Document:

ex10-5.htm

Exhibit 10.5

 

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ENSURGE, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

ENSURGE, INC.

WARRANT TO PURCHASE SHARES OF COMMON STOCK

1.           Issuance. In consideration of good and valuable consideration as set forth in the Purchase Agreement (defined below), including without limitation the Purchase Price, the receipt and sufficiency of which is hereby acknowledged by EnSurge, Inc., a Nevada corporation (the “Company”), St. George Investments, LLC, an Illinois limited liability company, its successors or registered assigns (the “Holder”), is hereby granted the right to purchase at any time on or after the Issue Date (as defined below) until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), the number of fully paid and nonassessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), equal to the outstanding balance of that certain Secured Convertible Promissory Note issued to the Holder pursuant to the Purchase Agreement (the “Note”) as of its issue date divided by the Exercise Price (defined below), as such number may be adjusted pursuant to the terms and conditions of this Warrant. This Warrant to Purchase Shares of Common Stock (this “Warrant”) is being issued pursuant to the terms of that certain Securities Purchase Agreement of even date herewith (the “Purchase Agreement”), to which the Company and the Holder (or the Holder’s predecessor in interest) are parties.

Unless otherwise indicated herein, capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement.

This Warrant was originally issued to the Holder or the Holder’s predecessor in interest on August 17, 2011 (the “Issue Date”).

2.           Exercise of Warrant.

2.1           General.

(a) This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Issue Date and ending on the Expiration Date. Such exercise shall be effectuated by submitting to the Company (either by delivery to the Company or by email or facsimile transmission) a completed and duly executed Notice of Exercise substantially in the form attached to this Warrant as Exhibit A. The date such Notice of Exercise is either faxed, emailed or delivered to the Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of the Warrant, the Holder shall tender this Warrant to the Company within five (5) Trading Days thereafter. The Notice of Exercise shall be executed by the Holder and shall indicate (i) the number of Delivery Shares to be issued pursuant to such exercise and (ii) if applicable (as provided below), whether the exercise is a cashless exercise.

  

1

  

For purposes of this Warrant, the term “Trading Day” means any day during which the principal market on which the Common Stock is traded (the “Principal Market”) shall be open for business.

(b) Notwithstanding any other provision contained herein or in any other Transaction Document to the contrary, at any time prior to the Expiration Date, the Holder may elect a “cashless” exercise of this Warrant for any Warrant Shares whereby the Holder shall be entitled to receive a number of shares of Common Stock equal to (x) the excess of the Current Market Value (as defined below) over the aggregate Exercise Price of the Exercise Shares, divided by (y) the Adjusted Price of the Common Stock (as defined below).

For the purposes of this Warrant, the following terms shall have the following meanings:

“Adjusted Price of the Common Stock” shall mean the Conversion Price, as defined in the Note, without regard to whether such Note remains outstanding or has been fully repaid, cancelled or otherwise retired on any relevant Exercise Date, and as such Conversion Price may be adjusted pursuant to the terms of such Note.

“Current Market Value” shall mean an amount equal to the Market Price of the Common Stock, multiplied by the number of Exercise Shares specified in the applicable Notice of Exercise.

“Closing Price” shall mean the last sale price of the Common Stock on the Principal Market on the most recent Trading Day where total trading volume exceeded $5,000.00, as reported by Bloomberg LP (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by the Holder and reasonably acceptable to the Company) (“Bloomberg”) for the relevant date.

“Delivery Shares” means those shares of Common Stock issuable and deliverable upon the exercise of this Warrant.

“Exercise Price” shall mean $1.00 per share of Common Stock.

“Exercise Shares” shall mean those Warrant Shares subject to an exercise of the Warrant by the Holder.  By way of illustration only and without limiting the foregoing, if (a) the Warrant is initially exercisable for 280,500 Warrant Shares and the Holder has not previously exercised the Warrant, and (b) the Holder were to make a cashless exercise with respect to 5,000 Warrant Shares pursuant to which 6,000 Warrant Shares would be issuable to the Holder, then (1) the Warrant shall be deemed to have been exercised with respect to 5,000 Exercise Shares, (2) the Warrant would remain exercisable for 275,500 Warrant Shares, and (3) the Warrant shall be deemed to have been exercised with respect to 6,000 Delivery Shares.

  

2

  

“Market Price of the Common Stock” shall mean the higher of: (i) the Closing Price of the Common Stock on the Issue Date; or (ii) the VWAP of the Common Stock for the Trading Day that is two (2) Trading Days prior to the Exercise Date.

“VWAP” shall mean the volume-weighted average price of the Common Stock on the Principal Market for a particular Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.

(c) If the Notice of Exercise form elects a “cash” exercise (or if the cashless exercise referred to in the immediately preceding subsection (b) is not available in accordance with the terms hereof), the Exercise Price per share of Common Stock for the Delivery Shares shall be payable, at the election of the Holder, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by the Company at the request of the Holder.

(d) Upon the appropriate payment to the Company, if any, of the Exercise Price for the Delivery Shares, together with the surrender of this Warrant (if required), the Company shall immediately deliver the applicable Delivery Shares electronically via Deposit/Withdrawal at Custodian (“DWAC”) to the account designated by the Holder on the Notice of Exercise.  If for any reason the Company is not able to deliver the Delivery Shares via DWAC, notwithstanding its best efforts to do so, the Company shall deliver certificates representing the Delivery Shares to the Holder as provided in the Notice of Exercise (the certificates delivered in such manner, the “Delivery Share Certificates”) within three (3) Trading Days (such third Trading Day, a “Delivery Date”) of (i) with respect to a “cashless exercise,” the Exercise Date as the case may be, or, (ii) with respect to a “cash” exercise, the later of the Exercise Date or the date the payment of the Exercise Price for the relevant Delivery Shares is received by the Company.

(e) The Company understands that a delay in the electronic delivery of Delivery Shares or the delivery of the Delivery Share Certificates, as the case may be, beyond the Delivery Date (assuming electronic delivery is not available) could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay, in addition to all other penalties and fees set forth in the Transaction Documents, late payment fees (as liquidated damages and not as a penalty) to the Holder for late delivery of Delivery Shares or Delivery Share Certificates, as applicable, equal to 1.5% of the Delivery Share Value (as defined below) per day until such Delivery Shares or Delivery Share Certificates are delivered. For purposes hereof, the term “Delivery Share Value” means the number of Delivery Shares to be delivered pursuant to an applicable Notice of Exercise multiplied by the VWAP of the Common Stock on the applicable Delivery Date set forth in the Notice of Exercise. The Company shall pay any payments incurred under this subsection in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Delivery Shares or the Delivery Share Certificates, as applicable, by the Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

  

3

  

(f) The Holder shall be deemed to be the holder of the Delivery Shares issuable to it in accordance with the provisions of this Section 2.1 on the Exercise Date.

2.2             Ownership Limitation. Notwithstanding the provisions of this Warrant, if at any time after the date hereof, the Holder shall or would receive shares of Common Stock upon exercise of this Warrant, so that the Holder would, together with other shares of Common Stock held by it or its Affiliates, hold by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “9.99% Cap”), the Company shall not be obligated and shall not issue to the Holder shares of Common Stock which would exceed the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be exceeded by any such receipt of shares of Common Stock by the Holder. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Holder.

3.           Mutilation or Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver to the Holder a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.

4.           Rights of the Holder. The Holder shall not, by virtue of this Warrant alone, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.

5.           Protection Against Dilution and Other Adjustments.

5.1           Capital Adjustments.  If the Company shall at any time prior to the expiration of this Warrant subdivide the Common Stock, by split-up or stock split, or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock as a dividend, the number of Warrant Shares issuable on the exercise of this Warrant shall forthwith be automatically increased proportionately in the case of a subdivision, split or stock dividend, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the Exercise Price, Conversion Price (in the event of a cashless exercise), and other applicable amounts, but the aggregate purchase price payable for the total number of Warrant Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 5.1 shall become effective automatically at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

  

4

  

5.2           Reclassification, Reorganization and Consolidation.  In case of any reclassification, capital reorganization, or change in the capital stock of the Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 5.1 above), then the Company shall make appropriate provision so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization, or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization, or change.  In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per Warrant Share payable hereunder, provided the aggregate purchase price shall remain the same.

5.3           Subsequent Equity Sales. If the Company or any subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition of), including any issuance of Common Stock upon conversions pursuant to the Note,  any Common Stock, preferred shares convertible into Common Stock, or debt, warrants, options or other instruments or securities which are convertible into or exercisable for shares of Common Stock (together herein referred to as “Equity Securities”), at an effective price per share less than the Exercise Price (such lower price, the “Base Share Price” and such issuance collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options, or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), including any issuance of Common Stock upon conversions pursuant to the Note, then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price payable prior to such adjustment (such adjusted number of Warrant Shares issuable hereunder, the “Adjusted Warrant Shares”). Such adjustment shall be made whenever such Common Stock or Equity Securities are issued. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Equity Securities subject to this Section 5.3, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5.3, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive the Adjusted Warrant Shares at an Exercise Price equal to the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

  

5

  

5.4           Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, pursuant to the terms hereof, the Company shall promptly notify the Holder of such event and of the number of Warrant Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

5.5           Exceptions to Adjustment.  Notwithstanding the provisions of Sections 5.3 and 5.4, no adjustment to the Exercise Price shall be effected as a result of an Excepted Issuance.  “Excepted Issuances” shall mean, collectively, (i) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and in which holders of such securities or debt are not at any time granted registration rights, and (ii) the Company’s issuance of Common Stock or the issuance or grant of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans or agreements which are constituted or in effect on the Issue Date.

6.           Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock issuable on the exercise of this Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder and any Warrant Agent (as defined below) appointed pursuant to Section 8 hereof.

7.           Transfer to Comply with the Securities Act. This Warrant, and the Warrant Shares, have not been registered under the 1933 Act. Neither this Warrant nor any of the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may be sold, transferred, pledged or hypothecated without (a) an effective registration statement under the 1933 Act relating to such security or (b) an opinion of counsel reasonably satisfactory to the Company that registration is not required under the 1933 Act. Until such time as registration has occurred under the 1933 Act, each certificate for this Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant shall contain a legend, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section 7. Any such transfer shall be accompanied by a transferor assignment substantially in the form attached to this Warrant as Exhibit B (the “Transferor Assignment”), executed by the transferor and the transferee and submitted to the Company. Upon receipt of the duly executed Transferor Assignment, the Company shall register the transferee thereon as the new Holder on the books and records of the Company and such transferee shall be deemed a “registered holder” or “registered assign” for all purposes hereunder, and shall have all the rights of the Holder.

  

6

  

8.           Warrant Agent. The Company may, by written notice to the Holder, appoint an agent (a “Warrant Agent”) for the purpose of issuing shares of Common Stock on the exercise of this Warrant pursuant hereto, exchanging this Warrant pursuant hereto, and replacing this Warrant pursuant hereto, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.

9.           Transfer on the Company’s Books. Until this Warrant is transferred on the books of the Company, the Company may treat the Holder as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

10.           Notices.  Any notice required or permitted hereunder shall be given in the manner provided in the subsection headed “Notices” in the Purchase Agreement, the terms of which are incorporated herein by reference.

11.           Supplements and Amendments; Whole Agreement.   This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant, together with the Purchase Agreement and all the other Transaction Documents, taken together, contains the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings other than expressly contained herein and therein.

12.           Governing Law.  This Warrant shall be governed by, and construed in accordance with, the laws of the State of Utah, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Holder, each irrevocably submits to the exclusive personal jurisdiction of the courts of the State of Utah located in Salt Lake County and the United States District Court for the District of Utah for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court.  The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

  

7

  

13.           Remedies. The remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and, without limiting any other remedies available to the Holder, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

14.           Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Signature delivered via facsimile or email shall be considered original signatures for purposes hereof.

15.           Descriptive Headings.  Descriptive headings of the sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

[Remainder of page intentionally left blank]

 

 

 

  

8

  

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by an officer thereunto duly authorized.

Dated: August 17, 2011

	  	
ENSURGE, INC.

	  	  
	  	  
	  	
By: _/s/ Jordan Mark Estra           

	  	  
	  	
  Jordan M. Estra                 

	  	
(Print Name)

	  	  
	  	
_President & Chief Executive Officer_

	  	
(Title)

[Signature page to Warrant]

  

 

  

EXHIBIT A

NOTICE OF EXERCISE OF WARRANT

TO:           ENSURGE, INC.

ATTN: _______________

VIA FAX TO: (    )______________

The undersigned hereby irrevocably elects to exercise the right, represented by the Warrant to Purchase Shares of Common Stock dated as of August 17, 2011 (the “Warrant”), to purchase   shares of the common stock, $0.001 par value (“Common Stock”), of ENSURGE, INC., and tenders herewith payment in accordance with Section 2 of the Warrant, as follows:

	
_______

	
CASH: $__________________________ = (Exercise Price x Delivery Shares)

	  	  	  	  	  
	
_______

	
Payment is being made by:

	  	
_____

	
enclosed check

	  	  
	  	
_____

	
wire transfer

	  	  
	  	
_____

	
other

	  	  
	  	  	  	  	  
	
_______

	
CASHLESS EXERCISE:

	  	  	  	  	  
	  	
Net number of Delivery Shares to be issued to Holder: ______*

	  	  	  	  	  
	  	
* based on:

	
Current Market Value - (Exercise Price x Exercise Shares)

	  	  	
Adjusted Price of Common Stock

	  	  	  	  	  
	  	
Where:

	  	  	  
	  	
Market Price of Common Stock [“MP”]

	
=

	
$____________

	  	
 Exercise Shares

	
=

	
_____________

	  	
Current Market Value [MP x Exercise Shares]

	
=

	
$____________

	  	
Exercise Price

	
=

	
$____________

	  	
Adjusted Price of Common Stock

	
=

	
$____________

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Warrant.

  

It is the intention of the Holder to comply with the provisions of Section 2.2 of the Warrant regarding certain limits on the Holder’s right to exercise thereunder. The Holder believes this exercise complies with the provisions of such Section 2.2. Nonetheless, to the extent that, pursuant to the exercise effected hereby, the Holder would have more shares of Common Stock than permitted under Section 2.2, this notice should be amended and revised, ab initio, to refer to the exercise which would result in the issuance of the maximum number of such shares permitted under such provision. Any exercise above such amount is hereby deemed void and revoked.

  

 

  

As contemplated by the Warrant, this Notice of Exercise is being sent by facsimile to the fax number and officer indicated above.

If this Notice of Exercise represents the full exercise of the outstanding balance of the Warrant, the Holder either (1) has previously surrendered the Warrant to the Company or (2) will surrender (or cause to be surrendered) the Warrant to the Company at the address indicated above by express courier within five (5) Trading Days after delivery or email or facsimile transmission of this Notice of Exercise.

The certificates representing the Delivery Shares should be transmitted by the Company to the Holder

_______ via express courier, or

_______ by electronic transfer

after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

Dated:           _____________________

___________________________

[Name of Holder]

By:________________________

  

 

  

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of the Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the Warrant to Purchase Shares of Common Stock dated as of August 17, 2011 (the “Warrant”) to purchase the percentage and number of shares of common stock, $0.001 par value (“Common Stock”), of ENSURGE, INC. specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person attorney to transfer the undersigned’s respective right on the books of ENSURGE, INC. with full power of substitution in the premises.

Transferees                                           Percentage Transferred                                            Number Transferred

Dated:___________, ______

	  	
______________________________

	  	
[Transferor Name must conform to the name of

	  	
Holder as specified on the face of the Warrant]

	  	  
	  	
By: ___________________________

	  	
Name: _________________________

Signed in the presence of:

_________________________

(Name)

ACCEPTED AND AGREED:

_________________________

[TRANSFEREE]

By: _______________________

Name: _____________________ex101.htm

 

EXHIBIT 10.1

MINING ASSET PURCHASE 

 

AND 

 

STRATEGIC ALLIANCE AGREEMENT

 

THIS MINING ASSET PURCHASE AND STRATEGIC ALLIANCE AGREEMENT (“Agreement”), is made, deemed effective and entered into this 1st day of June, 2011, by and between SALA VALC S.A.C., a Peruvian corporation, with offices at: Ave Javier Prado Oeste No. 865, Departmento 602, San Isidro, Lima Peru (“SV”) and GOLDEN PHOENIX MINERALS, INC., a Nevada corporation with offices at: 1675 East Prater Way, Suite 102, Sparks, Nevada 89434 (“GPM”).

 

RECITALS

 

A.           The parties previously entered into that certain binding Term Sheet and Memorandum of Understanding dated October 4, 2010 (the “MOU”) with respect to their intent to acquire certain mining assets and properties, to formalize a strategic alliance in order to work cooperatively to develop certain defined properties, and to identify, acquire and develop additional mining opportunities in the future within Central and South America.

 

B.           SV owns or controls certain rights, titles and interests (subject to the rights and titles of the government of Peru), free and clear of all liens and encumbrances (except those of record on the date hereof as set forth in Schedules “A” and “B” attached hereto and incorporated herein by reference), in and to five (5) certain mining interests and/or groups of mining concessions, as applicable, including rights to use a processing plant and a tungsten and molybdenum stock pile (the “Porvenir Production Property”), as well as those certain exploration properties, including the Porvenir tungsten molybdenum exploration property, the Alicia gold exploration property and other related rights, situated in the Puno region of southern Peru, together with two concession groups situated in the La Libertad district in northern Peru, known as the Group of the 8 and Tornitos (collectively referred to as the “Exploration Properties”), all as more particularly described in Schedule “A” (the Porvenir Production Property and Exploration Properties may be collectively referred to herein as the “Property”).

 

C.           On or prior to Closing (as defined herein), SV shall cause its affiliate, Salwell International, Inc. (“Salwell”) to transfer all of its ownership interest in Molyco, LLC, a Nevada limited liability company (“Molyco”), which owns or controls approximately 30,000 tons of the tungsten molybdenum stockpile comprising a portion of the Porvenir Production Property to GPM to be held jointly as provided herein.

 

D.           The parties now desire to formalize the terms and conditions under which they will form a strategic alliance.  Further, SV and GPM each desire to sell, assign and transfer, by Quit Claim Deed, pursuant to the mining laws of Peru, any and all of their respective rights, titles and interests in and to the the Peruvian Production Property and Exploration Properties, as applicable, to a Peruvian entity or entities formed for the purpose of owning and operating the Property and all other potential acquisitions of the strategic alliance, upon the terms and conditions hereinafter set forth.

 

  

1

  

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, and other good and valuable consideration, receipt of which is hereby acknowledged, it is agreed by the parties as follows:

 

AGREEMENT

 

1.           STRATEGIC ALLIANCE.

 

(a)           Formation of Holding Company.  SV and GPM hereby agree to form a strategic alliance (the “Alliance”) for the purpose of jointly owning, exploring, operating and acquiring certain mineral rights and properties, including the Property, within Central and South America.  In furtherance of the Alliance, upon the Closing of this Agreement, as defined below in Section 4, GPM shall form a Peruvian holding company (“HoldCo”) for purposes of owning, operating and managing the assets and properties held by the Alliance.  The initial ownership interest in HoldCo shall be:  80% GPM and 20% SV.  Each individual project, mining interest, property or asset contributed, purchased, transferred or otherwise acquired by the Alliance, will be held in separate subsidiary Peruvian entities controlled by HoldCo or held by entities owned or controlled by GPM and SV with the same 80/20 ownership structure as HoldCo, as the parties may deem necessary or convenient (each such subsidiary or newly formed entity referred to herein as an “Alliance Sub”).

 

(b)           Management.  HoldCo and each Alliance Sub formed in furtherance of the Alliance shall be managed by a board of directors, management committee or similar management structure as appropriate for the corporate entity selected and organized under Peruvian law (referred to herein as the “Board”), consisting of five (5) individual directors (“Directors”): three (3) appointed by GPM (the “GPM Directors”) and two (2) appointed by SV (the “SV Directors”).  The Directors shall, by majority vote, have full, exclusive and complete power and discretion to make all decisions and to do all things which the Directors deem necessary or desirable to carry out the business of HoldCo and each Alliance Sub.  The initial five (5) Directors shall be as follows: Donald Gunn, Thomas Klein and Hans Rasmussen (GPM Directors) and David A. Caldwell and Roberto Salaverria (SV Directors).  The compensation of Directors, if any, may be set from time to time by the Board, upon approval by the board of directors of the party holding at least a majority interest in HoldCo or the applicable Alliance Sub.  Rules governing the function and selection of the Board shall be made at the election of the Board, subject to the corporate laws of Peru.

 

(c)           Operations.

 

(i)           Operator.  GPM shall serve as the operator (“Operator”) with respect to the Property, and agrees, in its sole discretion as to determination of the means and timing, to explore the Property for minerals and to do all things necessary in the judgment of GPM, (subject to the terms and conditions of this Agreement) to acquire all mineral information necessary to determine whether the various properties included in the Property can be developed into a productive mining operation. GPM’s decision to explore and, if deemed economically feasible and advisable, put any of the various properties included in the Property into operation hereunder, or into a joint venture or for sale as set forth in Subsections 3(g) and 3(h) below, shall be solely within the discretion of GPM, with no ability of SV to conduct, or allow third parties to conduct, exploration, development or production activities or otherwise deplete the resources constituting a part of the Property, outside of the Alliance.  GPM shall conduct its operations in accordance with reasonable industry standards for properties in Peru.  To the extent SV oversees operations on the Property, such oversight shall be done at the reasonable request of GPM, shall be conducted in accordance with such reasonable industry standards in Peru as well as such minimum standards of quality as mutually agreed upon by the parties and SV shall report to GPM, providing all such information as reasonably requested.

 

  

2

  

 

(ii)           Funding.  GPM shall be solely responsible for providing all monies to conduct Operations on the Property, or any portion(s) thereof, all in amounts it deems necessary and appropriate.  Each Alliance Sub will be treated as a standalone business entity and GPM shall be entitled to recover any and all of its operational expenditures related to a specific Alliance Sub before the payment of any distribution of “Net Profits” hereunder from that Alliance Sub.  “Net Profits” as that term is used in connection with an Alliance Sub shall be determined in accordance with generally accepted accounting principles in Peru and shall be net of any operating reserves established by the Board as necessary or appropriate.  In any case, there will be a minimum pro-rata distribution of Net Profits equal to the highest corporate tax burden between GPM and SV during the recovery of GPM’s operational expenditures and establishment of the operating reserve.  If, as a result of the activities of any Alliance Sub or HoldCo, SV incurs a tax liability in excess of distributions, GPM agrees to make those excess payments on SV’s behalf, such payments to be reimbursed to GPM out of such Alliance Sub’s business account prior to any distribution of Net Profits.  Ultimately, 100% of all Net Profits will be distributed to the owners on a regular basis.  GPM shall furnish SV, with each payment of Net Profits, a written statement/accounting explaining the basis for calculating all Net Profits.  The aggregate sum of $68,533.66, mutually acknowledged as previously expended on the Property by GPM and/or its affiliates and related parties as of the date of this Agreement, as set forth in Schedule “C”, shall be deemed an operational expense in determination of Net Profits hereunder.  GPM’s expenditures to acquire Molyco LLC and its ownership rights in the Exploration Properties are excluded from these operational expenditures.  Any and all monies expended by GPM, its affiliates or related parties to acquire other properties and/or mining rights for the benefit of the Alliance shall be treated as operational expenses.

 

Upon the establishment of “Commercial Production” (as defined below) SV will no longer maintain a carried interest and shall contribute to the applicable Alliance Sub with respect to capital calls in accordance with its percent ownership interest or else suffer dilution according to the governing documents of each Alliance Sub, previously agreed by the parties to mirror that certain joint venture operating agreement by and between GPM and Scorpio Gold (US) Corp., as filed with the U.S. Securities and Exchange Commission.  For purposes of this Agreement and the governing documents of each Alliance Sub, “Commercial Production” shall be defined as four (4) consecutive months of Net Profits eligible for distribution.  Once the preferential payback of GPM’s operational expenditures is complete in each Alliance Sub, that Alliance Sub will distribute Net Profits to the owners either directly or through HoldCo.  To the extent possible HoldCo will be structured as a flow-through entity for purposes of allocations and distributions of profits and losses.  All expenses not directly incurred or previously authorized by GPM for the benefit of the Alliance from October 4, 2010 through the date of this Agreement, to the extent payment is requested by SV, such expenses are to be evidenced by receipts, which GPM shall at its sole discretion, review, validate and approve for payment, such approval not to be unreasonably withheld.  The parties have agreed that GPM shall make payment on at least fifty percent (50%) of such outstanding invoices (boletas) as previously validated and approved by GPM on or before June 10, 2011, with the balance of such approved invoices to be paid on or before June 17, 2011.

 

  

3

  

2.           PORVENIR PRODUCTION PROPERTY.

 

(a)           Contribution of Interests.  Upon Closing, each of GPM and SV shall unconditionally sell, transfer, assign and convey to an Alliance Sub formed for the purpose of owning and operating the Peruvian Production Property (hereinafter referred to as “Porvenir ProductionCo”) on the terms and conditions herein, all of their respective rights, titles and interest in and to the Porvenir Production Property for such consideration as set forth in Section 2(b) below.  SV shall also have provided to GPM, all information and disclosures set forth on Schedule “B” attached hereto and incorporated herein by reference (“Mining Disclosure Requirements”).  For purposes herein, the Porvenir Production Property consists of those certain piles of material stacked in various piles on the Porvenir exploration property (collectively, the “Stockpile”), which have been previously mined from the earth and are now deemed personal property under applicable mining laws in Peru, and is separate and distinct from the Porvenir mining concession.

 

(b)           Consideration.

 

(i)           GPM Consideration.  In consideration for an 80% interest in Porvenir ProductionCo, GPM shall: (A) contribute all of its right, title and interest in and to Molyco to Porvenir ProductionCo; (B) make a cash payment to SV in the aggregate amount of US $750,000, (less those amounts previously paid by GPM to SV as of the date of this Agreement, such sums totaling $400,000, as further detailed in the schedule of GPM payments set forth in Schedule “C” (Table 1, Rows 2 and 3) attached hereto and incorporated herein by reference) pursuant to the payment schedule agreed to by the parties, namely, GPM shall make seven (7) cash payments of US $50,000 per month commencing on the first of the month following the date of this Agreement, June 1, 2011, and continuing on the first of each month thereafter with a final payment on December 1, 2011  (the “Cash Payment”); and (C) issue SV such number of restricted shares of GPM common stock equal to $500,000 based on a per share price equal to the 10-day trailing VWAP beginning from the closing price of the GPM stock as quoted by the OTC Bulletin Board on the date of the MOU (the “GPM Shares”), such issuance subject to certain restrictions, namely the GPM Shares shall be held in an escrow account and released upon successful completion of certain events as follows:  (1) 20% of the GPM Shares will be released from escrow upon evidence of transfer of title to Alicia concessions free of liens or encumbrances to the Alliance entity’s name; (2) 20% shall be released upon evidence of transfer of title to Porvenir exploration property free of liens or encumbrances to the Alliance entity’s name; (3) 20% shall be released upon evidence of transfer of title to the Tornitos concessions free of liens or encumbrances to the Alliance entity’s name; (4) 20% shall be released upon evidence of transfer of title to the Group of the 8 concessions free of liens or encumbrances to the Alliance entity’s name; and (5) the final 20% shall be released upon full and complete repayment of GPM’s operational expenditures on the Porvenir Production Property, except in the event GPM decides in its sole discretion not to proceed with production at the Porvenir Production Property, in which event, the final 20% will be released upon the expiration of the Guaranty Period as set forth in Section 16.

 

GPM may prepay all or any portion of the Cash Payment at any time during the 18-month period commencing from the date of the MOU.

 

(ii)           SV Consideration.  In consideration for a 20% interest in Porvenir ProductionCo, SV shall contribute all of its right, title and interest in and to the Porvenir Production Property, subject to the limitations of its Representations and Warranties outlined in Section 12, including, but not limited to, a 100% interest in those six (6) surface leases constituting all requisite surface rights to the Porvenir Property, as set forth in Schedule “A”, a full and complete assignment of the right to use that certain processing plant (referred to herein as the “Angulo Plant”) for a period of at least two (2) years commencing October 21, 2010 as set forth in that certain plant participation agreement described in Schedule “A” attached hereto, as well as use its best commercially reasonable efforts to cause its affiliate, Salwell, to execute such agreements and documents as may be necessary to effect the transfer of all of its ownership interest in Molyco to GPM for the consideration set forth in this Section 2(b) such that the parties may contribute all such interest necessary for Porvenir ProductionCo to own the Stockpile further described at Schedule “A” attached hereto.

 

  

4

  

 

(c)           Title.  Title to the Porvenir Production Property shall be held in the name of Porvenir ProductionCo.

 

3.           EXPLORATION PROPERTIES.

 

(a)           Purchase and Sale of Exploration Properties.  In consideration for the cash payment to SV of $300,000, acknowledged by the parties as previously paid as set forth in Schedule “C”, and subject to the Work Commitment provided for in Section 3(c) below, SV hereby unconditionally sells, assigns, transfers and conveys to GPM, an 80% interest in all of its right, title and interest in and to the Exploration Properties.  GPM further commits to completing the purchase of Group of the 8 through the payment of the remaining $30,000 pursuant to a payment schedule to be agreed upon prior to Closing by the Alliance and the parties thereto with a minimum payment of $15,000 as soon as reasonably practicable following the date of this Agreement, pursuant to that certain acquisition agreement between SV and the prior owners thereof as set forth in Schedules “A” and “B” attached hereto.  Such amounts shall, in the aggregate, be deemed operational expenses as set forth in Section 1(c) above.

 

(b)           Contribution of Interests.  As of the Closing, each of GPM and SV agree to contribute their respective right, title and interest in and to the Exploration Properties into such Alliance Sub formed for each property and project within the Exploration Properties, in exchange for an 80% and 20% ownership interest in each Alliance Sub, respectively.

 

(c)           Work Commitment and Maintenance of Exploration Properties.

 

(i)           Minimum Work Commitment.  GPM commits to expend, within 18 months of the date of the MOU, or March 4, 2012 (the “Work Commitment Deadline”), a minimum aggregate amount of US $500,000 (the “Work Commitment”) in exploration, development and/or production work on the Exploration Properties, as, where and when it deems appropriate, of which amount the parties acknowledge $106,745.68 has been satisfied as of the date of this Agreement, as further set forth in Schedule “C.”  Except as specified herein, GPM shall not be required to expend any other monies on the Exploration Properties, except such monies that GPM deems advisable, in its sole discretion, to expend.  In the event GPM does not fulfill, in the aggregate, the minimum Work Commitment on or before the Work Commitment Deadline unless such deficiency is the result of circumstances beyond its reasonable control, including, but not limited to a force majeure event as set forth in Section 19, then at least thirty (30) days prior to the Work Commitment Deadline, GPM shall notify SV of its election to: (A) forfeit its ownership interest in the Exploration Properties; or (B) make a lump sum cash payment to SV in the amount of the shortfall in fulfilling the Work Commitment.

 

  

5

  

 

(ii)           Maintenance; Good Standing.  Additionally, the Board of each Alliance Sub shall create a Program and Budget as set forth in Section 1(c) above, which shall include a minimum annual work commitment necessary to advance each project so as to at least maintain the mining claims in good standing and such reasonable advancement of the Property or any individual property maintained by the Alliance as the Board may determine in its sole discretion.  Commencing in the 2012 rental year, the Operator shall pay the annual rental payments, consisting of validity fees and production penalties, to the extent applicable, on the concessions in aggregate on or before May 1 of each rental year (the “Rental Year”), such payments to come out of the business account of the applicable Alliance Sub, and to promptly provide SV with proof of such payment.  On signing, GPM shall, at minimum, pay the validity fees and production penalties for the 2010 Rental Year, such payments totaling approximately $14,945 (for all concessions comprising the Property, exclusive of filing fees), of which $4,931 shall be paid by SV and $9,864 shall be paid by GPM.  On or before Closing, GPM will pay all fees and penalties due for the Property for the 2011 Rental Year, all such fees and penalties to be deemed an operational expense under Section 1(c).

 

(d)           SV Expenditures to date.  Upon mutual agreement of the parties as to historical payments made by SV for the benefit of the Alliance from and after April 29, 2010 through the date of the MOU, October 4, 2010, with a reimbursement schedule to be agreed upon prior to Closing, GPM will reimburse SV therefor, such expenses to be evidenced by receipts, which GPM shall at its sole discretion review, validate and approve, such approval not to be unreasonably withheld.

 

(e)           Area of Interest.

 

(i)           General.  The parties agree that an area of interest encompassing two (2) kilometers surrounding each mining concession comprising the Exploration Properties will be established (the “AOI”).  Each individual Alliance Sub shall have a right of first offer to acquire any opportunities or interests identified by either party within their respective AOI’s.   Any interest or right to acquire any interest in real property or water or mineral or royalty rights related thereto within an AOI either acquired or proposed to be acquired during the term of this Agreement by or on behalf of either party hereto (the “Acquiring Party”) shall be subject to the terms and provisions of this Agreement and the applicable Alliance Sub governing documents.  SV and GPM and their respective affiliates for their separate account shall be free to acquire lands and interests in lands outside the AOI and to locate mining claims outside the AOI.  Failure of any affiliate of either party to comply with this Section shall be a breach by such party of this Agreement.

 

(ii)           Notice to Non-Acquiring Party. Within five (5) days after the acquisition or proposed acquisition, as the case may be, of any interest or the right to acquire any interest in real property or water or mineral or royalty rights wholly or partially within an AOI, the Acquiring Party shall notify the other party of such acquisition by it or its affiliate. The Acquiring Party’s notice shall describe in detail the acquisition, the acquiring party if that party is an affiliate, the lands and minerals covered thereby, any water rights related thereto, the cost thereof, and the reasons why the Acquiring Party believes that the acquisition (or proposed acquisition) of the interest is in the best interests of the parties under the Alliance.  In addition to such notice, the Acquiring Party shall make any and all information concerning the relevant interest available for inspection by the other party.

 

  

6

  

 

(iii)           Option Exercised. Within thirty (30) calendar days after receiving the Acquiring Party’s notice, the other party may notify the Acquiring Party of its election to accept a proportionate interest in the acquired interest equal to its pro rata ownership interest in the relevant Alliance Sub.  Promptly upon such notice, the Acquiring Party shall convey or cause its affiliate to convey to the applicable Alliance Sub, all of the Acquiring Party’s (or its affiliate’s) interest in such acquired interest, free and clear of all encumbrances other than those to which both parties have agreed.  Immediately upon such notice, the acquired interest shall become a part of the Exploration Properties for all purposes of this Agreement and the governing documents of the Alliance Sub. The other party shall promptly pay to the Acquiring Party its proportionate share of the latter’s actual out-of-pocket contract acquisition costs paid to such vendor (such acquisition costs not to include Acquiring Party’s travel or incidental expenses), plus twenty-five percent (25%).

 

(iv)           Option Not Exercised.  If the other party does not give such notice within the thirty (30) day period set forth above, it shall have no interest in the acquired interests, and the acquired interests shall not be a part of the Exploration Properties or continue to be subject to this Agreement or the Alliance Sub governing documents.

 

(f)           SV Right of First Refusal.  If GPM decides, in its sole discretion, to abandon any separate, individual property(ies)/concession(s) (“Individual Property”) included in the Exploration Properties at any point, GPM shall give SV a written notice of such decision and SV shall have a first right to have the Individual Property to be abandoned, clean title transferred back into SV’s name, so long as clean title had previously vested in Alliance Sub’s name, free of any liabilities accrued from and after the date of this Agreement, and with transfer of any permits currently in place. The first right must be exercised, if at all, by written notice from SV to GPM of SV’s election to have the Individual Property transferred back to SV by appropriate transfer document under the laws of Peru, all at GPM’s sole cost and expense. SV must exercise such right of first refusal within thirty (30) calendar days after receipt of GPM’s written notice of intent to abandon.  If such notice occurs after May 1 of any given year, GPM will remain solely responsible for paying all applicable rental fees to maintain the property in good standing.

 

(g)           GPM Option to Purchase.  In the event GPM expends monies on any Individual Property included in the Exploration Properties, and reaches a point of positive bankable feasibility study (“BFS”) on said Individual Property (“Target Property”), then GPM shall have the right to purchase SV’s 20% or other then-existing ownership interest in such Target Property for an amount equal to SV’s then-existing percent ownership interest multiplied by the total net asset value (“NAV”) of such Target Property, with such discount rate as defined within the BFS.  In this event, SV shall have no further rights, titles or interests in said Target Property.  The same protocol shall be applicable to each and all other Individual Properties included in the Exploration Properties.

 

(h)           Pooling; Drag-Along.  In addition to the forgoing, GPM shall have the right to sell any Individual Property or to pool its interests and SV’s interests in all of the Exploration Properties in connection with a proposed sale pursuant to a bona fide arm’s length offer, as determined in its sole discretion, and SV shall cooperate with GPM to effect the sale of all such interest in the applicable Exploration Properties.  In such event, GPM and SV shall share the net profits derived from each and all such sales on the basis of their respective ownership interests.

 

  

7

  

In the event of such proposed sale, GPM shall promptly notify SV of such intentions.  The notice shall state the price and all other pertinent terms of the intended transfer, and shall be accompanied by a copy of the offer or contract for sale.  If the consideration for the intended transfer is, in whole or in part, other than monetary, the notice shall describe such consideration and its monetary equivalent (based upon the fair market value of the nonmonetary consideration and stated in terms of cash or currency).  SV shall have thirty (30) calendar days from the date such notice is delivered to notify GPM whether it elects to acquire the offered interest at the same price (or its monetary equivalent in cash or currency) and on the same terms and conditions as set forth in the notice.  If it does so elect, the contract for acquisition by SV shall be consummated promptly after notice of such election is delivered.  In the event SV disagrees with the valuation upon which GPM proposes to sell such Individual Property, all Exploration Properties or any combination thereof, both parties may seek a valuation from a mutually agreed upon qualified third party appraiser, the expenses of which shall be shared by the parties.  In the event such appraisal differs from the terms of the offer as set forth in the notice by greater than ten percent (10%), GPM will have fifteen (15) calendar days to renegotiate the terms of the offer to come within 10% of the appraised value, agree to pay SV its pro-rata share of the newly appraised value out of the proceeds of the sale, or else reject the offer.

 

4.           CLOSING.  The closing of this Agreement (“Closing”) shall take place on the date that each of the closing conditions set forth below have been duly fulfilled or waived and all such closing deliverables set forth below have been delivered, with the Closing to occur on or before June 30, 2011 (the “Outside Closing Date”).

 

(a)           Closing Conditions.

 

(i)           Conditions Precedent to GPM’s Obligation to Close.  As a condition to Closing, GPM shall have received or waived in writing its right to receive: (i) a duly executed copy of this Agreement; (ii) the Mining Disclosure Requirements set forth in Schedule “B”; (iii) evidence of the formation of Holdco and such Alliance Sub(s) as deemed necessary and appropriate for purposes of holding title to the Property, including copies of such formation, constituting and governing agreements, documents or instruments, signed by SV and filed with the necessary federal, state or local governmental authorities as necessary; (iv) evidence of good standing of all mineral concessions comprising the Property by means of duly endorsed receipts of payment of such rental fees as necessary to maintain the Property in good standing; (v) evidence of payment of rental fees to maintain the concession rights included in the Property through the 2011 Rental Year as set forth in Section 3(c)(ii); and (vi) evidence of such corporate or regulatory approvals of SV as may be necessary to consummate the transactions contemplated herein.

 

(ii)           Conditions Precedent to SV’s Obligation to Close.  As a condition to Closing, SV shall have received or waived in writing its rights to receive: (i) a duly executed copy of this Agreement; (ii) evidence of the opening of an escrow account with such escrow agent as GPM may select in sole and absolute discretion for purposes of holding the GPM Shares; (iii) evidence of the formation of Holdco and such Alliance Sub(s) as deemed necessary and appropriate for purposes of holding title to the Property, including copies of such formation, constituting and governing agreements, documents or instruments, signed by GPM and filed with the necessary federal, state or local governmental authorities as necessary; (iv) evidence of such corporate or regulatory approvals of GPM as may be necessary to consummate the transactions contemplated herein; (v) evidence of good standing of all mineral concessions comprising the Property by means of duly endorsed receipts of payment of such rental fees as necessary to maintain the Property in good standing; (vi) evidence of payment of such previously validated and approved invoices as set forth in Section 1(c)(ii); (vii) receipt of payments for such reimbursements as agreed by the parties to be paid prior to Closing as set forth in Section 3(d); and (viii) evidence of payment of rental fees to maintain the concession rights included in the Property through the 2011 Rental Year as set forth in Section 3(c)(ii).

 

  

8

  

 

(b)           Closing Deliverables.

 

(i)           SV Closing Deliverables.  Upon Closing, SV shall deliver to GPM: (i) a Quit Claim deed or Peruvian equivalent document of transfer and such other documents or instruments as necessary (referred to herein as “Transfer Documents”) effecting the transfer of all of its rights, title and interest in and to the Property, to the name of the applicable Alliance Sub; (ii) a duly executed bill of sale; (iii) a certificate of a duly authorized executive officer or manager, certifying to the accuracy of the representations and warranties contained herein; and (iv) such other documents, instruments or agreements as reasonably necessary to effect the transactions contemplated herein.

 

(ii)           GPM Closing Deliverables.  Upon Closing, GPM shall deliver to SV: (i) a duly executed copy of this Agreement; (ii) copies of such formation and operation agreements, documents or instruments, signed by GPM and filed with the necessary federal, state or local governmental authorities, as necessary to form HoldCo and such Alliance Sub as deemed appropriate to hold title to the Property as set forth herein; (iii) issuance of the restricted GPM Shares into an escrow account to be held pending completion of the milestones set forth in Section 2(b) above; and (iv) such other documents, instruments or agreements as reasonably necessary to effect the transactions contemplated herein.

 

5.           TERMINATION.  This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to Closing:

 

(a)           by June 30, 2011, the parties have been unable to satisfy the closing conditions as set forth in Section 4(a), provided however, that the right to terminate this Agreement under this Section 5(a) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes a breach of this Agreement;

 

(b)           by either party if earlier than June 30, 2011, by mutual written agreement of the parties (collectively, the “Termination Date”).  Notwithstanding the foregoing, the Termination Date may be extended if agreed to in writing by the parties;

 

(c)           by either party if: (i) there shall be a final non-appealable order of a federal or state court or other court of competent jurisdiction that would in effect prevent consummation of the transactions contemplated hereby, or (ii) there shall be any law enacted, promulgated or issued or deemed applicable to the transactions herein by any governmental authority that would make consummation illegal;

 

(d)           by GPM if: (i) GPM is not in material breach of its representations, warranties, covenants or agreements under this Agreement, or any technical breach has been preceded by a breach of SV, and (ii) there has been a breach of any representation, warranty, covenant or agreement of SV and such breach has not been cured within thirty (30) calendar days after written notice thereof to SV; provided, however, that no cure period shall be required for a breach which by its nature cannot be cured.

  

9

  

 

(e)           by SV if: (i) it is not in material breach of its representations, warranties, covenants or agreements under this Agreement, and (ii) there has been a breach of any representation, warranty, covenant or agreement of GPM and such breach has not been cured within thirty (30) calendar days after written notice thereof to GPM; provided, however, that no cure period shall be required for a breach which by its nature cannot be cured;

 

In the event this Agreement is terminated pursuant to this Section 5, and to the extent applicable, the parties shall execute or cause to be executed all other instruments, certificates, notices and documents as may be required for the termination of any company formed under the Alliance under the laws of the Peru, and to effectuate the transfer of any rights, title or interests in and to the Properties back to SV or GPM, as applicable.  Furthermore, in the event of a termination under Section 5(d) all fees, payments, and funds previously advanced by GPM to SV, shall be returned to GPM pursuant to, and up to the limit provided in, the Remedy provisions in Section 16.

6.           RIGHT OF INSPECTION AND RECORDS.

 

(a)  SV Right of Inspection and Audit.  SV shall have the right during the term of the Agreement, at its own cost and risk, upon 72 hours’ prior written notice, to enter upon the Property at all reasonable times and intervals to observe the mining operations and conduct such tests as the SV deems necessary including physical photography and survey of any pit, and to inspect the geological records for the purpose of determining whether the provisions of this Agreement are being performed; provided, however, such observation and inspection shall be conducted in such a manner so as to not unreasonably interfere with GPM’s mining operations.  GPM agrees to keep complete, true and accurate records and accounts showing the quantity of ores mined and all shipments of all minerals from the Property, receipts therefrom and in connection therewith, all operating and other expenses incurred.   SV will further have the right to conduct its own independent audit at any time upon at least 72 hours’ notice, and the Alliance Sub will conduct an annual year-end audit using an independent auditor and methods acceptable under SEC requirements for GPM.

 

(b)  GPM Right of Inspection and Audit.  GPM shall have the right during the term of the Agreement upon 72 hours’ prior written notice to audit and inspect any and all records of work done by SV or its affiliates or assigns on behalf of the Alliance commencing upon the date of the MOU.  SV represents and warrants that it has kept complete, true and accurate records and accounts of all such work done related to the Property and agrees to continue to maintain complete, true and accurate records and accounts during the term of this Agreement.

 

7.           GEOLOGIC DATA.  Upon termination of this Agreement or surrender of any portion of the Property back to SV, GPM shall provide SV with all factual geologic data GPM compiles as a result of GPM’s exploration, development and mining of the Property including, but not limited to, all drill logs, drill hole locations, maps of geologic areas, formations and assays.  Nothing herein shall be construed to require GPM to compile data which in its opinion is not necessary to its operations hereunder.  GPM shall have no liability on account of any such data being relied or acted upon by SV.

 

  

10

  

8.           CONFIDENTIALITY.  During the term and any extension of this Agreement, all information or data supplied in writing by GPM to SV relating to the exploration, development or mining of the Property by GPM which is specifically identified as confidential by GPM at the time it is supplied, shall be kept confidential by SV and not disclosed to any third person except for those professional consultants of SV, including attorneys and accountants who “need to know” and are informed of the confidentiality agreement herein, without GPM’s written consent, which consent may be withheld, all in the discretion of GPM.

 

9.           SOLE AND ENTIRE AGREEMENT.  This Agreement sets forth the entire agreement between the parties, including their affiliates, principals and related parties, and supersedes all previous negotiations, representations and agreements between the parties, including their affiliates, principals and related parties, whether written or oral, that might have lead to the parties making this Agreement. This Agreement is subject to and governed by the laws of Peru.

 

The parties expressly acknowledge and agree that the terms and conditions of the MOU are fully incorporated herein by the parties and such MOU is deemed merged herein and, further, is now deemed null and void as a separate agreement by the parties, effective as of the date hereof. The parties also expressly acknowledge and agree that the Letter of Intent entered into by and between GPM and Salwell International LLC (an affiliate of SV), dated April 29, 2010, was deemed null and void, effective as of the effective date of the MOU.

 

10.           TERM OF AGREEMENT.   This Agreement shall commence on the date hereof and continue for so long as GPM either (i) conducts Operations on the Property, or any portion thereof, (ii) surrenders all of the Property back to SV, or (iii) until either party terminates under Section 5, whichever first occurs, after which time, this Agreement shall terminate.

 

11.           INDEMNIFICATION AND HOLD HARMLESS.   SV and GPM expressly and unconditionally agree to indemnify and hold each other and their respective officers, directors, agents, employees, managers, consultants and affiliates, harmless from any and all claims, charges, damages, fines and liabilities of any and all nature and extent arising from a breach of this Agreement, any failure to disclose information pursuant to Schedule “B”, and/or environmental liabilities arising, directly or indirectly, from the Property as a result of the Alliance’s actions for a period of two (2) years from the date of this Agreement, except that any indemnification for claims grounded in fraud shall continue for so long as claims may be brought under any applicable statute of limitations.

 

12.           REPRESENTATIONS AND WARRANTIES OF SV.  SV, its officers, directors and shareholders, jointly and severally, expressly and unconditionally, represent and warrant that:

 

(a)           SV is duly organized in accordance with the laws of Peru and is in good standing in Peru.

 

(b)           It has the power and authority to carry on its business and to make this Agreement and any agreement that is contemplated by this Agreement.

 

(c)           Neither the making nor performing of this Agreement or any of the agreements contemplated by it conflict with, breach or accelerate the performance of any other agreement.

 

  

11

  

(d)           The making of this Agreement and any agreements contemplated by it does not violate or breach its organizational documents or the laws of any applicable jurisdiction or regulatory body and has been authorized by its board of directors.

 

 (e)           It is the sole owner of all rights, title and interest in the interests to the Property transferred hereunder, as set forth more particularly in Schedule “A.”  With respect to those portions of the Property SV owns in fee simple, if any, SV is in exclusive possession of and owns such Property free and clear of all encumbrances or defects in title except those specifically identified in Paragraphs 1.1(B), 1.3.1(B), 1.3.2(B) and 1.3.3(B) of Schedule “A.”

 

(f)           It has duly entered into that certain lease agreement with respect to the Angulo Plant as identified in Schedule “A” and such lease is in full force and effect, providing the Alliance full access, use and enjoyment of the leased plants and properties referenced therein for a period of at least two (2) years from October 21, 2010.

 

(g)           With respect to those properties or interests comprising the Property in which SV holds an interest under leases or other contracts: (i) SV is in exclusive possession of such Properties; (ii) SV has not received any notice of default of any of the terms or provisions of such leases or other contracts; (iii) SV has the authority under such leases or other contracts to perform fully its obligations under this Agreement; (iv) to SV’s knowledge, such leases and other contracts are valid and are in good standing; (v) SV has no knowledge of any act or omission or any condition on the Properties which could be considered or construed as a default under any such lease or other contract; (vi) SV has provided GPM with complete, true and correct copies of all such leases or contracts, including details regarding any future obligations necessary to maintain such contracts in good standing and/or to finalize its purchase payment obligations; and (vii) such Properties are free and clear of all encumbrances or defects in title except for those specifically identified in Paragraphs 1.1(B), 1.3.1(B), 1.3.2(B) and 1.3.3(B) of Schedule “A.”

 

(h)           SV has delivered to or made available for inspection by GPM all Existing Data in its possession or control, and true and correct copies of all leases or other contracts relating to the Property.  For purposes of this Agreement, “Existing Data” means maps, drill logs and other drilling data, core, pulps, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, contracts, leases and other material information developed in operations on the Property prior to the date of this Agreement and prior to Closing.

 

(i)           To the best of its knowledge, the technology and equipment used in the plants does not infringe upon any rights of any third party.

 

(j)           Except as disclosed in Schedule “A,” it has not granted, nor will it grant, any license, right or interest to any other party in or to the Property, including the plants, or use thereof, except in accordance with the terms of this Agreement during the term of this Agreement.

 

(k)           Except as disclosed in Schedule “D”, it is not a party to or threatened with any legal proceedings or inquiries relating to the Property, including the plants, ores or other rights transferred hereunder, nor is it aware of any circumstances that might give rise to any legal proceedings or inquiries against GPM or the Property.

 

  

12

  

(l)           Except as disclosed in Schedule “A,” the Property, including the plants and Porvenir Production Property, are free of all claims, liens, charges and encumbrances of whatsoever nature.

 

(m)           With respect to mining concessions, interests and millsites (or such equivalent rights for mining properties in Peru) located by SV that are included within the Property, except as provided in Paragraphs 1.1(B), 1.3.1(B), 1.3.2(B) and 1.3.3(B) of Schedule “A” and subject to the paramount title of Peru, it has taken reasonable steps to ensure that: (i) the mining concessions were properly laid out and monumented; (ii) all required location and validation work was properly performed; (iii) location notices and certificates were properly recorded and filed with appropriate governmental agencies; (iv) all assessment work required to hold the mining concessions has been performed and all governmental fees and/or private party fees have been paid in order to maintain those claims through the date of this Agreement; (v) all affidavits of assessment work, evidence of payment of governmental fees and/or private party fees, and other filings required to maintain the mining concessions, claims or interests in good standing have been properly and timely recorded or filed with appropriate governmental agencies, entities or individuals; (vi) the claims are free and clear of encumbrances or defects in title; and (vii) SV has no knowledge of conflicting mining claims.  Nothing in this Subsection, however, shall be deemed to be a representation or a warranty that any of such mining concessions, claims or interests contains a valuable mineral deposit.

 

(n)           With respect to those mining concessions, interests and millsites not located by SV but which are included within the Property, except as provided in Paragraphs 1.1(B), 1.3.1(B), 1.3.2(B) and 1.3.3(B) of Schedule “A” and subject to the paramount title of Peru: (i) all assessment work required to hold the mining concessions, claims or interests has been performed and all governmental fees and/or private party fees have been paid in order to maintain those claims through the date of this Agreement; (ii) all affidavits of assessment work, evidence of payment of governmental fees and/or private party fees, and other filings required to maintain the mining concessions, claims or interests in good standing have been properly and timely recorded or filed with appropriate governmental agencies, entities or individuals; (iii) the claims are free and clear of encumbrances or defects in title; and (iv) SV has no knowledge of conflicting mining claims.  Nothing in this Subsection, however, shall be deemed to be a representation or a warranty that any of such mining concessions, claims or interests contains a valuable mineral deposit.

 

(o)           To the best of its knowledge, there are no material outstanding obligations or liabilities, contingent or otherwise, related to environmental, reclamation or rehabilitation work associated with the Property or arising out of exploration work, development work or mining activities previously carried out thereon.

 

(p)           To the best of its knowledge, there have been no past violations by SV of any environmental laws or other laws or regulations affecting or pertaining to the Property, nor any past creation of damage or threatened damage to the air, soil, surface waters, groundwater, flora, fauna, or other natural resources on, about or in the general vicinity of the Property.

 

(q)           To the best of its knowledge, the mining concessions comprising the Property have been duly and validly located pursuant to the laws of Peru and are recorded in the names set out on the attached Schedule “A” and are in good standing with the applicable Peruvian governmental agencies or authority as of the date of this Agreement and until the dates set out on the attached Schedule “A”.

 

  

13

  

(r)           The disclosures set forth in Schedule “B” hereto are complete, true and accurate in all respects.

 

(s)           Except as disclosed in this Agreement, as at the date of this Agreement and as of the date of Closing, all material agreements pertaining to the Property to which SV is a party or by which it is bound:  (i)  are valid, binding, in good standing, in full force and effect in all material respects and enforceable by SV in accordance with their respective terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy or similar proceedings, the equitable power of the courts to stay proceedings before them and the execution of judgments and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the courts from which they are sought and (ii) do not, by their terms, require the consent of any of the parties thereto to this Agreement or any of the transactions contemplated hereby.

 

(t)           To the best of its knowledge SV has not done or failed to do any act or thing whereby any of the Property or assets comprising the Property are or will be liable or subject to termination, surrender, forfeiture, cancellation, alienation, reduction, or penalty.

 

The representations and warranties set forth above shall survive the execution and delivery of any documents of transfer provided under this Agreement.  For a representation or warranty made to a party’s “knowledge,” the term “knowledge” shall mean actual knowledge on the part of the executive officer, manager or director of the representing party or of facts that would reasonably lead to the indicated conclusions.

 

13.           DISCLOSURES.  Each of the parties hereto represents and warrants that it is unaware of any material facts or circumstances that have not been disclosed in this Agreement which should be disclosed to the other party in order to prevent the representations and warranties in Section 12 of this Agreement from being materially misleading.  SV has disclosed to GPM all information it believes to be relevant concerning the Property and has provided to or made available for inspection by GPM all such information.  GPM has disclosed to SV all information it believes to be relevant concerning its findings in its diligence concerning the Property and has provided to or made available for inspection by SV all such information.  Each party represents to the other that in negotiating and entering into this Agreement it has relied solely on its own appraisals and estimates as to the value of the Property and upon its own geologic and engineering interpretations related thereto.

 

14.           LOSS OF TITLE.  Any failure or loss of title to the Property and assets comprising the Property following transfer of title to Holdco or the relevant Alliance Sub as provided herein, and all costs of defending title, shall be charged to the business account of HoldCo or the relevant Alliance Sub.

 

15.           ARBITRATION OF DISPUTES.

 

Any dispute, controversy or claim arising out of or relating to this contract, including the formation, interpretation, breach or termination thereof, including whether the claims asserted are arbitrable, if unable to be resolved amicably by negotiations between the parties, will be referred to and finally determined by arbitration in accordance with the JAMS International Arbitration Rules in accordance with the Expedited Procedures set forth therein. The Tribunal will consist of three arbitrators. Within 10 days after the commencement of arbitration, each party shall select one person to act as arbitrator, and the two so selected shall select a third arbitrator within 20 days of the commencement of the arbitration. The place of arbitration will be Reno, Nevada. The language to be used in the arbitral proceedings will be English.  Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

 

16.           REMEDIES FOR BREACH BY SV; GUARANTY.   In the event of (a) a material breach of a representation or warranty by SV under this Agreement, (b) an intentional or reckless failure to disclose material information or the disclosure of materially misleading information with respect to the Property, SV agrees to reimburse GPM in full for those portions of the purchase payments pertaining to the compromised property.  For the purposes of this guaranty, the total consideration paid for the package of five properties will be up to $1,550,000 ($750,000 in acquisition payments over time that are ongoing, $500,000 paid in stock at Closing and $300,000 in acquisition payments for the Exploration Properties, satisfied prior to the date of the MOU).  Individual reimbursement amounts to GP will be 20% of the actual consideration paid to SV to the point of the breach, with a maximum of $310,000 per property if the breach occurs after the payments by GPM have been made in full.

 

In the event of (c) a work stoppage caused by pre-existing environmental liabilities, or the re-characterization of environmental impact report obligations such that the Alliance loses its exemption requiring a stoppage and new environmental impact report, arising directly or indirectly, from the Porvenir Production Property or any portion thereof, such work stoppage interrupting shipping of ores for a period exceeding 30 days, and as a result thereof GPM suffers any claims, charges, damages, fines and liabilities of any kind or nature, then SV shall be solely and exclusively responsible for 100% of any and all claims, charges, damages, fines and liabilities of any and all nature and extent incurred by GPM arising from such an event.  In addition, in such event, GPM shall be entitled to place a lien on any and all monies owed to SV by the Alliance, its property rights and ownership interests relating to the Alliance or this Agreement in order to secure repayment of any and all monies owed by SV as a result of such Event(s).

 

The guaranty for each individual property under the conditions outlined in (a), (b) and (c) above will extinguish and become null and void incrementally upon the following events 1) evidence of transfer of title to Alicia concessions to the Alliance entity’s name, 2) registration of title to Porvenir concession to the Alliance entity’s name, 3) registration of title to the Tornitos concessions to the Alliance entity’s name, 4) registration of title to the Go8 concessions to the Alliance entity’s name and 5) repayment of GPM’s operational expenditures on the Porvenir Production Property.  In any event this guaranty and warranty will extinguish in full on January 31, 2012 (the “Guaranty Period”) for all of the Properties with the exception of those that have been noticed in breach by GPM before that time.

 

17.           NOTICES.  Any notices, consents or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt when delivered personally; (ii) upon receipt when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be as set forth in the signature page hereto or as amended by a party by notice duly given hereunder.

 

18.           REMEDIES.  All rights and remedies provided in this Agreement are cumulative and not exclusive of any other rights or remedies that may be available to the parties, whether provided by law, equity, statute, in any other agreement between the parties or otherwise.

 

19.           FORCE MAJEURE.  Except as set forth in the representations and warranties provided herein and except for the obligation to make payments to maintain the Property in good standing, the obligations of a party shall be suspended to the extent and for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the party to grant); acts of God; laws, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization; curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of environmental laws; action or inaction by any country, state or local agency that delays or prevents the issuance or granting of any approval or authorization required to conduct operations beyond the reasonable expectations of the party seeking the approval or authorization; acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, political unrest, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors’ or subcontractors’ shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; actions by native rights groups, environmental groups, or other similar special interest groups; or any other cause whether similar or dissimilar to the foregoing.  The affected party shall promptly give notice to the other party of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof.  The affected party shall resume performance as soon as reasonably possible.

 

20.           GOVERNING LAW.  This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Nevada, exclusive of conflict or choice of law rules.

 

 

 [SIGNATURES FOLLOW]

 

  

14

  

IN WITNESS WHEREOF, the undersigned have executed the foregoing Agreement, as of the date first above written.

 

 

GOLDEN PHOENIX MINERALS, INC.

 

 

 

_______________________________

 

By: ________________

 

Its: ________________

 

Address for Notice:

 

1675 East Prater Way, Suite 102

Sparks, NV 89434

Fax: 775-853-5010

 

 

SALA VALC S.A.C.

 

 

 

_______________________________

 

By: _________________

 

Its: _________________

 

Address for Notice:

 

	 	________________________
	 	________________________
	 	 
Fax:__________

 

  

15

  

Schedule "A"

 

Description of Purchased Assets, Titles and Easements to be Transferred into Alliance

 

 

Schedule “B”

 

Mining Disclosure Requirements

 

  

16

  

Schedule “C”

 

GPM Payments

 

 

Schedule “D”

 

 

Litigation

 

17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}]]