(*) Designates portion of this document that has been omitted pursuant to a
request for confidential treatment filed separately with the Commission.

 

BINDING OFFER LETTER

 

August 6, 2009

 

Mr. Steve Akerfeldt

Chief Executive Officer

Firstgold Corp.

1055 Cornell Avenue

Lovelock, Nevada

89419

 

Re:

Firstgold Corp: Proposed US$15 Million Restructuring Comprised of a US$5.5
Million Indebtedness Purchase and US$9.5 Million Equity Investment

 

Dear Gentlemen:

 

          We are pleased to submit this binding offer letter (this “Offer”),
which outlines the terms and conditions pursuant to which Northwest Non-Ferrous
International Investment Company Limited (“Northwest”), whether directly or via
a wholly-owned subsidiary or affiliate of Northwest, is prepared to enter into a
definitive indebtedness purchase agreement (the “Indebtedness Purchase
Agreement”) pursuant to which it will advance US$5.5 million (the “Purchase of
Indebtedness”) to Firstgold Corp. (“Firstgold”) for it to repay certain
indebtedness subject to the terms and conditions described below, and will enter
into a subscription agreement (the “Subscription Agreement”) to purchase that
number of common shares (the "Shares") of Firstgold (the “Subscription”) equal
to 51% of the issued and outstanding Shares following completion of the
Subscription, for cash of US$9.5 million upon the terms set forth herein.
Concurrent with the acceptance of this Offer, Northwest will enter into an
agreement (a "Note Purchase Agreement") with each of Platinum Long Term Growth,
LLC and Lakewood Group LLC (collectively, the "Current Creditors") to acquire
the Notes (as defined in the Note and Warrant Purchase Agreement dated August 7,
2008 between Firstgold and the Current Creditors (the "Note and Warrant Purchase
Agreement")) for a purchase price

 

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of US$11.5 million. The Indebtedness Purchase Agreement, the Subscription
Agreement and the agreements with each of the Current Creditors are,
collectively, referred to herein as the “Restructuring”.

 

          This Offer is intended to be binding; however, this Offer is not
intended to set forth all of the terms of the Restructuring and the ancillary
documents contemplated herein or thereby, which documents will contain
additional terms agreed to by the respective parties and their legal counsel.

1.          Purchase of Indebtedness. Northwest will purchase the indebtedness
of Firstgold in the sum of US$5.5 million on or about August 31, 2009, to be
secured by a fixed and floating first lien and mortgage against all of the
assets and undertaking of Firstgold and its subsidiary corporation. The purchase
price will be used by Firstgold to repay certain indebtedness.. The purchase
price paid by Northwest shall bear interest at a fixed rate of 10 per cent per
annum, calculated and payable monthly in arrears. The principal amount of the
purchase price shall be payable in 24 equal monthly installments commencing on
September 1, 2010. .

2.          Subscription. On or about September 30, 2009, and subject to
shareholder approval and regulatory approval, Northwest will subscribe for that
number of Shares from authorized but unissued Shares as is necessary to equal
51% of the issued and outstanding Shares (after giving effect to such issuance)
for cash in the amount of US$9.5 million. Firstgold acknowledges that failure of
the Subscription to close on or before September 30, 2009 shall constitute a
default under the Indebtedness Purchase Agreement entitling Northwest to
immediately accelerate repayment of all principal and unpaid interest thereon.

3.          Pre-Loan Funding . The parties confirm that on July 17, 2009,
Northwest transferred to Stikeman Keeley Spiegel Pasternack LLP, Toronto,
Canada, Barristers and Solicitors and counsel to Firstgold, as escrow agent (via
wire transfer to TD Canada Trust, TD Centre Branch, 55 King Street West,
Toronto, Canada/Swiftcode: TDOMCATTTOR/ Trust Account for Stikeman Keeley
Spiegel Pasternack LLP #0690-7372044/Branch # 10202), the sum of US$500,000 in
cash, which constituted a loan to Firstgold for immediate working capital
purposes (the “Pre-Loan Funding”) The Pre-Loan Funding was evidenced by an
unsecured promissory note providing for repayment on the same terms as
contemplated under Section 1 hereof. At the time of completion of the
Subscription, subject to regulatory approval, Northwest shall have the option to
convert the Pre-Loan Funding into Shares at the issue price per Share for the
Subscription under Section 2 hereof.

 

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4.          Purchase of Notes. Pursuant to agreements entered into on July 16,
2009 between Northwest and the Current Creditors, Northwest will acquire the
Notes for a purchase price payable, as to $500,000, by the deposit of such
amount pursuant to separate escrow agreements (each, an "Escrow Agreement")
dated July 16, 2009 between Northwest, each of the Current Creditors and the
escrow agent named therein and, as to the balance of $11,000,000, by payment to
the Current Creditors prior to September 1, 2009. The parties confirm that
Northwest paid $500,000 to the escrow agent on July 17, 2009.

Northwest and Firstgold agree to amend the terms of the Notes following the
acquisition thereof by Northwest to provide that interest on the Notes shall be
payable to Northwest at a fixed rate of 10 per cent per annum, calculated and
payable monthly in arrears commencing on September 1, 2009.

Upon completion of the Subscription, the Notes shall be deemed to have been
amended effective as of September 1, 2009 so that (a) the aggregate principal
amount of the Notes shall be reduced to US$11,500,000 as of such date and (b)
all accrued and unpaid interest on the Notes up to such date shall be deemed to
be extinguished. Any interest on the Notes paid from September 1, 2009 to
completion of the Subscription in excess of 10% interest per annum calculated
for such period on the deemed principal amount of $11,500,000 shall be refunded
by Northwest to Firstgold.

Firstgold acknowledges that it is in default of various covenants under the
Notes, including with respect to the payment of principal and interest, and that
no term of this Offer shall be construed in any way as a waiver by Northwest of
any right or remedy that will be available to it as a holder of the Notes in
respect of any covenant or future Event of Default (as defined in the Notes).

5.          Escrowed Funds Loan. In the event that a Current Creditor fails to
consummate the sale to Northwest of the Notes held by such Current Creditor in
accordance with the terms of the Note Purchase Agreement to which such Current
Creditor is a party and the escrow agent named in the Escrow Agreement to which
such Current Creditor is a party delivers to the Current Creditor the Escrowed
Funds (as defined in the applicable Escrow Agreement) or fails to return to
Northwest, in accordance with the provisions of the applicable Escrow Agreement,
the Escrowed Funds, Firstgold shall become indebted to Northwest and hereby
promises to pay to, or to the order of, Northwest, the amount of the Escrowed
Funds under the relevant Escrow Agreement in the same form, and on substantially
the same terms, as the promissory note referred to in Section 3 hereof, and
Firstgold shall promptly deliver to Northwest an executed copy of such
promissory note.

 

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6.          Pre-emptive Rights. In the event the Current Creditors exercise the
Warrants (as defined in the Note and Warrant Purchase Agreement), Northwest
shall have the right to subscribe for such additional number of Shares at the
then maximum allowable discount to the market price as is necessary to maintain
the percentage ownership of Shares held by Northwest prior to such Warrant
exercise.

7.          Conditions to Offer. This Offer is subject to (i) completion of
confirmatory due diligence by Northwest to its satisfaction; (ii) no material
breach of any provision of this Offer by Firstgold, (iii) negotiation and
execution of all agreements and documents contemplated by this Offer; and (iv)
approval of such agreements by the governing body of each party.

8.          Conditions to the Subscription. The Subscription will be subject to
customary closing conditions, including the following: (i) to the extent
required by law, affirmative vote of the shareholders of Firstgold by a special
majority of votes cast in person or by proxy at a shareholders` meeting duly
called (i.e., 66.67%) for the purpose of consolidating the outstanding Shares on
a reverse split basis and increasing the authorized share capital of Firstgold;
(ii) regulatory approvals; (iii) representations and warranties of each party
are true and correct as of signing the Indebtedness Purchase Agreement and
Subscription Agreement and at the closing of the Subscription, in all material
respects; (iv) no material breach of covenants by either party; (v) receipt of
any material third party consents with respect to Firstgold to be identified
during due diligence; and (vi) to the extent required by the Toronto Stock
Exchange, shareholder approval of the Subscription.

9.          Support Agreements. Simultaneous with the execution of the
Subscription Agreement, Firstgold shall use its best efforts to obtain a support
agreement from each director and officer of Firstgold pursuant to which such
director and officer agrees to vote his Shares in favour of the Subscription and
any other matter for which shareholder approval may be required and against all
other matters and transactions that could adversely affect or impede the
Restructuring, and will grant Northwest an irrevocable proxy to vote such Shares
in accordance with the provisions of such voting agreements.

10.        Board of Directors Approval. The Board of Directors of Firstgold (the
"Board") has unanimously approved this Offer. Furthermore, upon completion of
final documentation consistent with the terms of this Offer the Board will
approve and adopt the Restructuring, the Indebtedness Purchase Agreement and the
Subscription Agreement and will unanimously recommend the Subscription and that
Firstgold’s shareholders vote in favour of the

 

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Subscription at a special meeting of shareholders, and will not change its
recommendation in respect thereof.

11.        Firstgold Shareholder Approval. Firstgold will take all actions
required to give notice of and hold a special shareholders meeting to approve
all matters requiring shareholder approval as promptly as practicable following
the execution of the Subscription Agreement.

12.        Composition of Board of Directors; Management. Upon completion of the
Subscription, as described in paragraph 2, the Board will appoint three
directors designated by Northwest, with the remaining three directors being
nominees of management, and the continuing officers of Firstgold will be Sun
Feng, Chairman, Terry Lynch, Chief Executive Officer, and Jim Kluber, Chief
Financial Officer. In the event of a deadlock in any decision requiring the
approval of the Board, the Chairman shall have a casting vote. No severance or
other termination payments will be owing to the directors of Firstgold in
connection with any of their resignations, other than amounts owing for or
director fees.

13.        Closing. Northwest anticipates executing the Indebtedness Purchase
Agreement and the Subscription Agreement within thirty (30) days of acceptance
of this Offer, and completion of the Subscription as promptly as practicable,
which is expected to be no more than thirty (30) days thereafter.

14.        Other Required Approvals and Consents. No third party lender or
creditor consents or authorizations are expected to be required to be obtained
by Firstgold in order to consummate the Restructuring.

15.       Business Covenants. [*] Redacted and omitted pursuant to a request for
confidential treatment.

16.       Due Diligence and Confidentiality. Firstgold will provide such
information as to its legal affairs and financial condition as may reasonably be
requested by Northwest, and Firstgold (including its officers, directors,
employees, affiliates, agents and its professional advisors) will provide all
reasonable assistance and information to Northwest and its advisors as necessary
for Northwest to complete its due diligence reviews as quickly and efficiently
as possible. The parties, including their respective officers, directors,
accountants, lawyers, agents and other representatives, acknowledge that all
verbal and written information provided to either party in furtherance of the
execution of this Offer and the terms of this Offer are subject to the terms and
conditions of that certain Confidentiality Agreement executed in June 2009,
between Northwest and Firstgold (the “Confidentiality Agreement”).

 

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17.       Preparation of Documents. Northwest's legal counsel will prepare
initial drafts of the Indebtedness Purchase Agreement and the Subscription
Agreement. Firstgold's legal counsel shall prepare initial drafts of all
Firstgold shareholder approval documents (including, without limitation, a
Proxy, Proxy Statement, and Notice of Meeting prepared in accordance with
applicable law and the policies of the U.S. Securities and Exchange Commission
and the Toronto Stock Exchange). To the extent required by either party to
fulfill its obligations in this section, the other party will use its best
efforts to provide such financial and other company information as required by
the party responsible for preparing the document.

18.       Public Announcement. All press releases and public announcements
relating to the Restructuring will be agreed to and prepared jointly by
Northwest and Firstgold subject to applicable law and listing requirements. The
parties will issue a joint press release upon Northwest entering a binding
agreement with the Current Creditors to acquire the Notes.

19.       Governing Law. The interpretation of this Offer, the Indebtedness
Purchase Agreement and the Subscription Agreement will be governed by Nevada law
and the laws of the United States of America applicable therein without
reference to the conflict of laws provisions thereof.

20.       Specific Performance. The parties agree that irreparable damage would
occur in the event any provision of this Offer was not performed in accordance
with the terms thereof and that, prior to the termination of this Offer pursuant
to its terms, the parties will be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.

21.       Representations. The parties each represent and warrant that they have
the corporate power and authority to enter into this Offer and that the
execution and delivery of this Offer does not, (i) conflict with any provision
of such party’s constating documents as currently in effect, (ii) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under any contract or agreement of such party not otherwise
being terminated pursuant to the Restructuring, or (iii) to each party’s
knowledge, violate any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to such party.

22.       Additional Representations. Firstgold represents and warrants to
Northwest that (i) the Transaction Documents (as defined in the Note and Warrant
Purchase Agreement), other than the Off-Take Agreement (as defined in the Note
and Warrant Purchase Agreement), constitute all the material documents entered
into between Firstgold and the Current Creditors in connection with the Note and
Warrant Purchase Agreement, and (ii) Firstgold has not entered

 

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into the Off-Take Agreement with the Current Creditors.

23.       Expenses. Each party will be responsible to pay all of its expenses,
including the fees of their respective advisors and consultants, incurred in
connection with the negotiation and preparation of this Offer, the Indebtedness
Purchase Agreement, Subscription Agreement and ancillary agreements thereto and
any due diligence investigations conducted by Northwest in connection with the
Restructuring.

Upon this letter being signed by Northwest and Firstgold on the date set forth
herein, the previous Binding Offer Letter of July 16, 2009 shall be superseded.

If you are in agreement with the terms of this Offer, please signify such
agreement by executing and returning a copy of this Offer to counsel for
Northwest.

 

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Sincerely,

  NORTHWEST NON-FERROUS
INTERNATIONAL INVESTMENT COMPANY
LIMITED       By:      

Accepted and agreed on August ___, 2009:

 

  FIRSTGOLD CORP.       By:      

 

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