good faith and adequately reserved
for in accordance with GAAP or IFRS, as then applicable to such Credit Party.
 
7.2           Project Permits.  The Credit Parties shall use commercially
reasonable efforts to obtain as soon as practicable, and shall maintain, all
Project Permits in full force and effect.
 
 
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7.3           Reporting Requirements.  The Credit Parties shall deliver to the
Lender the reports, information, notices and certificates set forth below:
 
(a)           Quarterly Financial Information.  As soon as available and in any
event within forty-five (45) days after the end of each quarter of each year,
the Borrower shall deliver to the Lender a consolidated balance sheet of the
Borrower, each as of the end of such quarter and statements of consolidated
income, cash flow and retained earnings of the Borrower for such quarter and for
the period commencing at the end of the previous year and ending with the end of
such quarter.
 
(b)           Annual Financial Information.  As soon as available and in any
event within ninety (90) days after the end of each year, a consolidated balance
sheet of the Borrower as of the end of such year and consolidated statements of
income, cash flow and retained earnings of the Borrower for such year audited by
chartered public accountants reasonably acceptable to the Lender.

(c)           Litigation; Claims.  Promptly after initiation thereof, notice of
any claims, proceedings, litigation or material disputes by, against, or
otherwise involving any Credit Party, or any Mineral Properties, or other
litigation which could reasonably be expected to have a Material Adverse Effect
on any Credit Party, together with copies of the court filings or other
documents associated therewith.
 
(d)           Material Agreements.  Promptly after receipt thereof, copies of
any notices of default or claims of breach received or sent by any Credit Party,
pertaining to any of the Material Agreements, and, promptly after receipt
thereof, copies of all Material Agreements entered into by the Borrower after
the date of this Agreement.
 
(e)           Environmental Matters.  Promptly after the filing or receipt
thereof, copies of (i) all new Project Permits, together with a description
thereof and (ii) all notices with or from any Governmental Authority alleging
noncompliance with or violation of Environmental Laws or Project Permits and any
correspondence in response thereto.
 
(f)           New Subsidiaries.  Prior to the organization or acquisition of any
new Subsidiary of the Borrower, the Borrower shall provide the Lender with
written notice thereof and each new Subsidiary of the Borrower shall accede to
the terms of this Agreement by entering into a Guarantee.
 
(g)           Other Information; Updated Schedules.  Such other certificates,
reports and information respecting the condition or operations, financial or
otherwise, of any Credit Party and any Mineral Properties as the Lender may from
time to time reasonably request.
 
7.4           Inspection.  At any reasonable time during normal business hours
and from time to time, each Credit Party shall permit, and shall cause each of
its Subsidiaries to permit, the Lender and its Representatives to examine and
make copies of and abstracts from the records and books of account of, and to
visit the properties of, each Credit Party (including the Mineral Properties)
and to discuss the affairs, finances and accounts of each Credit Party with any
Representative of a Credit Party.  So long as no Event of Default has occurred
and is continuing, the Borrower shall pay all reasonable costs of one site visit
or collateral inspection per year, and at any time that an Event of Default has
occurred and is continuing, the Borrower shall pay all reasonable costs of the
activities described in this Section 7.4.
 
 

 
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7.5           Maintenance of Insurance.  Each Credit Party shall maintain with
financially sound and reputable insurance companies (i) insurance on all its
property and assets insuring against at least such risks as are usually insured
against in the same or a similar business and as required by Governmental
Requirements and (ii) liability insurance covering at least such risks as are
usually insured against in the same or a similar business and as required by
Governmental Requirements; and furnish to the Lender, upon request, full
information as to the insurance carried.  The present insurance coverage of the
Credit Parties as of the Closing Date is outlined as to carrier, policy number,
expiration date, type and amount on Schedule 7.5.   Upon the request of the
Lender from time to time, each Credit Party shall deliver to the Lender evidence
of the insurance then in effect, including a detailed list of such insurance
containing the information set forth on Schedule 7.5.  The insurance policies
shall name the Lender as loss payee or additional insured, as appropriate, and
shall contain an endorsement providing that such insurance cannot be terminated
or amended without at least thirty (30) days prior notice to the Lender.
 
7.6           Keeping of Records and Books of Account.  The Credit Parties shall
keep, and will cause each of its Subsidiaries to keep, adequate records and
books of account, in which complete entries shall be made reflecting all
financial transactions of each Credit Party, and with respect to the Borrower
and all Credit Parties on a consolidated basis, the foregoing shall be in
accordance with GAAP or IFRS, as applicable to the Credit Parties at such point
in time, and in each case, consistently applied.
 
7.7           Preservation of Existence, Etc.  Each Credit Party shall preserve
and maintain, and shall cause each of its Subsidiaries to preserve and maintain,
their respective corporate existence, rights, franchises and privileges in the
jurisdiction of their incorporation or formation; and, each Credit Party will
qualify and remain qualified, and will cause each of its Subsidiaries to qualify
and remain qualified, to engage in business and conduct business activities in
each jurisdiction in which such qualification is necessary or desirable in view
of their business and operations or the ownership of their properties.  Each
Credit Party will comply, and will cause each of its Subsidiaries to comply,
with all requirements of applicable Governmental Requirements and all rules,
regulations and requirements of stock exchanges on which their respective
capital stock is traded, if any, concerning disclosure of matters relevant to
such Persons and their properties; and, each Credit Party will timely file, and
will cause each of its Subsidiaries to timely file, full and complete reports
concerning their business and operations as required by such Governmental
Requirements and stock exchange, rules, regulations and requirements.
 
7.8           Conduct of Business; Maintenance of Properties.  The Credit
Parties shall engage solely, and will cause each Credit Party to engage solely,
in the business of developing and operating the Mineral Properties, and other
prospective projects, and in activities incident thereto, in accordance with
Prudent Mining Industry Practices.  The Credit Parties shall use commercially
reasonable efforts to explore, investigate, develop and use the Mineral
Properties in accordance with Prudent Mining Industry Practices.  The Credit
Parties shall diligently and continuously work to develop and operate the
Mineral Properties.  The Credit Parties shall from time to time, make and cause
to be made, all repairs, renewals, replacements, additions and improvements to
the Mineral Properties and their properties and assets, such that the Borrower
and the other Credit Parties may properly and advantageously conduct their
business at all times in accordance with Prudent Mining Industry Practices.
 
 

 
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7.9           Notice of Default.  The Borrower shall furnish to the Lender as
soon as possible and in any event within three (3) Business Days after the
occurrence of each Event of Default or Default continuing on the date of such
statement, a statement of the president or chief financial officer of the
Borrower, setting forth the details of such Event of Default or Default, and the
action which the Borrower proposes to take with respect thereto.

7.10           Defense of Title and Rights.  Each Credit Party shall preserve
and defend its ownership of and all right, title and interest in its assets,
properties and rights, including the Mineral Properties, as such title is
represented and warranted in Section 6.1(j).  Each Credit Party shall defend,
and will cause the other Credit Parties to defend, the Liens in favor of the
Lender under the Security Documents, and the Credit Parties shall maintain and
preserve such Liens as perfected Liens with their Agreed Priority.  Each Credit
Party shall ensure that the Security Documents shall at all times cover and
extend to all assets, properties, rights and interests of each Credit Party or
Subsidiary.
 
7.11           Material Agreements.  The Credit Parties shall comply with, and
shall cause each other Credit Party to comply with, the terms and conditions of
each of the Material Agreements except where any non-compliance could not
reasonably be expected to cause a default under such Material Agreement or to
have a Material Adverse Effect.
 
7.12           Maintenance of Borrower’s Account.  The Borrower shall establish
and maintain the Borrower’s Account as its primary operating account, in the
location and with the bank or financial institution described on Schedule
1.1(a), and shall not change such account without the Lender’s prior written
consent, not to be unreasonably withheld.  The Borrower shall ensure that the
Borrower’s Account remains subject at all times to a Lien in favour of the
Lender as established by the applicable Security Documents.
 
7.13           Further Assurances.  Each Credit Party shall execute, acknowledge
and deliver to the Lender such other and further documents and Instruments and
do or cause to be done such other acts as the Lender reasonably determines to be
necessary or desirable to effect the intent of the parties to this Agreement or
otherwise to protect and preserve the interests of the Lender hereunder,
promptly upon request of the Lender, including the execution and delivery of any
and all documents and Instruments which are necessary or advisable to create,
protect or maintain in favor of the Lender, Liens on all Collateral of the
Credit Parties as may be required by this Agreement or any Security Document
that are duly perfected in accordance with all applicable Governmental
Requirements.
 
ARTICLE 8

 
NEGATIVE COVENANTS OF THE CREDIT PARTIES
 
Until the full and final payment and performance of the Obligations and the
termination of this Agreement, each of the Credit Parties shall, unless the
Lender otherwise consents in writing (which consent, other than as indicated
below, the Lender may grant or withhold in its sole discretion), perform all
covenants in this Article 8.
 
 
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8.1           Indebtedness.  The Credit Parties shall not, and the Credit
Parties shall cause each of its Subsidiaries to not, directly or indirectly,
create, incur, assume or suffer to exist, any Indebtedness except
(a) Indebtedness hereunder; (b) Indebtedness secured by Liens permitted by
Section 8.2; (c) Indebtedness existing on the date hereof disclosed to the
Lender on Schedule 6.1(n) hereto; and (d) unsecured account trade payables, bank
overdrafts and other similar immaterial unsecured Indebtedness incurred in the
ordinary course of business.
 
8.2           Liens, Etc.  Without the prior written consent of the Lender, the
Credit Parties shall not, and shall cause each of its Subsidiaries to not,
directly or indirectly, create, incur, assume or suffer to exist any Lien upon
or with respect to any portion of its interest in any Mineral Properties or any
other real or personal property or assets of the Borrower or any Credit Party,
now owned or hereafter acquired, or assign or otherwise convey any right to
receive the production, proceeds or income therefrom, except:
 
(a)           Liens for taxes, assessments or governmental charges or levies if
the same shall not at the time be delinquent or thereafter can be paid without
penalty, or are being contested in good faith and by appropriate proceedings;
 
(b)           Liens imposed by law, such as carriers, warehousemen and
mechanics’ liens and other similar liens arising in the ordinary course of
business associated with amounts not yet due and payable, or which are being
diligently disputed by the Borrower in good faith and pursuant to appropriate
procedures;
 
(c)           Liens of purchase money mortgages and other security interests on
equipment acquired, leased or held by the Borrower (including equipment held by
any such Person as lessee under leveraged leases) in the ordinary course of
business to secure the purchase price of or rental payments with respect to such
equipment or to secure indebtedness incurred solely for the purpose of financing
the acquisition (including acquisition as lessee under leveraged leases),
construction or improvement of any such equipment to be subject to such
mortgages or security interests, or mortgages or other security interests
existing on any such equipment at the time of such acquisition, or extensions,
renewals or replacements of any of the foregoing for the same or a lesser
amount, provided that no such mortgage or other security interest shall extend
to or cover any equipment other than the equipment being acquired, constructed
or improved, and no such extension, renewal or replacement shall extend to or
cover any property not theretofore subject to the mortgage or security interest
being extended, renewed or replaced;
 
(d)           Liens outstanding on the date hereof and described in
Schedule 6.1(j) hereto;
 
(e)           Liens arising under the Security Documents;
 
(f)           Cash or governmental obligations deposited in the ordinary course
of business in connection with contracts, bids, tenders or to secure workmen’s
compensation, unemployment insurance, surety or appeal bonds, costs of
litigation, when required by law, public and statutory obligations, Liens or
claims incidental to current construction, mechanics’, warehousemen’s, carriers’
and other similar Liens; and
 

 
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(g)           Liens given in the ordinary course of business to a public utility
or any municipality or governmental or other public authority when required by
such utility or municipality or governmental or other authority in connection
with the operations of the Borrower.
 
Notwithstanding the foregoing, if a Credit Party shall grant a Lien on any of
its properties or assets in violation of this Section 8.2, then it shall be
deemed to have simultaneously granted an equal and ratable Lien on any such
properties or assets to and in favor of the Lender, to the extent that such a
Lien has not already been granted to the Lender.
 
8.3           Assumptions, Guarantees, Etc. of Indebtedness of Other
Persons.  No Credit Party shall, directly or indirectly, assume, guarantee,
endorse or otherwise become directly or contingently liable (including, without
limitation, liable by way of agreement, contingent or otherwise, to purchase, to
provide funds for payment, to supply funds to or otherwise invest in the debtor
or otherwise to assure the creditor against loss) in connection with any
Indebtedness of any other Person, except (a) guarantees by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business or (b) in connection with Indebtedness contemplated
by Section 8.1(d).
 
8.4           Liquidation; Merger; Change in Ownership.  Without the prior
written consent of the Lender, such consent not to be unreasonably withheld, no
Credit Party shall liquidate or dissolve, or enter into any consolidation or
merger, or enter into any partnership, joint venture or other combination where
such combination involves a contribution by such Credit Party of all or
substantially all of its assets, or sell, lease or dispose of its business or
assets as a whole or in an amount which constitutes substantially all of such
assets, or enter into any agreement with respect to the foregoing or agree to do
or undertake any of the foregoing.
 
8.5           Restrictive and Inconsistent Agreements.  The Credit Parties shall
not, and shall cause each of its Subsidiaries to not, enter into any agreement
or undertaking or incur or suffer any obligation prohibiting or inconsistent
with the performance by any Credit Party of its Obligations under the Loan
Documents or any Material Agreement.
 
8.6           Burdens on Production.  No Credit Party shall grant, sell,
transfer, assign or convey, directly or indirectly, to any Person any royalty
(of any kind or nature whatsoever, howsoever designated), production payment or
other non-cost bearing interests in the Mineral Properties.
 
8.7           Investments in Other Persons.  No Credit Party shall, directly or
indirectly, (i) make any loan or advance of credit to any Person utilizing the
Loan proceeds or (ii) purchase or otherwise acquire the capital stock,
indebtedness, obligations of, or any interest in, any Person (other than readily
marketable direct obligations of the United States of America and certificates
of time deposit issued by a commercial bank of recognized standing operating in
Canada or the United States of America, or other investment grade instruments
reasonably approved by the Lender).
 

 
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8.8           Sale of Assets.  No Credit Party shall, and each Credit Party
shall cause its Subsidiaries to not, directly or indirectly, sell, transfer,
assign or otherwise dispose of any of their respective assets or properties,
including, without limitation, those assets and properties related to any
Mineral Properties, except as may be commercially reasonable to replace worn or
utilized equipment or inventory in the ordinary course of business.
 
8.9           Nature of Business.  No Credit Party will engage in any business
activities or operations substantially different from their current business of
exploring for and developing precious metals mining properties and activities
and operations reasonably related thereto.
 
8.10           Dividends.  The Borrower shall not declare, accrue or pay any
dividends, whether in cash or in Equity Interests of the Borrower, while any
Loan or any other amount hereunder remains outstanding and unpaid.
 
8.11           Material Agreements.  No Credit Party shall, and each Credit
Party shall cause its Subsidiaries to not, (a) enter into or agree to enter into
any Material Agreement, or (b) modify, amend or knowingly waive any rights with
respect to any Material Agreement to which any such Person is a party, in each
case without the prior written consent of the Lender, not to be unreasonably
withheld.
 
ARTICLE 9
 
EVENTS OF DEFAULT
 
9.1           Event of Default.  Each of the following events shall be an “Event
of Default” hereunder:
 
(a)           Nonpayment.  The Borrower shall fail to repay the Loan as and when
due hereunder (whether at stated maturity, by prepayment, on demand or
otherwise), or shall fail to pay interest hereunder when due (whether on a
payment date, by prepayment, on demand or otherwise), or shall fail to pay any
other amounts due hereunder when due (whether on the date when due, by
prepayment, on demand or otherwise).
 
(b)           Specific Defaults.  The Borrower or any other Credit Party shall
fail to observe or perform any of its covenants contained in Article 8 of this
Agreement.
 
(c)           Other Defaults.  The Borrower or any other Credit Party shall fail
to observe or perform any of its covenants contained in this Agreement or any
other Loan Document, other than the covenants referred to in clauses (a) and (b)
above, and (i) such default or failure to observe or perform is capable of being
cured but such Borrower or Credit Party has not remedied such default within
five (5) days of the occurrence of such default or failure to observe or
perform, or (ii) if in the Lender’s sole discretion such default or failure to
observe or perform is capable of being cured, but not within five (5) days, the
Borrower or Credit Party has not remedied such default within ten (10) days of
the occurrence of such default or failure to observe or perform.
 
(d)           Representation or Warranty.  Any representations or warranty made
by any Credit Party under or in connection with this Agreement, or the other
Loan Documents proves to have been incorrect, incomplete or misleading in any
respect when made (in the case of any representation or warranty containing any
materiality qualifier) or proves to have been incorrect, incomplete or
misleading in any material respect (in the case of any representation or
warranty without any materiality qualifier).

 
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(e)           Cross-Default.  A default shall occur under (i) any Loan Document,
(ii) any Material Agreement (subject to applicable cure periods thereunder, if
any), or (iii) any agreement or Instrument pertaining to Indebtedness permitted
by Section 8.1 in excess of US$100,000; or any Credit Party shall fail to pay
any Indebtedness in excess of US$100,000 (or equivalent in other currencies) in
principal amount (but excluding Indebtedness included in the Obligations), or
any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such default or
failure to pay is not being contested by such Credit Party in good faith;  or,
any other default under any agreement or Instrument relating to any such
Indebtedness or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or Instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness, unless such default or event
shall be waived by the holders or trustees of such Indebtedness; or any such
Indebtedness shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof.
 
(f)           Bankruptcy; Insolvency.  (i) Any Credit Party shall initiate or
commence any case, proceeding or other action (A) under any existing or future
Bankruptcy Law, or otherwise seeking to have it judged bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or
(B) seeking appointment of a receiver, trustee, custodian, administrator,
conservator or other similar official for it or for all or any substantial part
of its assets, or any Credit Party shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against any Credit
Party any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or unbonded
for a period of sixty (60) days; or (iii) there shall be commenced against any
Credit Party any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of their assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within sixty (60) days from the entry thereof; or (iv) any Credit
Party shall take any action in furtherance of, or indicating its consent to,
approval of, authorization of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) any Credit Party generally shall not,
or shall be unable to, or shall admit in writing its inability to, pay its debts
as they become due.
 
(g)           Judgments.  A final judgment or order for the payment of money in
excess of US$100,000 (or equivalent in other currencies) shall be rendered
against any Credit Party and either: (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order; or (ii) a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect for any period of ten (10) consecutive days.
 
(h)           Security Interest.  Any Security Document after delivery thereof
shall for any reason, except to the extent permitted by the terms thereof or the
terms hereof, cease to create a valid and perfected Lien having the Agreed
Priority with respect to any of the Collateral purported to be covered thereby,
or a Credit Party shall so state or claim in writing.

 
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(i)           Expropriation/Condemnation.  An Expropriation Event shall have
occurred.
 
(j)           Regulatory Action.  Any Governmental Authority shall take or
attempt to take any action with respect to a Credit Party, or with respect to
any Mineral Properties or any Collateral subject to the Security Documents,
which has had or could reasonably be expected to have a Material Adverse Effect
on a Credit Party or the ability of the Borrower to repay the Loan or to meet
its other Obligations in a timely manner unless such action is set aside,
dismissed or withdrawn within twenty (20) days of its institution or such action
is being contested in good faith, its effect is stayed during such contest and
the Credit Parties are allowed to continue development of such Mineral
Properties during such period.
 
(k)           Material Adverse Change.  A change in the business, financial
condition or prospects of the Borrower or any other Credit Party occurs, which
has a Material Adverse Effect.
 
(l)           Change of Control.  A Change of Control shall have occurred.
 
9.2           Remedies Upon Event of Default.
 
(a)           Upon the occurrence of an Event of Default specified in
Section 9.1(f) of this Agreement, all obligations of the Lender hereunder shall
terminate, but such termination shall not limit any rights or remedies of the
Lender hereunder.  In the case of any Event of Default specified in Sections
9.1(a), (b), (c), (d), (e), (g), (h), (i), (j), (k),  or (l), upon notice by the
Lender to the Borrower of the Lender’s election to declare the Borrower in
default, the obligations of the Lender hereunder shall terminate, but such
termination shall not limit any rights or remedies of the Lender hereunder.  The
date on which such notice is sent with respect to an Event of Default specified
in Sections 9.1(a), (b), (c), (d), (e), (g), (h), (i), (j), (k), or (l), shall
be the “Date of Default.”  The Date of Default with respect to an Event of
Default specified in Section 9.1(f) of this Agreement shall be the date of
occurrence of any event or action specified therein.
 
(b)           Upon the Date of Default and upon notice from the Lender of an
Event of Default specified in Section 9.1(a), (b), (c), (d), (e), (g), (h), (i),
(j), (k), or (l), the Loan, together with all interest thereon and all other
amounts owed by the Borrower hereunder to the Lender, shall be accelerated and
become immediately due and payable in full.
 
(c)           Immediately and automatically upon the occurrence of an Event of
Default specified in Section 9.1(f), without delivery of any notice by the
Lender, the Loan, together with all interest thereon and all other amounts owed
by the Borrower hereunder shall be automatically accelerated and immediately due
and payable on the Date of Default.
 
(d)           Upon the occurrence of an Event of Default, all of the rights and
remedies provided to the Lender in this Agreement, each of the Security
Documents and each other Loan Document shall immediately become available to the
Lender, and the Lender shall have all other rights and remedies available at law
or in equity.

 
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(e)           All rights and remedies of the Lender set out in this Agreement,
the Security Documents and the other Loan Documents are cumulative, and no right
or remedy contained herein or therein is intended to be exclusive; each such
right or remedy is in addition to every other right and remedy contained in this
Agreement, the Security Documents and the other Loan Documents, or in any
existing or future agreement, or now or in the future existing at law, in
equity, by statute or otherwise.
 
(f)           Except as expressly provided above in this Section 9.2,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.  From and after the Date of Default, interest on the Loan
shall accrue at the Default Rate and shall be payable on demand.
 
ARTICLE 10

 
MISCELLANEOUS
 
10.1           Amendments, Etc.  Except as otherwise expressly provided in this
Agreement, no amendment or waiver of any provision of this Agreement, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender, and, in
the case of any amendment, by the Borrower and the Lender and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
 
10.2           Notices. Etc.  All notices and other communications provided for
hereunder shall be in writing (including facsimile and e-mail communication) and
transmitted by facsimile, e-mail or delivered,
 
if to the Borrower,
 
Golden Phoenix Minerals, Inc.
1675 E. Prater Way, Suite 102
Sparks, Nevada 89434
Attention: Tom Klein
Facsimile: 775-853-5010
Telephone:
E-Mail:
 

 
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and if to the Lender,
 
Waterton Global Value, L.P.
Folio House, P.O. Box 800
Road Town, Tortola, VG1110
Attention:
Facsimile:  284-494-8356 or 284-494-7422
Telephone:
E-Mail:
 
as to each Party, at such other address or number as shall be designated by such
Party in a written notice to the other.  All such notices and communications
shall be effective (a) when received, if physically delivered; and (b) upon
confirmation of transmission, if sent by facsimile on a Business Day, addressed
in each case as aforesaid, except that notices to the Lender under Articles 2 or
3 shall not be effective until received by the Lender.
 
10.3           No Waiver; Remedies.  No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder, or under any other
Loan Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder, or under any other Loan Document preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
 
10.4           Costs, Expenses and Taxes.  The Borrower and the other Credit
Parties agree to pay on demand all reasonable costs and expenses of the Lender
in connection with the negotiation, preparation, execution, and delivery of this
Agreement, the other Loan Documents and the other documents and Instruments to
be delivered hereunder, including, without limitation the reasonable fees and
expenses of all legal counsel and independent consultants to the Lender and all
other out-of-pocket expenses of the Lender.  In addition, the Borrower and the
other Credit Parties agree to pay on demand all reasonable costs and expenses of
the Lender in connection with the administration of this Agreement and the other
Loan Documents,  including the reasonable costs and expenses incurred by the
Lender in connection with site visits by the Lender to the Mineral Properties,
and all costs and expenses, if any, in connection with the protection of the
Lender’s rights with respect to and the enforcement of this Agreement, the other
Loan Documents and the other documents to be delivered hereunder (whether
incurred before, during or after commencement of any bankruptcy, reorganization
or insolvency actions pertaining to the Borrower).  All such expenses will be
itemized in reasonable detail.  In addition, the Borrower and the other Credit
Parties agree to pay any and all stamp, mortgage recording and other Taxes,
filing fees, duties or charges payable or determined to be payable in connection
with the execution and delivery of this Agreement, the other Loan Documents and
the other documents to be delivered hereunder, and the Borrower and the other
Credit Parties agree to indemnify and save the Lender harmless from and against
any and all liabilities with respect to or resulting from any delay in paying or
omission to pay such Taxes, filing fees or charges.  The Borrower and the other
Credit Parties acknowledge that they shall pay all aforementioned costs,
expenses and taxes regardless of whether the Loan is advanced.
 
10.5           Indemnification.  The Borrower and each other Credit Party agree
to indemnify the Lender and each of the Lender’s Affiliates and their respective
directors, partners, managers, members, owners, principals, shareholders,
officers, employees, agents, consultants and Representatives (each, an
“Indemnified Party” and collectively, the “Indemnified Parties”), from and
against, and to defend and hold each of the Indemnified Parties harmless from,
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, fines, suits, costs, charges, claims, Taxes, expenses, payments or
disbursements of any kind whatsoever, including attorneys’ fees and expenses
(collectively “Losses”) which may at any time (including, without limitation, at
any time following the payment of the Obligations) be imposed on, incurred or
suffered by or asserted against any Indemnified Party in any way relating to or
arising out of this Agreement or any other Loan Document, or any Instruments
contemplated by or referred to herein or therein, or the transactions
contemplated hereby or thereby, or any act or omission of a Credit Party, or the
ownership, management, administration or operation of any Mineral Properties,
except with respect to Losses arising entirely out of the gross negligence or
willful misconduct of the Lender.

 
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Without limiting the generality of the foregoing provisions, the Borrower and
each other Credit Party hereby agrees to indemnify, defend and hold harmless the
Indemnified Parties from and against any and all administrative, regulatory or
judicial actions, suits, demands, claims, liens, notices of non-compliance or
violation, investigations, inspections, inquiries, proceedings, losses, costs,
expenses, damages, claims and liabilities (collectively, “Environmental Claims”)
incurred by any Indemnified Party relating in any way to any Environmental Laws
or to any Project Permit in respect of the Borrower, any Credit Party, any
Mineral Properties or any of its  other property, or any part thereof, including
without limitation, as a result of:
 
(i)           any breach or violation of Environmental Laws which relates to any
Mineral Properties or the business, operations or activities of any Credit
Party;
 
(ii)           any Release, presence, use, creation, transportation, storage or
disposal of Hazardous Materials which relate to any Mineral Properties or the
business, operations or activities of any Credit Party; or
 
(iii)           any claim or order for any clean-up, restoration,
detoxification, reclamation, repair or other securing or remedial action which
relates to any Mineral Properties or the business, operations or activities of
any Credit Party.
 
The provisions of this Section 10.5 shall survive the termination of this
Agreement and the other Loan Documents and repayment of the Loan and the other
Obligations.
 
10.6           Binding Effect; Assignment.  This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Lender and its respective
permitted successors and assigns.  The Borrower shall not have the right to
assign any of its rights or obligations hereunder or any interest herein or in
any other Loan Document without the prior written consent of the Lender.  The
Lender may, at any time, without the consent of the Borrower, transfer or assign
to its respective successors and Affiliates all or any part of, this Agreement,
the other Loan Documents and the Loan, and, to the extent of such assignment,
such assignee shall have the same obligations, rights and benefits with respect
to the Borrower and the other Credit Parties as it would have had if it were a
lender hereunder.
 
10.7           Governing Law.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEVADA.
 
10.8           Dispute Resolution
 
(a)           Each Party waives the right to trial by jury with respect to any
dispute between or among two or more Parties or their subsidiaries with respect
to this Agreement, the other Loan Documents or the transactions contemplated
hereby or thereby.  The Borrower irrevocably attorns and submits to the
non-exclusive jurisdiction of any court of competent jurisdiction of the State
of Nevada in any action or proceeding arising out of or relating to this
Agreement and the other Loan Documents to which it is a party.  The Borrower
irrevocably waives objection to the venue of any action or proceeding in such
court or that such court provides an inconvenient forum.  Nothing in this
Section 10.8 limits the right of the Lender to bring proceedings against the
Borrower in the courts of any other jurisdiction.

 
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(b)           The Borrower hereby irrevocably consents to the service of any and
all process in any such action or proceeding by the delivery of copies of such
process to the Borrower at its address set out in Section 10.2.   Nothing in
this Section 10.8 affects the right of the Lender to serve process in any manner
permitted by Governmental Requirements.
 
(c)           Each of the parties to this Agreement hereby irrevocably waives
all right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby.  The scope of this waiver is
intended to be all-encompassing with respect to any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims and all other
common law and statutory claims.  Each of the parties hereto (a) acknowledges
that this waiver is a material inducement for the parties to the Loan Documents
to enter into a business relationship, that the parties to the Loan Documents
have already relied on this waiver in entering into same and the transactions
that are the subject thereof, and that they will continue to rely on this waiver
in their related future dealings, and (b) further warrants and represents that
each has reviewed this waiver with its legal counsel and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel.  This waiver is irrevocable, meaning that it may not be modified either
orally or in writing, and this waiver shall apply to any subsequent amendments,
modifications, supplements, extensions, renewals and/or replacements of this
Agreement.  In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
 
10.10           Execution in Counterparts; Facsimile and Electronic
Signatures.  This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.  This Agreement may be validly executed
and delivered by facsimile, portable document format (.pdf) or other electronic
transmission (including e-mail), and a signature by facsimile, portable document
format (.pdf) or other electronic transmission (including e-mail) shall be as
effective and binding as an original signature.
 
10.11           Inconsistent Provisions.  In the event of any conflict between
this Agreement and any of the other Loan Documents, the provisions of this
Agreement shall govern and be controlling.
 
10.12           Severability.  If any provision hereof is determined to be
ineffective or unenforceable for any reason, the remaining provisions hereof
shall remain in effect, binding on the parties and enforceable at the election
of the Lender in its sole discretion.
 
10.13           Governing Language.  For all purposes, this English language
version of this Agreement shall be the original, governing instrument and
understanding of the parties.  In the event of any conflict between this English
language version of the Agreement and any subsequent translation into any other
language, this English language version shall govern and control.

 
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10.14           Survival of Representations and Warranties.  All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the making of any Loan.
 
10.15           Entire Agreement; Schedules and Exhibits.  The Schedules to this
Agreement and the Exhibits to this Agreement form an integral part of this
Agreement and are incorporated herein by reference and expressly made a part
hereof.  This Agreement constitutes the entire agreement among the Parties with
respect to the subject matter hereof, superseding all prior statements,
representations, discussions, agreements and understandings, oral or written,
relating to such subject matter.
 
10.16           Credit Party Joint and Several Liability.  The Borrower and the
other Credit Parties are engaged in related businesses and are integrated to
such an extent that the financial strength and flexibility of each Credit Party
has a direct, tangible and immediate impact on the success of the other Credit
Parties.  Each Guarantor will derive substantial direct and indirect benefit
from the extensions of the Loan to the Borrower hereunder.  Each Guarantor
waives any right to revoke, terminate or suspend its Guarantee and acknowledges
that it entered into such Guarantee in contemplation of the benefits that it
would receive by this Agreement.
 
10.17           Acknowledgements.  Each of the parties hereto hereby
acknowledges that:
 
(a)           it has been advised by its own legal counsel in the negotiation,
preparation, execution and delivery of this Agreement and each other Loan
Document;
 
(b)           this Agreement and the other Loan Documents shall not be
construed  against any party or more favourably in favor of any party based upon
which party drafted the same, it being agreed and acknowledged that all parties
contributed substantially to the negotiation and preparation of this Agreement
and the other Loan Documents;
 
(c)           the Lender has no fiduciary relationship with or duty to the
Borrower or any other Credit Party arising out of or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby and
thereby, and the relationship between the Lender, on one hand, and the Borrower
and the other Credit Parties, on the other hand, in connection herewith is
solely that of debtor and creditor; and
 
(d)           this Agreement does not create a joint venture or partnership
among the parties hereto, and no joint venture or partnership exists, or shall
be deemed to exist, among the Lender, or among the Lender and the Borrower, or
among the Lender and the other Credit Parties.
 
10.18           Further Agreements.  Promptly following the date hereof, the
Lender shall issue to the Borrower a gold stream debt facility agreement (the
“Gold Stream Debt Facility”) the material terms and conditions of which shall be
consistent with (i) the Term Sheet signed by the Borrower and Lender on July 27,
2011, and (ii) the Amended and Restated Senior Secured Note dated May 19, 2011
(the “Scorpio Note”) between the Lender and Scorpio Gold Corporation.  Provided
that the Borrower uses commercially reasonable efforts to negotiate, settle and
execute the Gold Stream Debt Facility and provided that the Borrower has
completed all of its conditions precedent to such Gold Stream Debt Facility
(which conditions precedent shall be generally similar to the conditions
precedent in the Lender’s other publicly disclosed gold stream debt facility
agreements), the Lender shall enter into the Gold Stream Debt Facility as the
Borrower’s contractual counterparty prior to the Expiry Date.  Should the Lender
fail to enter into the Gold Stream Debt Facility as the Borrower’s contractual
counterparty prior to the Expiry Date, the Lender shall pay to the Borrower
within ten (10) business days of the Expiry Date a “break fee” of USD $250,000.”

 
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 [Signatures on following page.]
 
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
 

     
BORROWER:
     
GOLDEN PHOENIX MINERALS, INC.
         
By:________________________
 
Name:
 
Title:
                         
LENDER:
     
WATERTON GLOBAL VALUE, L.P., by the General Partner of its General Partner,
CORTLEIGH LIMITED
             
By:_________________________
 
Authorized Signing Officer

[Signature Page to Bridge Loan Agreement]

 
 

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SCHEDULES

Schedule 1.1(a)
Borrower’s Account
Schedule 1.1(b)
Mineral Properties
Schedule 1.1(c)
Material Agreements
Schedule 6.1(b)
Subsidiaries
Schedule 6.1(f)
Litigation
Schedule 6.1(g)
Financial Statements
Schedule 6.1(l)
Tax Disclosure
Schedule 6.1(m)
Environmental Disclosures
Schedule 6.1(n)
Indebtedness
Schedule 6.1(q)
Project Permits
Schedule 7.5
Insurance

 
 

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