Document:

sagebrushex105.htm

Exhibit 10.5

 

RED ROCK MINERAL LEASE

 

THIS MINERAL LEASE (hereinafter “Lease”) is made and entered into on the 24th day of May, 2011 (the “Effective Date”) by and between F.R.O.G. Consulting, LLC (the “Lessor”) and Arttor Gold LLC (the “Lessee”).

 

RECITALS

 

NOW, THEREFORE, in consideration of the mutual benefits to be enjoyed by Lessor and Lessee pursuant to this Lease, Lessor and Lessee hereby agree as follows:

 

1. Grant, Reservation. Lessor, for and in consideration of the royalties hereinafter reserved and of the agreements of Lessee herein contained, to the extent vested with legal right to do so, hereby grants, demises, leases and lets exclusively unto Lessee, except for Lessor’s right of inspection, the properties owned by Lessor or in which Lessor has an interest, all as more particularly described in Exhibit “A” attached hereto and made a part hereof, and any additions thereto under Article 8 (hereinafter called “Red Rock Mineral Prospect”), for the purpose of, including, but not limited to, surveying, sampling, investigating, exploring for, prospecting for, drilling for, developing, mining by any method (whether or not now known and including, but not limited to, open pit, strip, underground and solution methods), producing, saving, taking, milling, treating, transporting, stockpiling, handling and marketing all minerals or any valuable products of any nature whatsoever in, on or under the Red Rock Mineral Prospect, including, but not limited to, any ores, concentrates, dore ingots, bullion, carbon, precipitates, slag or any other material produced from the Red Rock Mineral Prospect which contain any recoverable valuable product of any nature, but excluding oil, gas, hydrocarbons and geothermal resources (hereinafter called “Leased Substances”), together with all of Lessor’s rights, privileges, water rights (if any) and easements (if any) useful for Lessee’s operations hereunder on the Red Rock Mineral Prospect and adjacent lands, including, but not limited to, the rights to look for, test, work, mine, excavate, raise, clean, stockpile on the Red Rock Mineral Prospect only, carry away and sell Leased Substances, to excavate pits, to sink shafts, make, use and occupy openings, adits, tunnels, raises, rooms, stopes, slopes, winzes and underground passages (now existing or hereafter opened), strip seams, lodes, veins and beds, and erect, use and maintain on the Red Rock Mineral Prospect such buildings, tipples, headframes, refineries, gasification plants, power plants, engines, machinery, appliances, devices, walls, wells, presently appurtenant (if any) or newly established water rights, roadways, housing, railroad tracks, shops, ditches, dams, ponds, reservoirs, pipes, power communication lines and, without limitation except as may be required by duly authorized regulatory agencies or governments, all other necessary structures and facilities (hereinafter “Improvements”). From time to time, Lessee may relocate all or any part of said Improvements as Lessee may deem desirable or necessary in its operations on the Red Rock Mineral Prospect.  Provided, however, that Lessor shall be notified in writing by certified or registered mail of Lessee’s intention to make such relocation at least twenty (20) days prior to commencing such relocation unless an emergency condition exists.

 

There is reserved to the Lessor the right, subject to governmental approval, to a mutually acceptable reasonable portion of the surface on the Red Rock Mineral Prospect for the purpose of locating an inspection station to exercise Lessor’s rights hereunder.

 

2. Term, Rule Against Perpetuities and Severability of Paragraphs.  Subject to the other provisions herein contained, this Lease shall remain in force for a “Term” of ten (10) years from the Effective Date hereof and renewable by Lessee in ten (10) year increments thereafter provided that there is production of one or more Leased Substances from the Red Rock Mineral Prospect, or any operations permitted hereunder are being conducted on the Red Rock Mineral Prospect at the time of renewal or this Lease is continued in force by reason of any of the provisions hereof, provided, however, the term of this Lease shall not exceed ninety-nine (99) years in any event.  During any period of extension beyond the first ten (10) years of the Term all of the terms and conditions of this Lease shall remain in full force and effect.

 

  

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The Term of this Lease is not intended to violate the Rule Against Perpetuities. In the event the Term of this Lease is determined to violate the Rule Against Perpetuities by a Court of competent jurisdiction, the Term shall, by this Article 2, be automatically reduced to the maximum number of years determined to comply with the Rule Against Perpetuities. Each of the Articles in this Lease is severable from each of the other Articles in this Lease. In the event an Article in this Lease is determined to be invalid, void, or unenforceable, then all remaining Articles shall remain in full force and effect. In the further event that this Article 2 is construed in such a manner as to eliminate a definitive Term of this Lease, then the parties agree that the Term shall be a reasonable period of time sufficient to accomplish the purposes of this Lease.

 

3. Funds for Payment; Advance Minimum Royalty; Royalty Credit; Amount of Royalties Paid; Dollar Equivalent.

 

3A.                      Payment Funds. Any and all payments required to be paid to Lessor pursuant to the terms of this Lease shall be made in U.S. currency, or as in-kind payments in accord with Article 4, Production Royalty.

 

3.B                      Advance Minimum Royalty.  Lessee shall pay to Lessor advance minimum royalties in the amounts and at the times listed below (each, an “Advance Minimum Royalty Payment”); provided, however, that if this Lease is terminated prior to the due date for the payment of any such Advance Minimum Royalty Payment, Lessee shall have no obligation to make any further Advance Minimum Royalty Payments, the due dates of which occur after such termination.

 

	
Due Date

	
Amount of Advance Minimum Royalty Amount

	
On signing

	
$5,000

	
1st Anniversary

	
$15,000

	
2nd Anniversary

	
$35,000

	
3rd  Anniversary

	
$45,000

	
4th Anniversary

	
$80,000

	
5th Anniversary and annually thereafter during the Term of the Lease

	
The greater of $100,000 or the U.S. Dollar Equivalent (as defined below) of 90 ounces of gold

 

If this Lease is terminated for any reason, including but not limited to, partial payment or nonpayment after thirty (30) days written notice as provided in Article 6 at any time during the calendar year, Lessee shall be obligated to pay the full amount of Advance Minimum Royalty Payment as required to be paid in this Article 3.B during the calendar year of the termination, and for any prior calendar years during the term of this Lease for which Advance Minimum Royalty Payments have not been paid.

 

3.C.                      Royalty Credit for Advance Minimum Royalty Payments Paid.   All Advance Minimum Royalty Payments paid by Lessee to Lessor shall constitute prepayment of and advance against Production Royalties (as defined in Article 4) thereafter accruing to Lessor under Article 4 during the term of this Lease. Within any one (1) calendar year, Lessee may use one hundred percent (100%) of that calendar year’s Advance Minimum Royalty Payment as credit against Production Royalties due Lessor within that calendar year.  If the total dollar amount of Production Royalties due Lessor within that calendar year exceed 

 

  

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the dollar amount of the Advance Minimum Royalty Payment due Lessor within that calendar year, Lessee can credit all uncredited Advance Minimum Royalty Payments made in previous years against fifty percent (50%) of the Production Royalties due Lessor within that calendar year.

 

3.D.           Amount of Royalties Paid.   The royalties payable by Lessee to Lessor under this Lease shall be the greater of either:

 

(1) the Advance Minimum Royalty, as provided in Article 3.B hereof; or

 

(2) the Production Royalty determined in accordance with Article 4 hereof less any credit under Article 3.C hereof.

 

3.E.           U.S. Dollar Equivalent.  For the purpose of this Lease, the “U.S. Dollar Equivalent” referred to in Article 3 shall be for gold that is at least ninety-nine and ninety-five one-hundredths percent (99.95%) pure, and shall be determined by the average of the London afternoon fixing as published in the Wall Street Journal (or its recognized successor in the publication of gold and silver quotations) for the third calendar quarter preceding January 1 of the year in which the Advance Minimum Royalty payment is due. If, however, gold payment clauses are declared to be unenforceable or violations of public policy, then the “U.S. Dollar Equivalent” shall be for silver that is ninety-nine and nine-tenths percent (99.9%) pure.

 

The method of calculating the “U.S. Dollar Equivalent” for Advance Minimum Royalty silver shall be the same as that for calculating the “U.S. Dollar Equivalent” using gold above in Article 3, using the appropriate base price for silver.

 

4. Production Royalty; Stockpiling of Leased Substances. Lessee shall pay Lessor a royalty (“Production Royalty”) for all Commercially Recoverable Valuable Product(s) (as defined below) contained in the Leased Substances sold or deemed sold from the Red Rock Mineral Prospect. Commercially Recoverable Valuable Product(s) shall be defined, for the purposes of this Lease, as any valuable product(s) contained in Leased Substances which are 1) sold to a buyer, 2) deemed sold by production of dore under this Article 4, or 3) deemed sold per subsequent agreement to this Lease, such as a commingling agreement.

 

Lessee shall pay Lessor a Production Royalty of three percent (3%) of the dollar value or gross sales price of any Commercially Recoverable Valuable Product of gold, silver, platinum or palladium contained in Leased Substances sold or deemed sold from the Red Rock Mineral Prospect and one percent (1%) of the gross sales price of any other Commercially Recoverable Valuable Product contained in Leased Substances sold or deemed sold from the Red Rock Mineral Prospect.  The Production Royalty due Lessor shall be calculated, as applicable, using the provisions of Articles 4.A(1), Article 4.A(2), or Article 4.A(3). Production Royalty shall be calculated on the amounts of Commercially Recoverable Valuable Products contained in Leased Substances before any deductions whatsoever excepting only the deduction for any royalty credit under Article 3.C, and federal royalties based upon the production of Commercially Recoverable Products.

 

4A1.           Whenever gold, silver, platinum or palladium are recovered from Leased Substances in the form of dore ingots produced from 1) minesite pours or 2) pours at custom recovery facilities (which provide recovery services only and do not purchase the recovered products), such pours will be a deemed sale and Lessee shall pay to Lessor a Production Royalty as set out in Article 4. The dollar value (the “Dollar Value”) of the ounces of gold, silver, platinum or palladium (“Precious Metals”) contained in the dore shall be calculated as described below.

 

The dollar value of any given Precious Metal produced in dore during a calendar quarter shall be the average price per troy ounce of that Precious Metal for the calendar quarter multiplied by the sum of troy ounces of the given Precious Metal contained in dore produced during the calendar quarter as shown on the Refiner’s Settlement documents pertaining to the dore. Such average price is defined as the arithmetic mean of the daily London afternoon fixing for the calendar quarter. If two or 

 

  

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more dore bars produced from the Red Rock Mineral Prospect are shipped together to the refinery and those dore bars are refined together, resulting in one settlement, the Precious Metal price used to determine the dollar value of the Production Royalty will be a weighted average, and calculated as follows:

 

weighted average precious metal price = v + v

 

                                                                          1           2

                                                                                   w +   w

                                                                         1             2

 

where v equals the weight of each dore bar in Troy ounces (as determined from samples of the dore collected prior to shipment to the refinery) multiplied by the fineness, expressed as a decimal fraction, of that dore bar (as determined from samples of the dore collected prior to shipment to the refinery) multiplied by the cash base price per Troy ounce assigned to that dore bar, as defined above. w is equal to the weight of each dore bar in Troy ounces (as determined from samples of the dore collected prior to shipment to the refinery) multiplied by the fineness of that dore bar (as determined from samples of the dore collected prior to shipment to the refinery).

 

 Lessee shall report to Lessor within five (5) days of a dore pour the date, identification of the facilities used to pour, weight of the pour and disposition of the dore pour. Lessee shall deliver to Lessor a Dore Pour Report, providing the information in the form shown below within five (5) days of the dore pour.

 

DORE POUR REPORT

 

Pour No.                                                                           

 

Date:                                                                            

 

Time:                                                                             

 

Weight (ounces)                                                                           

 

Pour Facility Location                                                                           

 

1.  Source (property)                                                                           

 

2.  Operator (Lessee)                                                                           

 

3.  Owner                                                                           

 

4.  Royalty (for example, 5% of gross sales price)                                                                           

 

	 	 

 

5. Intended destination of dore (refinery or other facility as indicated)                                                                           

 

NOTE: within five (5) days of this pour date, an exact copy (Xerox or carbon paper) will be sent by Express Mail to Arthur R. Leger, 2338 Sunrise Drive, Reno, Nevada 89509.

 

	 	 

 

Signature of refiner (person in charge of making pour)

 

Lettered name                                                                               

 

  

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Lettered title                                                                                                                                       

 

	 	 

 

Signature of person witnessing pour

 

 

Lettered name                                                                           

 

Lettered title                                                                            

 

4A(2).                      With the specific exceptions of Commercially Recoverable Valuable Products of gold, silver, platinum or palladium contained in dore under subsection 4.A(1) of this Lease, Lessee shall pay a Production Royalty on all Commercially Recoverable Valuable Products of gold, silver, platinum or palladium contained in Leased Substances which are sold or deemed sold from the Red Rock Mineral Prospect.   The Production Royalty under this subsection 4.A(2) shall be calculated as the percentage of the gross sales price received by Lessee as shown on the buyer’s settlement sheet as follows:

 

For gold, silver, platinum or palladium produced from the Property: three percent (3.0%)

 

For minerals other than gold, silver, platinum or palladium produced from the Property: one percent (1.0%)

 

4A(3).                      Lessee shall pay a Production Royalty on all Commercially Recoverable Valuable Products contained in Leased Substances, other than gold, silver, platinum or palladium, which are sold or deemed sold from the Red Rock Mineral Prospect. The Production Royalty under this subsection 4.A(3) shall be calculated on the gross sales price received by Lessee as shown on the buyer’s settlement sheet using the percentages set out above.

 

4.B.  In the event the United States or other public authority imposes the payment of any new royalty on production from the Red Rock Mineral Prospect, whether a gross, net smelter returns, net proceeds or similar type of royalty, the dollar amount of such imposed royalty or, if applicable, the gold, silver, platinum or palladium equivalent of such imposed royalty shall be deducted from the Dollar Value of the ounces of gold, silver, platinum and palladium contained in the dore under Section 4.A(l) or the buyer’s settlement sheet under Section 4.A(2), as applicable, before the Production Royalty is calculated.  In no event shall Lessor’s Production Royalty be reduced below one percent (1.0%) of the Dollar Value of dore as calculated in accordance with Article 4.A or gross sales price for Commercially Recoverable Valuable Products of gold, silver, platinum or palladium removed, commingled or sold from the Red Rock Mineral Prospect, as it would have been calculated without deduction of any new royalty by the United States or other public authority.

 

4.C. In addition to the Production Royalties payable under Article 4.A, Lessee shall pay to Lessor as Production Royalty hereunder a like percentage of the gross amount paid before any deductions whatsoever of any bonus, subsidy, or similar payment or allowance made for whatever reason to Lessee by any governmental agency, ore buyer or others with respect to any production, transport or sale of Leased Substances hereunder. Gains and losses experienced by Lessee from speculative “Trading Activities” as described herein are exempted from this provision.

 

4.D. Payment of Production Royalty, other than Production Royalty taken in kind by Lessor, shall be made by Lessee to Lessor within one hundred fifty (150) days of minesite dore pour or within one hundred twenty (120) days of delivery of Leased Substances to a third party, whichever is earlier. Each pour or delivery of materials to a third party shall be identified in a statement with supporting documents attached sufficient for calculation of contained Leased Substances and royalty in a format compatible with industry standards.

 

  

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Royalty from separate pours, deliveries and sales may be combined and paid quarterly. Such payment shall be accompanied by a summary “Quarterly Royalty Statement” which clearly identifies the various components of the Royalty Payment and their separate values together with the supporting documents (e.g. pour reports, Refiner’s Settlement Sheets and statements, recovery facility settlements, etc.).

 

4.E.                      Lessor shall have the right and option to take Production Royalties in kind in the form in which Lessee sells such Leased Substances. On or before October 1st of each calendar year, Lessor shall give Lessee written notice whether Lessor elects to take its Production Royalty in kind throughout the following calendar year.  If Lessor fails to give such notice for the first calendar year in which it is eligible to take its Production Royalty in kind, Lessor shall be deemed to have elected not to take its Production Royalty in kind for that calendar year.  If Lessor fails to give such notice by October 1st of any subsequent year, the election then in effect will continue throughout the following calendar year.  Each election to take or not to take its Production Royalty in kind shall remain in effect for calendar year increments and all persons or entities constituting the Lessor shall be required to make the same election whether or not to take in kind.

 

If Lessee enters into an agreement for the sale of Leased Substances from the Red Rock Mineral Prospect, it shall not include in such agreement sale of that portion of the Leased Substances which Lessor has the right to take in kind, without the prior written consent of Lessor.

 

If Lessor elects to take its Production Royalty in kind, and if Leased Substances shipped to third parties include Lessor’s in kind share, such shipment shall be shipped in the joint names of Lessor and Lessee in a manner which identifies their respective interests. Lessee shall make necessary prior arrangements so that Lessor’s in-kind interest in the Leased Substances shipped to a refiner shall be recognized by the refiner. If Lessor elects to take its Production Royalty in kind, Lessor shall bear all risks associated with taking its Production Royalty in kind, and shall bear all additional costs incurred by Lessee as a result of Lessor’s taking in kind, such as increased costs due to separate pourings, storage, insurance, security, transportation and monitoring. Lessor shall have the right to inspect procedures used by Lessee to make payment in kind, and at its option, Lessor, or its agent, shall have the right to be present to observe sampling and splitting procedures and review all records and procedures related to division of Leased Substances for the purpose of taking in kind. Lessee shall have the right, exercisable in its sole and exclusive discretion, to select its refinery.

 

In the event the purchaser of any of the Leased Substances produced and sold by Lessee hereunder shall be owned or controlled by Lessee, the purchase agreement(s) covering such Leased Substances shall be commercially fair and shall provide that the price to be received by Lessee therefor shall be commercially fair and shall not be less than the price currently received by other sellers of Leased Substances of like quality and quantity who sell to the nearest independent refinery or smelter in the market area where such Leased Substances are ordinarily sold.  For the purpose of this Article 4, “owned and controlled” shall mean that Lessee holds sufficient interest in the purchaser to substantially direct its operations on a continuing basis.

 

4.F.                      Production Royalty payments (dollar or in-kind) to Lessor shall be accompanied by a statement, including but not limited to, smelter or refinery settlement sheets, agreements, invoices, or their equivalent, showing in reasonable detail the computation and derivation of such payment.  If Lessee provides the accounting to support royalty payments in a columnar form, Lessee shall provide Lessor with a legend which explains the meaning of the heading of each column and a sample of one of the royalty calculations so Lessor can confirm Lessee’s royalty calculations.

 

Lessor shall have the legal right to monitor and confirm in an ongoing and timely fashion that Lessee has kept correct and legible records in a minerlike fashion of all matters related to timely Production Royalty payments under this Lease.  Lessee acknowledges and agrees it will provide Lessor with copies of all documentation reasonably necessary for the Lessor to verify accurate and timely payment of Production Royalty by the Lessee. Further, Lessee agrees it shall provide Lessor the right at all reasonable times to make inspections upon five (5) business days’ prior 

 

  

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notice or with less notice at the option of the mine manager of all of the Lessee’s facilities used in mineral production or accounting for production under this Lease.

 

These inspections shall be allowed as long as they are reasonably related to the Lessor’s purpose of verification of accurate and timely payment under this Lease.

 

4.G.           Lessee shall have the right to sell or refrain from selling Commercially Recoverable Valuable Products in any manner it may elect.  Lessee shall have the right to engage in forward sales, future trading or commodity options trading and other price hedging, price protection, gold and silver loans, financing and speculative arrangements which may involve the possible delivery of Commercially Recoverable Valuable Products but does not result in the actual sale and delivery of Commercially Recoverable Valuable Products (“Trading Activities”).   Lessee’s trading activities shall not include any part of Lessor’s share of production or serve to defer or postpone payment of Lessor’s production royalties.  Lessor acknowledges that the proceeds of Trading Activities shall not be considered part of or included in the amounts paid to Lessor for the purpose of determining the production royalties and Lessor shall not be entitled to participate in the proceeds, or be obligated to share in any losses generated by any Trading Activities.

 

4.H.           Lessee may stockpile Leased Substances on the Red Rock Mineral Prospect only after giving Lessor notice of Lessee’s intention to do so, which notice shall specify the date such stockpiling is to commence and the proposed location of the stockpile on the Lessor’s property. Stockpiling of Leased Substances in locations other than on the Red Rock Mineral Prospect is prohibited without Lessor’s written consent.  For the purposes of this Lease “stockpile” shall mean storage of mined Leased Substances containing valuable product(s) at or in excess of Lessee’s operating process cutoff grade for that product which is metallurgically amenable to the process in use by Lessee in association with the Red Rock Mineral Prospect. Lessee shall keep full, complete and minerlike records of the grade and quantity of Leased Substances so stockpiled, and Lessee shall provide such information to Lessor within thirty (30) days of determining such information.

 

4.I.                      Royalty Buydown. Lessee shall have the right to buy down the production royalty payable under the provisions of this Article 4 for the following amounts:

                                                                          

	 First one percent (1.0%)    	  two million dollars ($2,000,000)

 

The remaining two percent (2.0%) production royalty on gold, silver, platinum, or palladium shall not be purchasable by Lessee. The one percent (1.0%) royalty applicable to all other minerals shall not be purchasable by Lessee. 

 

	
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Committed Work Expenditures and Work Requirement.

 

5A.                      Work Requirement. In order to keep this Lease in effect, Lessee shall be required to perform yearly work expenditures in each year for exploration, development and mining of the Red Rock Mineral Prospect as described below. The yearly work expenditure items qualified as fulfilling the work requirement shall be limited to all costs incurred in actual work on the Red Rock Mineral Prospect in drilling, trenching, excavation, mining, road building, surveying, environmental studies and permitting costs incurred directly on or related to the Red Rock Mineral Prospect,  mapping, and geological, geochemical and geophysical programs conducted on the Red Rock Mineral Prospect, as well as assaying and metallurgical testing of ores extracted from the Red Rock Mineral Prospect which may be conducted at appropriate facilities off the Red Rock Mineral Prospect. Expenditures shall include wages and salaries paid to engineers, geologists, laborers and technicians for the actual time spent in exploration, development and mining of the Red Rock Mineral Prospect.  Direct overhead, such as lodging, meals and travel expenses (but expressly excluding any charge for office or administrative expenses) shall be limited to twenty percent (20%) of the yearly work requirement.

 

Lessee shall fully comply with 43 C.F.R. Sec. 3809 regulations (Surface Management of Public Lands under the U. S. Mining Laws) or with 36 C.F.R. Sec. 228 (regulations concerning use of the 

 

  

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surface of Forest Service Lands) and any amendments or revisions thereto. In the event assessment work requirements are reinstated, Lessee shall submit an exploration plan, if required, on a date which will give the Bureau of Land Management or Forest Service sufficient time for Lessee to execute such plan and satisfy the yearly work requirement.

 

In the event assessment work requirements are reinstated, if Lessee fails to gain Bureau of Land Management or Forest Service approval for any work plan, it shall be excused from expenditures for that portion of that year’s work requirement which is disapproved, it being understood and agreed that any portion of the yearly work requirement which is not expended because of Bureau of Land Management or Forest Service disapproval shall be added to the succeeding year’s annual work requirement. It is further mutually understood and agreed that annual assessment work requirements shall not be so excused unless permission to defer annual assessment work requirements has been granted to Lessee by the (Bureau of Land Management or other) appropriate government agency, in which case Lessee shall file all documents required to maintain the Red Rock Mineral Prospect in good standing with the county and the Bureau of Land Management prior to August 31 of each year and provide Lessor with proof of such filing prior to November 1st of each year.

 

MINIMUM YEARLY WORK EXPENDITURES

 

Lessee shall expend the following amounts (the “Required Work Expenditures”) on work on the property annually:

 

2011-2012 - $100,000 physical work which would be cumulative

 

2013 and thereafter - $200,000 which includes $150,000 physical work

 

 

All Required Work Expenditures are to be spent annually and must always include all fees and claim maintenance costs at a minimum.  In the event Lessee is precluded from performing Work, as required in this Article 5, as a result of the failure of a governmental entity to issue required permits, the provisions set forth in Article 7 shall become applicable. In such a case, the remaining Work Requirement Expenditures required to meet the annual work commitment shall be deferred and carried forward until the permit is issued.  Upon permit issuance all deferred work requirements and Work Requirement Expenditures shall be performed.  If funds are expended in excess of the annual Work Requirement Expenditures, funds in excess of the fees and claim maintenance costs may be credited to subsequent Work Requirement Expenditures, provided, however, annual claim maintenance fees and costs shall always be paid by Lessee.

 

On or before March 1st of each year that this Lease is in effect and the first year subsequent to termination, Lessee shall provide Lessor with an organized, legible written narrative report, including table of contents and list of any exhibits to the report, which shall describe the operations conducted on the Red Rock Mineral Prospect during the prior calendar year. With the report shall be furnished legible true copies of all reports and records made for the Red Rock Mineral Prospect, including, but not limited to, lithologic drilling logs and assays, maps, cross-sections, assays, metallurgical tests, ore reserve calculations and geological reports pertaining to the Red Rock Mineral Prospect. Records shall include computer data files, if any, and instructions to recover them, in addition to but not as replacements for other reports and records. The report shall include a legend for all symbols used on maps, cross-sections, drill logs, columnar presentations, and any other form of document which requires a legend to make it comprehensible and useful.  With the report shall be furnished an up-to-date legible drill hole location map or maps at appropriate scales such that the collar locations and designations of all holes are clearly identified.  Such maps shall be compiled and furnished on an annual basis to depict the locations and current status of all known drill holes in Red Rock Mineral Prospect. Upon Lessor’s request and if available, Lessee shall provide 

 

  

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copies of the above data in reproducible form such as mylars or sepias. It is agreed between Lessor and Lessee that during the Term of this Lease, Lessor shall keep all information furnished to Lessor by Lessee strictly confidential and Lessor or any other person to whom Lessor furnishes such information at such time as it becomes permissible to do so shall specifically indemnify and save harmless Lessee from any action resulting from reliance upon such information furnished to Lessor by Lessee.

 

Lessee shall provide to the Lessor its interpretive data, reports and information. However, all such interpretive data shall be delivered to the Lessor with an express written disclaimer as to its completeness or accuracy, and the written disclaimer must accompany any interpretive data that the Lessor discloses to a third party. The disclaimer shall be generally as follows:

 

Lessee does not make any representation or warranty, express or implied, of any kind or nature whatsoever with respect to the accuracy, reliability or completeness of this information or matter. Any use of, or reliance upon, this information or matter by any person, firm or corporation shall be at his or its sole risk, liability and responsibility.

 

Prior to March 1st of each year that this Lease is in effect and the first year subsequent to termination, Lessee shall provide Lessor documentation from Lessee’s accounting records of the expenditures claimed as minimum yearly work requirements upon the Red Rock Mineral Prospect. At reasonable times and places, during normal business hours, Lessor shall have access to, with a minimum of five (5) business days’ advance notice given by Lessor, the original invoices and any other records pertinent and necessary for substantiating the compliance of Lessee with the provisions of this Lease.

 

6.         Manner of Payment. All payments to be made by Lessee to Lessor hereunder, except Production Royalty payments where in-kind payment is made pursuant to Article 4, shall be made by mailing or delivering cash, check drawn on the company’s account, or a cashier’s or certified check to Lessor’s address as set forth in Article 21 hereof, on or before the date such payment shall be required to be made hereunder; provided, however, that the Advance Minimum Royalty shall be paid between January 1 and January 15 of each year. If Lessee fails to pay or shall incorrectly pay all of any payment or some portion of any payment due hereunder, this Lease shall terminate absolutely if Lessee, within thirty (30) days after receipt of written notice from Lessor to Lessee of its error or failure with respect to such payment shall fail to rectify the same.   All payments not timely received by Lessor shall (if thereafter accepted by Lessor pursuant to the terms of this Lease) be accompanied with interest from the date due until the date paid at the Bank of America (or its recognized successor) prime rate plus two percent (2%) in effect on the date the payment was due.

 

7.         Lessor’s Title

 

A.  It is mutually understood and agreed that this Lease is granted only under such title as Lessor may now hold or hereafter acquire. Lessee may investigate and in Lessor’s name take any action it deems necessary to remedy any defects of title to the Red Rock Mineral Prospect. Lessor agrees to cooperate with Lessee in investigating and remedying any such defects in title; however, in the event that Lessor shall hereafter be divested of such title, Lessor shall not be liable for any damages sustained by Lessee. Additionally, Lessor shall not be liable in damages or otherwise, on account of Lessee’s possession thereof being destroyed or interrupted. Lessee’s only remedy in the event of failure of Lessor’s title is specified in the last sentence of Article 8.D below.

 

B. It is understood and agreed that in the event of adverse claim or claims affecting mining claims comprising the Red Rock Mineral Prospect or the land covered thereby, Lessee shall be under no obligation to defend title, nor to contribute to the defense of title thereto, and it is specifically understood in such event that Lessor shall be under no obligation to defend title.

 

  

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C.  Concerning possible conflicts with unpatented mining claims of third parties, neither party is under a specific obligation of title defense; Lessor leases merely whatever title it might have in such area of conflict. To the extent that Lessee desires to enter an area of conflict and endeavor to prove upon the title to Lessor’s claims, Lessee does so at its own risk and expense.  Lessor represents that it has no knowledge of claims of third parties. Nothing in this agreement is intended nor shall it be construed to require that Lessee pay Production Royalty to Lessor for mineral production from property which is determined not to belong to Lessor.

 

D.   It is expressly agreed that Lessor does not warrant title to the Red Rock Mineral Prospect.   To the best of Lessor’s knowledge, all of the claims listed in Exhibit “A” for the Mineral Prospect were located, monumented and recorded with the appropriate government entities as required by law and have been continuously maintained since location or relocation by assessment work or payment of claim maintenance fees and filing/recording of evidentiary documents as required by law.   Lessor does, however, represent that the Red Rock Mineral Prospect is free and clear of all liens and encumbrances, including any leases, rights, or licenses granted to third parties by, through, or under Lessor, except taxes not yet payable and matters of record in Lander County, Nevada, if any; the consummation of this Lease will not result in or constitute a default or an event that, with notice or lapse of time or both, would be a default, breach or violation of any contract, commitment or arrangement to which Lessor is a party or by which it is bound; provided, however, that the unpatented mining claims constituting the Red Rock Mineral Prospect are acknowledged to be subject to the paramount title of the United States. Lessee’s sole and exclusive remedy for any breach or default by Lessor under this Article 8.D is to terminate this Lease and release its possession of the Red Rock Mineral Prospect.

 

 

E.  Lessor shall not create, permit or suffer any liens or encumbrances, reservations, restrictions and easements on the Red Rock Mineral Prospect unless expressly subordinated to Lessee’s rights hereunder; that Lessee may, at its option, discharge such claims and thereby be subrogated to any liens or encumbrances on the Red Rock Mineral Prospect as to all rights of the holder thereof, and Lessee may recover any amounts so paid from any amounts otherwise due to Lessor.

 

8.         New Mining Claims.  Either party hereto shall have the right at any time to locate mining claims in the vicinity of the Red Rock Mineral Prospect, provided however, if either Lessor or Lessee should located any additional load claims either within the exterior (peripheral) boundaries of the claims forming the Subject Claims or an area of one mile from the exterior boundaries (the “Area of Interest”), any additional claims located by Lessor or Lessee within the Area of Interest shall be subject to this Lease.

 

A.  If such mining claim is located by Lessor, then Lessor shall, within thirty (30) days of recording the same with the appropriate county, give Lessee written notice thereof setting forth the description of such mining claim and the facts upon which Lessor bases its conclusions that Leased Substances might exist therein.  Within forty-five (45) days after receipt of such notice, Lessee shall have the right to reject any interest in such mining claim by giving Lessor written notice of such rejection; if not so rejected, Exhibit “A” hereto shall be modified and amended by Lessee to incorporate such mining claim in the Red Rock Mineral Lease within fifteen (15) days of acceptance of such claim or claims by Lessee.

 

B.  If any portion of a claim located by either Lessor or Lessee lies within the Red Rock Mineral Prospect Boundary, the entire claim shall become a part of the Red Rock Mineral Prospect, and Exhibit “A” shall be modified and amended by Lessee to include such mining claim in accord with Article 9.

 

C.  If Lessor locates mining claims within the boundary area and subsequently offers such mining claims to Lessee, if Lessee accepts those claims, it will pay actual expenses incurred by Lessor in connection with the acquisition.

 

  

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This Article 8 shall not apply to mining claims or other properties that are presently owned or are acquired in good faith by Lessor or Lessee from third parties. Any modification or amendment to Exhibit “A” hereto as herein provided shall not serve in any manner to extend the Red Rock Mineral Prospect boundary. In the event Exhibit “A” is amended pursuant to this Article 8, Lessee may record an amended Exhibit “A” in accordance with the provisions of Article 32.

 

9.         Claim Rental, Fee/Assessment Work - Unpatented Mining Claims. During the Term of this Lease, subject to the provision of Section 16, Lessee agrees to timely pay all fees and to file and record documents and to perform all work necessary to hold and maintain the mining claims subject to this Lease in good standing, provided that such work is required pursuant to then current federal or state laws and regulations.

 

If during the term of this Lease, federal rules and regulations are changed to require the performance of assessment work in addition to payment of claim rental fees on unpatented mining claims, Lessee agrees to timely perform labor or make improvements on or for the benefit of each of the unpatented mining claims comprising the Red Rock Mineral Prospect (hereinafter “Assessment Work”). Lessee further agrees that said labor or improvements made to satisfy the annual assessment work shall be performed only upon the claims lying within the Red Rock Mineral Prospect and work performed on contiguous claims lying outside the boundary of the Red Rock Mineral Prospect covered by this Lease shall not be used to satisfy such requirement. Lessee shall perform assessment work in accordance with good mining practices and all applicable state and federal mining laws, statutes, rules and regulations and shall provide Lessor with basic documentation to substantiate labor affidavits.  The parties hereto agree to cooperate to the fullest extent to enable Lessee to comply with the requirements of this Article 9 to prepare, record and file in a timely manner all required proofs of assessment work or Notices of Intention to Hold in the manner required by applicable law. Lessee shall record Notices of Intention to Hold and Affidavits of Assessment Work with the County and file Notices of Intention to Hold and Affidavits of Assessment Work with the Bureau of Land Management office having jurisdiction in a timely fashion. Lessee shall provide Lessor with record-stamped copies of county recorded documents and file-stamped copies of Bureau of Land Management filed documents no later than fifteen (15) days prior to the due date of such recordation and filing.

 

Lessee shall have the right, upon thirty (30) days’ notice, to give notice to Lessor in writing that the claim or claims specified in said notice shall no longer be subject to this Lease; and upon giving of such notice, and provided such notice is given at least sixty (60) days prior to the end of the claim rental/assessment year, such claim or claims shall be deemed stricken from this Lease, and Lessee’s responsibilities and obligations for claim rental fee/assessment work and other fees, filing and recording duties as to said claim or claims shall end. In the event that such notice is given less than sixty (60) days prior to the end of the rental fee/assessment year, the Lessee shall perform all work necessary to hold and maintain such claims for the then current rental/assessment year. Notwithstanding the release of any claim or claims from the operation thereof, this Lease shall continue in full force and effect with respect to all parts of the Red Rock Mineral Prospect not specified in such notice. Further, such release shall not cause or result in any diminution of Lessee’s obligations regarding confidentiality, Advance Minimum Royalty, Production Royalty or Work Requirements described below. Lessee shall, at the time of giving such notice, provide Lessor with all data regarding work which has been done for that year by or for Lessee upon any of such claims so released.

 

In the event Lessee shall terminate this Lease in its entirety prior to the end of the then current claim rental/assessment year, Lessee shall be obligated to pay claim rental fees and/or perform assessment work, pay all fees and perform all necessary filing and recording for the following claim rental/assessment year as to each of the claims then subject to this Lease, unless such termination is at least sixty (60) days prior to the end of the then current claim rental/assessment year.  In any event, Lessee shall be responsible for obligations incurred prior to such termination and those which survive in accord with Article 12.

 

10.         Relocation and Amendment of Unpatented Mining Claims. Subject to the prior written 

 

  

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consent of Lessor, which consent shall not be unreasonably withheld, Lessee, in the name of Lessor, shall have the right, but not the obligation, to amend the locations of any one or more of the mining claims included within the Red Rock Mineral Prospect and Lessor agrees to execute promptly any documents necessary for that purpose. If the location of any such mining claim was for any reason defective, Lessee shall have the right, but shall not be required, to locate such defective mining claim or claims in the name of Lessor for the purpose of curing such defect. In order to insure that Lessor agrees with Lessee’s plan to cure perceived defects in title, Lessor shall be notified in writing by certified or registered mail at least twenty (20) days prior to Lessee’s commencing with relocation or amendment unless an emergency exists and time is of the essence.

 

11.         Liens.   Lessee shall pay in full for all labor performed upon or material furnished to the Red Rock Mineral Prospect and shall keep the whole thereof free and clear from any and all liens of whatsoever nature or kind created by Lessee, except for Lessee’s grant of a security interest for financial purposes under Article 22; provided, however, that if Lessee, in good faith, disputes the validity or amount of any claim, lien or liability assessed against it with respect to the Red Rock Mineral Prospect, Lessee shall not be required to pay or discharge the same until the amount and validity thereof have been finally determined upon the condition that Lessee obtains a bond within fifteen (15) days of receiving notice of said lien as is provided by N.R.S. Section 108.2413, et seq. and as amended, to effect the release of said lien. However, in no event shall Lessee allow or permit title to the Red Rock Mineral Prospect to be lost, jeopardized or otherwise unreasonably encumbered as a result of its non-payment of any claim, lien or liability for which Lessee is responsible.  Lessee shall notify Lessor immediately, either by telegram or facsimile transmission followed by hard copy, on the occasion of being served notice of any lien regardless of whether Lessee disputes the validity of the lien for any reason. It is mutually agreed that concurrent with execution of the Lease, Lessor and Lessee will execute and acknowledge a “Notice of Non-Responsibility for Labor or Materials Furnished Mineral Prospect” which Lessor shall file with the Lander County Recorder in compliance with N.R.S. 108.234 and as amended.  When the recorded copy of the “Notice of Non-Responsibility” has been received by Lessor, it shall furnish a copy of same to the Lessee which Lessee shall post within ten (10) days and keep posted upon the Red Rock Mineral Prospect during the Term of this Lease.

 

12.         Laws and Regulations - Indemnification of Lessor.  It is the policy of Lessor to comply fully and in all respects with all environmental, reclamation and land use permitting regulations and laws.  Lessor represents that it has no knowledge of any conditions on the Red Rock Mineral Prospect existing prior to the Effective Date of this agreement which constitute violation of any laws or regulations including, but not limited to, environmental, reclamation and land use permitting regulations.   Lessee’s responsibility for reclamation or acceptance of environmental and permitting liabilities on the Red Rock Mineral Prospect shall be limited specifically to any disturbance that may be caused by Lessee’s own activities on the Red Rock Mineral Prospect and Lessee agrees to indemnify and hold Lessor harmless from and against such liability. Lessee shall not reclaim any pre-FLPMA access without the prior written consent of Lessor. Liability for reclamation of all disturbances existing on the Red Rock Mineral Prospect prior to the Effective Date shall be the exclusive responsibility of Lessor and Lessor agrees to indemnify and hold Lessee harmless from and against such liability.  Lessee shall at all times and its own expense comply in all respects with all county, state and federal laws, statutes, ordinances, rules and regulations relating to Lessee’s actions under this Lease on or about the Red Rock Mineral Prospect.  Lessee shall also at all times and at its own expense timely pay any and all fees or costs required to be paid to any governmental agency to keep the title to the mining claims in good standing.

 

Lessee shall provide workmen’s compensation insurance and such other insurance to cover its personnel and all of its operations upon the Red Rock Mineral Prospect in the amount and form as may be required by applicable law. At Lessor’s written request, Lessee shall provide Lessor with copies of the declarations page of all such policies as may be in effect (from time to time).  Lessee assumes full and sole responsibility for the operation and direction of the work done under this Lease on the Red Rock Mineral Prospect and no employee or agent furnished by Lessee shall under any 

 

  

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circumstances be deemed to be an employee or agent of Lessor and Lessee shall indemnify and hold Lessor harmless of and from any and all claims, demands or liabilities arising out of or in connection with the operations or activities of Lessee hereunder and Lessee shall acquire a comprehensive general liability insurance policy covering such operations and activities with limits of not less than two million dollars ($2,000,000.00) for each accident or occurrence.  Lessee shall provide Lessor with written proof of compliance prior to commencing operations on the Red Rock Mineral Prospect.  Lessee shall provide Lessor with copies of such insurance policy, certificate or rider naming Lessor as an additional insured on such policy within fifteen (15) days of the date of execution of this Lease.  Nothing in this agreement is intended nor shall it be construed as to require the Lessee to indemnify and hold Lessor harmless of and from any claim, demand or liability arising out of or in connection with the operations or activities of Lessor or the activities of operators other than Lessee on the property prior to the execution of this agreement.

 

Lessee shall notify Lessor verbally within twenty-four (24) hours after the occurrence of any event on the property which poses a substantial risk of environmental liability and shall give Lessor detailed notification in writing within ten (10) days.  Such occurrence will include but shall not be limited to cyanide or other toxic chemical or mineral leaks, spills or contaminations or any episode or occurrence resulting in killing of wildlife which was caused by said spills, leaks or contaminations.

 

Lessee shall provide Lessor with copies of all plans, maps and all other documents submitted in compliance with government regulations and all agreements with any government agency pertaining to the Red Rock Mineral Prospect, including but not limited to, Notices of Intent to Operate, Plans of Operation, Environmental Impact Statements, reclamation statements, and all government agency communications sent to any such agency or received by Lessee from any such agency which are related to such submissions or agreements, within thirty (30) days of sending to or receiving from the government agency such material. In the event any government agency requires the filing of a bond to insure Lessee’s performance, Lessee agrees to provide such bond at its own cost and expense.

 

13.         Taxes.  During the Term of this Lease, Lessee shall timely pay all taxes levied or assessed against the Red Rock Mineral Prospect, all taxes levied or assessed against Lessee’s personal property or improvements, all taxes levied or assessed against any improvements presently on the Red Rock Mineral Prospect, and all taxes levied or assessed upon the operations which are related to disposition of Leased Substances by Lessee on or in relation to the Red Rock Mineral Prospect, exclusive of any taxes levied, assessed or measured on the royalty paid to Lessor.  Lessor shall, within fifteen (15) days of receipt by Lessor, transmit to Lessee any notices or documents pertaining to any such taxes which are the responsibility of Lessor to pay. If Lessor fails to pay any taxes payable by Lessor, other than taxes levied, assessed or measured on royalty paid to Lessor, which pertain to the Red Rock Mineral Prospect, unless Lessor is contesting the same, Lessee may at its option pay Lessor’s proportionate share of taxes when due and may deduct all such sums from subsequent payments to be made to Lessor hereunder. Lessee or Lessor shall have the right to contest in the courts or otherwise the validity or amount of any taxes or assessments which the respective party may be required to pay hereunder if it deems the same unlawful, unjust, unequal or excessive or to take such other steps or proceedings as it may deem necessary to secure a cancellation, reduction, readjustment or equalization thereof before it shall be required to pay the same.  In the event of termination of this Lease, taxes, which are the responsibility of Lessee but will be the responsibility of Lessor after termination, shall be prorated on the relevant tax year basis.

 

It is mutually agreed that Lessor shall be solely responsible for payment of its own taxes attributable to Advance Minimum Royalty payments or Production Royalty payments to Lessor under this agreement.

 

14.         Default.   If Lessor considers that Lessee has not complied with any of the covenants, conditions or obligations hereunder, whether express or implied, Lessor shall notify Lessee, in writing, by certified mail, setting out specifically in what respects it is claimed that Lessee  has breached this Lease.  The receipt of such notice by Lessee and the lapse of thirty (30) days thereafter, 

 

  

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without Lessee’s curing or commencing and diligently pursuing such action which is necessary to cure the alleged breaches shall be a default hereunder. Upon such default, Lessor may, at its option, terminate this Lease. Whether or not Lessor so terminates this Lease, Lessor has all of its rights and remedies under the law and this Lease with respect to such default.

 

Notwithstanding any contrary provision in the foregoing paragraph, if Lessee fails to make any of the payments due under Articles 3, 4, 6 or 10 herein within thirty (30) days after receipt of notice of such failure from Lessor, this Lease shall terminate absolutely; provided, however, that any termination for whatever reason shall not excuse Lessee from performing all obligations incurred under the terms of this Lease prior to such termination.

 

In the event that Lessee, in good faith, contests the default by court action within thirty (30) days after receipt of such notice by Lessee, and Lessee continues to pay the payments required and perform the other obligations of this Lease, this Lease shall not be terminated until a final decision has been reached that a default exists; Lessee shall have thirty (30) days within which to cure or commence and diligently pursue such actions necessary to cure the default or such other reasonable time as the parties shall mutually agree or the court shall determine.

 

In the event of termination under this Article 15, Lessee shall have the right to remove, pursuant to Article 17, its property and equipment from the Red Rock Mineral Prospect, as hereinafter provided, but only after Lessee has performed all of its accrued obligations under this Lease. Until such performance by Lessee, Lessor shall have a lien upon all of Lessee’s property and improvements located on the Red Rock Mineral Prospect.

 

15.         Termination.

 

A.  Partial Termination by Lessee.  Lessee shall have the right, from time to time and at any time, to terminate this Lease as to any portion of the Red Rock Mineral Prospect by giving written notice to Lessor specifying the portion of the Red Rock Mineral Prospect to which such termination applies. New claims located by Lessor after the effective date of this Lease and within the perimeter of a contiguous block of terminated claims (fractions and open ground) shall not be subject to the area of interest provisions set forth in Exhibit A. Upon the effective date of such notice, as set forth in Article 21 hereof, all right, title and interest of Lessee hereunder shall terminate as to the portion of the Red Rock Mineral Prospect specified in such notice and thereafter the term Red Rock Mineral Prospect” shall be deemed to refer to only the portions of the Red Rock Mineral Prospect remaining subject to this Lease. Upon such termination, Lessee shall have no further obligations concerning the portion of the Red Rock Mineral Prospect to which such termination applies, except as to obligations (1) the due dates or incurrence of which occur prior to such termination, (2) are created pursuant to obligations in Articles 13 and 17 hereof relating to the condition of the Red Rock Mineral Prospect, or (3) are otherwise required to be performed by Lessee subsequent to termination.   Promptly following such termination, Lessee shall deliver to Lessor a quitclaim deed, in recordable form, quitclaiming to Lessor all right, title and interest of Lessee to that portion of the Red Rock Mineral Prospect to which such partial termination applies. No partial termination under this Article 16 shall, however, cause a reduction in the amounts of any of the Advance Minimum Royalty and Production Royalty payments set forth in Article 3 and 4 or the Work Requirements set forth in Article 5.

 

B.  Complete Termination by Lessee. Lessee may terminate this Lease by surrender of the Subject Claims to Lessor at any time. Such surrender shall be accomplished by delivering or mailing to Lessor a special warranty deed describing the Subject Claims and warranting against nay persons claiming any interest in the Subject Claims by, through or under Lessee.  Such surrender shall terminate Lessee’s leasehold rights in the Subject Claims and shall relieve Lessee of all obligations provided herein which have not accrued prior to the date of surrender; provided that no surrender shall relieve Lessee of any of the following obligations:

 

(i)     performance of assessment work and/or paying claim maintenance fees to the BLM and 

 

  

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filing of required affidavits attending thereto for the then current assessment year if the surrender occurs after July 1 of such year, with respect to the Subject Claims and any newly located unpatented claims which may become a part of the Subject Claims as set forth in Article 8;

 

(ii)     performance of all reclamation, remedial and/or restoration work as may be required by applicable laws or regulations resulting from activities of Lessee under this Lease; and

 

(iii)  to the extent not previously furnished, the furnishing to Lessor of copies of all factual data in Lessee’s possession to the work conducted by it on the Subject Claims including assays, ore tests, surveys, exploration, development and mining records.

 

16.         Removal of Improvements; Condition of Mineral Prospect.  Whenever this Lease shall be terminated in whole or in part, for any reason whatsoever, Lessee shall deliver up the terminated portion of the Red Rock Mineral Prospect to Lessor in reasonably good and safe condition and in compliance with all laws, statutes, ordinances, rules, regulations, permits and plans of operation. Lessee shall, however, subject to any laws, rules or regulations which may be applicable at the time and the requirements of Articles 13 and 17, have the right to remove any or all of the Improvements placed by it on or within the terminated portion of the Red Rock Mineral Prospect; provided, however, Lessee shall leave in place all track, pipe, including any improvements which were affixed to the property for the purpose of using the water rights, timber, chutes and ladders without any warranty as to condition or fitness for use except for the Lessee’s duties to secure openings as set forth in the last sentence of this Article 17.  Within thirty (30) days after complete termination, Lessee shall assign to Lessor any assignable water rights acquired and perfected by Lessee during the Term of this Lease which are situated on the Red Rock Mineral Prospect and any water rights which are situated off the Red Rock Mineral Prospect but which were acquired for the purpose of conducting work on the Red Rock Mineral Prospect.  Lessee shall have the right to effect the removal of such improvements, other than those specified above to be left in place, prior to such termination of this Lease or within one hundred twenty (120) days thereafter with the specific exceptions of property and Improvements on which Lessor has a lien pursuant to Article 15, and property and Improvements required for Lessee to fulfill its obligations to government entities or under the Lease which survive termination of the Lease. Any improvements not removed prior to termination or within three hundred sixty-five (365) days following such termination shall be deemed affixed to the terminated portion of the Red Rock Mineral Prospect and shall become and remain the property of the Lessor, except property and Improvements which have been left in place in order for Lessee to fulfill its obligations which survive this Lease. Lessee shall have three hundred sixty-five (365) days after satisfaction of a given obligation to remove equipment and improvements required in connection with fulfillment of that obligation and policy. In the event of termination under Article 15, Lessee shall have three hundred sixty-five (365) days to remove its property and Improvements after Lessor has released any lien on them.  Upon partial or complete termination, Lessor shall retain title to all water rights acquired and perfected by Lessee during the Term of this Lease which are situated on the Red Rock Mineral Prospect and any water rights which are situated off the Red Rock Mineral Prospect but which were acquired for the purpose of conducting work on the Red Rock Mineral Prospect, improvements, stockpiles, dumps and tailings, including heap leach remnants, generated from mining and treating ores from or on the Red Rock Mineral Prospect.

 

Within one hundred eighty (180) days after the partial or complete termination, Lessee shall comply, or shall be in the process of diligently and in good faith complying with all applicable environmental, restoration and reclamation laws, statutes, ordinances, rules, regulations, permits and plans of operation pertaining to the Red Rock Mineral Prospect. Lessee is solely responsible for any governmental requirements and liability related to Lessee’s operations and actions under this Lease and even if the Lessee has complied with governmental requirements and has completed the restoration work to the satisfaction of government agencies upon termination of the Lease, if a governmental agency shall require some additional work at a future date resulting from Lessee’s operations on the Red Rock Mineral Prospect, the Lessee shall be liable to perform same.  Lessee shall indemnify and hold Lessor harmless from any such responsibility. Further, within one hundred 

 

  

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eighty (180) days of partial or complete termination, Lessee shall secure all openings in accordance with federal and state regulations to eliminate access by the public to any and all shafts, mines, tunnels, adits, winzes, man ways, excavations, air lines, and/or vent tubes after consulting with Lessor regarding Lessor’s requirements for access.

 

17.         Books and Accounts.  Lessee shall maintain on a current basis complete and accurate records and books of account in accordance with generally accepted accounting principles consistently applied covering all matters necessary to the proper computation of the Production Royalties described in Article 4 hereof and the proof of having made approved yearly expenditures under Article 5 hereof. True copies of said records and books of account shall be kept either in the vicinity of the Red Rock Mineral Prospect, elsewhere within the State of Nevada or at Lessee’s principal executive offices, at Lessee’s option, and shall be open to inspection by Lessor or its authorized agents with a minimum five (5) business days’ advance notice given by Lessor or with shorter notice at the discretion of the mine manager at any reasonable time during normal business hours, provided such inspections do not unduly interfere with or hamper the managerial or accounting staffs of Lessee.  Within sixty (60) days after the end of each calendar year during the term hereof, Lessee shall furnish to Lessor an unaudited “Year-End Statement” showing the amount of Production Royalties paid to Lessor by Lessee during said year and the basis thereof.  All statements so furnished shall be conclusively presumed true and correct after the expiration of twelve (12) months from the date of receipt by Lessor, unless within said twelve (12) month period Lessor gives written notice of exception to Production Royalty computations or the listing which shows the description and extent of yearly work expenditures, specifying with particularity the components excepted to and the grounds for such exception.  Lessor shall be entitled to an annual independent audit of the matters covered by said statement, at Lessor’s sole expense, provided Lessor selects for such audit an accounting firm of recognized standing, at least one of whose members is a member of the American Institute of Certified Public Accountants.

 

18.         Data Inspection.  Lessee shall furnish Lessor with copies of any agreements (including, but not limited to, haulage, milling, refining, extracting, and ore and concentrate purchase  agreements),  and  any  amendments thereto,  which  in any  way  relate to the determination of Production Royalties and Work Expenditures under this Lease.   Said documents shall be furnished by Lessee to Lessor within thirty (30) days after executing such agreements or amendments.  This article shall not obligate Lessee to furnish consulting and employment agreements, software and technology licensing agreements and any other agreements under which Lessee is obligated to maintain confidentiality or which constitute Lessee’s trade secret information.  Lessee shall furnish Lessor with copies of all settlement sheets or statements which in any way relate to the sale or other disposition of Leased Substances produced from the Red Rock Mineral prospect within thirty (30) days after receiving such sheets or statements. Lessee shall furnish Lessor with full, true and accurate information in response to any request with respect to the condition of mine workings on the Red Rock Mineral Prospect, or with respect to the grade, quantity or quality of Leased Substances found in drilling, exposed in mining the Red Rock Mineral Prospect or mined, processed or shipped by Lessee.

 

Lessee shall keep full and accurate records of all operations conducted on the Red Rock Mineral Prospect, including assays, drilling records, drill hole location maps and mine maps which shall be open to inspection by Lessor or Lessor’s agent with a minimum five (5) business days’ advance notice given by Lessor or its authorized agents or with shorter notice at the discretion of the mine manager during regular business hours and upon reasonable notice with the provision that copies of any of these materials shall on request be furnished to Lessor by Lessee at Lessor’s expense.  If records of operations are being stored and maintained as computer files, computer-ready copies of the computer files and instructions to retrieve data from them shall be furnished to Lessor by Lessee upon Lessor’s request and at Lessor’s expense.   Such computer files shall be in addition to and not as replacements for hard copies of data which shat available for inspection and study on media other than computer files.  Lessor, at Lessor’s risk and expense, shall have the right to enter upon and into all parts of the Red Rock Mineral Prospect from time to time, and at all reasonable times and hours 

 

  

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with a minimum five business days’ advance notice given by Lessor or its authorized agents or with shorter notice at the discretion of the mine manager, for the purpose of inspecting or surveying the same, or taking reasonable samples of Leased Substances therefrom.  Lessee agrees to prepare chiptrays sequentially soon after acquisition of chip samples and as drilling progresses.  It is Lessor’s responsibility to provide adequate storage facilities for chiptrays and splits of all rotary cuttings provided to Lessor and Lessor and Lessee agree to cooperate in taking reasonable steps necessary to insure that drill core, chiptrays and drill cuttings, chiptrays and/or core will not be exposed to the weather or be accessible to intrusion or vandalism by the public. Lessee agrees to give Lessor adequate advance warning of the need for storage space for large quantities of drill cuttings and chiptrays.  Lessee shall not be obligated to provide separate chiptrays for Lessor.   Lessor hereby indemnifies and agrees to hold Lessee harmless from and against liability arising from personal injury, death or property damage when such is caused by Lessor’s actions on the Red Rock Mineral Prospect.

 

If this Lease is terminated for any reason, Lessee shall, within thirty (30) days thereafter furnish Lessor with legible, true copies of all exploration and development data generated by Lessee in its exploration and/or development of the Red Rock Mineral Prospect which has not been previously delivered to Lessor including, but not limited to, legible copies of drilling logs, assay results, survey information, maps and cross-sections including geologic interpretive data including reproducible mylars or sepias which may have been prepared by Lessee.  If data calculations from the Red Rock Mineral Prospect are stored as computer files, computer-ready copies of the files and instructions to retrieve the data contained in them shall be furnished to Lessor. Delivery of such computer files does not excuse or release Lessee from delivering all the other data required under this Lease.   Drill hole chiptrays and/or core samples shall be included as data and transported to Lessor’s designated storage facility. Lessor shall not disclose to the public during the term of this Lease, without a prior written consent of Lessee, information furnished to or made available to Lessor by Lessee regarding any portion of Red Rock Mineral Prospect while such portion is subject to the terms of this Lease except as may be required by law or securities rules or regulations.

 

Promptly following execution of this Lease, and at anytime during the Term hereof, Lessor shall make available to Lessee, at Lessee’s sole expense, copies of all technical, title and recording information and data relating to the Red Rock Mineral Prospect in the possession of Lessor.

 

19.         Commingling.  As a matter of policy, the Lessor does not permit ores or other materials containing Leased Substances from its properties to be commingled with such materials from other properties.   However,  Lessor and  Lessee  mutually  agree that  if commingling is objectively reasonable and necessary for the development of a viable mining operation or demonstrable economic benefit to a mining operation, they will work together in good faith to devise language which will permit commingling of ores from the Red Rock Mineral Prospect with those from adjacent lands, provided such language requires Lessee to provide production records sufficient to demonstrate monies are being distributed properly.   Such language shall be incorporated into a mutually acceptable Accountability Procedure for Commingling, which shall comply with industry standards, and shall be agreed upon prior to commingling of any ores from the Red Rock Mineral Prospect.

 

The Accountability Procedure shall specify methods and procedures to determine reasonably precise and accurate estimated quantities of Commercially Recoverable Valuable Products to be commingled prior to actual commingling, methods and procedures to track commingled Commercially Recoverable Valuable Products through Lessee’s operations, and procedures to reconcile actual recovered Valuable Products with pre-commingling estimates. The Accountability Procedure shall include provisions for periodic internal metallurgical audits with results to be routinely furnished to Lessor and shall include provisions for external metallurgical audits at Lessor’s or Lessee’s request, including procedures for selection of metallurgical auditors acceptable to both parties and a formula to determine which party pays for an external audit.

 

20.         Notices.  Unless otherwise herein provided, notice or payment hereunder shall be 

 

  

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deemed sufficiently given or made when personally delivered or on the third day after deposit in the United States mail, first class, postage prepaid, registered or certified, return receipt requested, and addressed as follows:

 

 

TO LESSOR:

 

Arthur R. Leger

2338 Sunrise Drive

Reno, Nevada 89509

Fax: (775) 827-6312

 

TO LESSEE:

 

Arttor Gold LLC

1640 Terrace Way

Walnut Creek, California 94597

Fax: (646) 349-2761

 

or to such other person or address as either party may designate by proper written notice.

 

 

21.         Force Majeure.   Except for the payments and the time requirements with respect thereto set forth in Articles 3, 4, 6, 9,10, 13, 14 and 19 hereof, whenever the time for performance of any act hereunder is limited and the performance thereof is hindered, prevented or delayed by any factor or circumstance beyond the reasonable control of Lessee and which Lessee is obliged to perform and which Lessee could not have avoided by the timely use of due diligence and adequate planning, such as acts of God, fire, floods, strike or labor troubles, breakage of machinery, inability to obtain necessary materials, supplies or labor, interruptions in delivery or transportation, shortage of railroad cars, insurrections or mob violence, regulations, orders or requirements of the government, embargoes, war or other disabling causes, whether similar or different, then the time for the performance of any such act or obligation shall be extended for a period equal to the time between Lessee’s notification of existence and the termination of the force majeure. Lessee shall immediately notify Lessor in writing of the existence of a force majeure, and Lessee shall use due diligence to remove the force majeure and shall promptly notify Lessor when the declaration of force majeure is terminated.  It is expressly understood that litigation or arbitration in which Lessee is a party shall not constitute a condition of force majeure hereunder.

 

22.         Assignment; Sublease; Joint Operations; Transfers.  The subject matter of this Lease includes unpatented mining claims.  The parties recognize the uncertain and tenuous nature of title to unpatented mining claims. Further, the parties recognize the critical importance of complying with state and federal regulations and statutes in preserving said title. The parties expressly agree that part of the material consideration for this agreement is Lessor’s confidence in Lessee’s ability and commitment to perform its duties hereunder, such duties include but are not limited to performance of annual assessment work and perfection of proof thereof as provided in Article 10; development of all necessary exploration, operation, reclamation and bonding plans as provided in Article 5; compliance with all local, state and federal laws, statutes, ordinances, rules and regulations as provided in Article 12, payment of all taxes as provided in Article 13; and application of the highest level of its professional, technical and financial ability and willingness to explore and operate the Red Rock Mineral Prospect in compliance with all of the terms of the Lease, all of which are necessary to protect the Red Rock Mineral Lease.

 

Lessee expressly agrees that it shall not assign, sublease, enter a joint operating agreement, or otherwise transfer all or any part of its rights or duties under this Lease without performance of the following express conditions:

 

Prior to execution of any documents effecting such a transfer, Lessee shall provide Lessor with a copy of the proposed transfer documents together with all exhibits and attachment thereto not less than fifteen (15) days prior to Lessee’s execution thereof.

 

  

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Lessee shall not execute any transfer documents or obligate itself to make any such transfer without obtaining the prior written consent of Lessor. Lessor agrees that its prior written consent to any such transfer shall not be unreasonably withheld. Lessor’s rejection of Lessee’s request for consent to a proposed transfer shall not be deemed unreasonable if the proposed transfer would have material adverse effect on Lessor’s rights in the Red Rock Mineral Prospect or Lessor’s rights under this Lease.  Within fifteen (15) days after Lessor’s receipt of the proposed transfer documents, Lessor shall inform Lessee that Lessor consents to the transfer or rejects Lessee’s request for consent to the transfer.  If Lessor does not within fifteen (15) days after Lessor’s receipt of a copy of the proposed transfer documents notify Lessee of Lessor’s decision, Lessor shall be deemed to have irrevocably released and waived Lessor’s right to require Lessor’s consent to the propose transfer.  If within fifteen (15) days after Lessor’s receipt of a copy of the proposed transfer documents Lessor notifies Lessee that Lessor rejects Lessee’s request for consent to the proposed transfer, Lessor shall deliver with Lessor’s notice a detailed written statement of Lessor’s reasons for rejection of Lessee’s request for consent to the proposed transfer.

 

Lessee shall expressly guarantee performance of all of the duties of Lessee under this Lease whether said duties accrue before or after transfer of the Lease by Lessee.  Said guarantee shall be express in the documents which effect such sale, loan, sublease, assignment joint venture agreement or other transfer, and no refusal by Lessor to consent to any transfer shall be unreasonable if Lessee fails or refuses to guarantee the obligations of the transferee in the same instrument, or if the same instrument does not obligate the transferee to be bound by the terms and conditions of this Lease to the same extent as the transferor (Lessee).  If the transfer is the grant of a security interest in or other encumbrance of all or any part of Lessor’s interest hereunder in order to secure a loan to Lessee, the instrument documenting the transfer shall recite that it is subject to the terms and conditions of this Lease and that upon any foreclosure of or other enforcement of rights in the encumbrance the foreclosing party shall assume the position of Lessee hereunder and shall comply with and be bound by all terms and conditions of this Lease.   No transfer by Lessee hereunder shall relieve Lessee from any obligation which accrued or attached prior to the effective date of the transfer.

 

Lessee agrees that this Article 22 shall be expressly incorporated, and not incorporated by reference, in any sale, assignment, sublease, joint operation agreement, or other document effecting such a transfer, and in any and all subsequent sales, assignments, subleases, joint operating agreements, or any other documents effecting a transfer of its rights or duties under this Lease.

 

It is expressly agreed that should Lessee enter into any sale, loan instrument, assignment, sublease, joint operating agreement or other transfer of Lessee’s rights or duties hereunder without prior performance of conditions A, B, C and D listed immediately above, such transfer shall be void and such transfer shall constitute a material breach of this Lease by Lessee.

 

Lessor agrees that its prior written consent to any such transfer shall not be unreasonably withheld. Lessor may without any consent and without any prior notice to Lessee sell, encumber or otherwise transfer its rights under this Lease. Lessor shall deliver a true and correct copy of any documents evidencing such a sale, encumbrance or transfer to Lessee within fifteen (15) days after execution thereof.

 

Lessee agrees to provide Lessor, after its written consent thereto, with a counterpart original of any sale, loan instrument, assignment, sublease, joint venture agreement, or other transfer documents complete with all supporting documents, attachments, and exhibits within fifteen (15) days after execution thereof.

 

23.         Right of First Refusal.   In the event Lessor shall receive an offer form a third party (the “Offeror”) to purchase the Red Rock Mineral Prospect which Lessor wishes to accept, Lessor shall provide written notice thereof to Lessee indicating the name and address of the Offeror  and the price and terms of payments proposed by the Offerer (the “Notice of Offer to Purchase”).   For a period of sixty (60) days after the mailing of such notice, the Lessee shall have the right to purchase the Red Rock Mineral Prospect at the price and on the terms specified in the Notice of Offer to Purchase.

 

24.         Governing Law.   This Lease shall be governed by the laws of the State of Nevada and in any litigation action between Lessor and Lessee, the parties shall submit to the jurisdiction of the courts of Nevada with a venue in Reno, Nevada.

  

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25.         Press Releases by Lessee.   On the date of Lessee’s making or issuing any public announcement, press release or similar publicity or disclosure with respect to this Lease, a full, true and accurate copy of the publicity release shall be sent to the Lessor.  For any disclosure required by law, rule, regulation or ordinance, the disclosing party shall advise the other part of such disclosure and send the other party a full, true and accurate copy thereof.

 

26.         Titles of Articles.  The titles to the Articles hereof have been inserted for convenience only. Such titles are not to be considered as limiting or expanding or modifying in any other fashion the language of the Article following the same.

 

27.         Attorneys’ Fees.  The prevailing party in any litigation or other form of dispute resolution mutually acceptable to the parties hereto concerning this Lease shall be entitled to its reasonable attorneys’ fees and court costs.

 

28.         No Waiver.  No waiver by either party of any right herein shall be construed as a waiver of any such right in the future or any other right in this Lease.

 

29.         Binding Effect.  Subject to the provisions of Article 22, this Lease shall extend to and be binding upon and every benefit hereof shall inure to the parties hereto, their respective heirs, executors, administrators, successors and assigns.

 

30.         Memorandum.   Lessee and Lessor shall execute a Memorandum of this Lease in a recordable form under the laws of the State of Nevada to give notice to third parties of the rights granted hereunder.  Either party may record such memorandum.  Neither of the parties hereto shall or may record this Lease.

 

31.         Obligation of Good Faith.  All obligations and covenants set forth in this Lease shall be subject to an obligation of good faith by both Lessor and Lessee in the performance or enforcement thereof. It is mutually understood and agreed that “Good Faith” means honesty in fact in the conduct or transaction concerned.

 

32.         Sole  Agreement;  Time  of Essence.  This  Lease  constitutes  the  sole understanding of the parties with respect to the subject matter hereof.  All prior written or oral agreements or understandings between the parties hereto are incorporated in and superseded by this Lease.

 

No modification or alteration of the terms of this Lease shall be binding unless such modification or alteration shall be in writing and executed subsequent to the date hereof by Lessee and Lessor.   In the event such modification or alteration alters the rights granted hereunder, the parties may execute an amended Memorandum of this Lease in a recordable form sufficient under the laws of the State of Nevada to provide notice to third parties. Time is of the essence of this Lease.

 

33.         Further Assurances.  Lessor and Lessee agree that they shall take from time to time such actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Lease.

 

34.         Authority.  Lessor hereby represents and warrants that Arthur R. Leger has the necessary power and authority   to lawfully authorize the execution and delivery of this Lease and the other instruments to be executed and delivered in connection herewith and to undertake the performance of its obligations hereunder. This Lease, and the other instruments to be executed and delivered in connection herewith when executed and delivered by Lessor shaIl constitute valid and 

 

 

  

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binding obligations of both enforceable against them in accordance with their respective terms, and will not result in any violation of the trust agreement or laws applicable thereto.

 

 

[Signature page follows]

 

  

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IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written.

 

 

 

	 	
LESSOR: F.R.O.G. Consulting, LLC

 

	 	
Arttor Gold LLC

 

	 
	 	By:	/s/ Arthur Leger	 	By:	/s/ Edward Karr	 
	 	Name:	Arthur Leger	 	Name:	Edward Karr	 
	 	Title:	President	 	Title:	Member	 
	 	 	 	 	 	 	 

 

 

	 	By:	/s/ Arthur Leger	 
	 	Name:	Arthur Leger	 
	 	Title:	Member	 

 

 

	 	By:	/s/ David Rector	 
	 	Name:	David Rector	 
	 	Title:	Member	 

 

 

22ex10_1.htm

AMARANTUS THERAPEUTICS, INC.

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

PURCHASE AGREEMENT

THIS SENIOR SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT (the "Agreement") is entered into as of December 28, 2010 (the "Effective Date"), by and among Amarantus Therapeutics, Inc., a Delaware corporation (the "Company"), each of the parties (collectively the "Investors" and individually an "Investor") severally listed on the Schedule of Investors attached hereto as Exhibit A, and Seahawk Capital Partners, Inc., as collateral agent on behalf of the Investors (the "Collateral Agent").

RECITALS

	
A.  

	
WHEREAS, the Company desires to issue and sell up to $250,000 in principal amount of secured convertible promissory notes to the Investors.

	
B.  

	
WHEREAS, the Investors desire to purchase secured convertible promissory notes from the Company in accordance with this Agreement.

1.           Purchase and Sale of Notes.

1.1           Purchase and Sale. The Company hereby agrees to issue and sell to each Investor, and each Investor hereby, severally and not jointly, agrees to purchase from the Company a Secured Convertible Promissory Note in the form attached hereto as Exhibit B (individually a "Note" and collectively, the "Notes"), at a price equal to 100% of the principal amount set forth opposite such Investor's name on Exhibit A (the "Purchase Price") for the applicable closing (as set forth below).

1.2           First Closing. Subject to Section 7 hereof, the first closing of the purchase and sale of the Notes (the "First Closing") shall take place at the offices of the Company (or remotely via the exchange of documents and signatures) on the date hereof (the "First Closing Date"). At the First Closing, each Investor (severally but not jointly) shall purchase, and the Company shall Issue and sell to each such Investor, a Note for the stated principal amount as set forth opposite each Investor's name under the caption "First Closing" on Exhibit A attached hereto.

1.3           Delivery. At the First Closing, the Company shall deliver to each Investor a duly executed Note in the principal amount of the Purchase Price paid by such Investor at the applicable Closing against receipt of the corresponding purchase price by check or wire transfer t6 the bank account designated by the Company.

1.4           Subsequent Closings. The Company may sell additional Notes pursuant to this agreement in one or more closings to any Investor or to any other party in the Company's discretion (each such closing, a "Subsequent Closing"), provided that the aggregate maximum principal amount of Notes sold under this Agreement shall not exceed $250,000. Each Subsequent Closing shall occur at a date and location to be held at such place and time as the Company and the investors in such Closing may determine. At each Subsequent Closing, the Company shall deliver to each participating investor a duly executed Note in the principal amount of the Purchase Price against receipt of the corresponding purchase price by check or wire transfer to the bank account designated by the Company. At each Subsequent Closing, Exhibit A will be updated to reflect such additional amounts loaned to the Company. The First Closing and each Subsequent Closing are collectively referred to as the "Closings" and individually as a "Closing."

  

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2.           Security Interest.

(a) The Company hereby grants and pledges to the Collateral Agent for itself and the Investors, its successors and assigns, a continuing and unconditional senior security interest in all presently existing and hereafter acquired or arising Collateral (as such term is defined in Exhibit C hereto) in order to secure the payment and performance of all obligations of any kind or nature of the Company now or hereafter existing under this Agreement and the Notes (collectively, the "Transaction Documents"), whether for principal, interest, costs, fees, expenses or otherwise.

(b) The Company hereby authorizes the Collateral Agent as the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company, to file a financing statement or financing statements or such other contracts, agreements or other instruments (collectively, the "Financing Statements") describing the Collateral in any and all jurisdictions where, and with any and all entities with whom, the Collateral Agent reasonably deems such filing to be necessary or appropriate including, without limitation, the jurisdiction of the Company's location, the United States Patent and Trademark Office and the United States Copyright Office. The Company will reimburse the Collateral Agent for any and all reasonable and documented costs, charges and expenses (including fees of counsel not to exceed $2,000) incurred in connection with such filings. For purposes of this section 2(b), the Financing Statements shall be deemed to include any amendment, modification, assignment, continuation statement or other similar instrument consistent with the rights granted to the Investors under the Transaction Documents.

(c) This Agreement is intended to be a security agreement pursuant to the Uniform Commercial Code for all of the items specified as part of the Collateral,” which, under applicable law, may be subject to a security interest pursuant to the California Commercial Code or any applicable jurisdiction where the Collateral may be located ("UCC"), and the Company hereby grants the Investors a first priority security interest in said items. without the prior written consent of the Collateral Agent, Company shall not create or suffer to be created pursuant to the UCC any other security interest in the Collateral, including replacements and additions thereto except for (a) any liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of the Investors' security interests; (b) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, and mechanic's liens, carrier's liens and other liens to secure the performance of tenders, statutory obligations, contract bids, government contracts, performance and return of money bonds and other similar obligations, incurred in the ordinary course of business, whether pursuant to statutory requirements, common law or consensual arrangements; (c) liens (i) upon or in any equipment acquired or held by the Company to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or existing on such equipment at the time of its acquisition, provided that the lien is confined solely to the equipment so acquired and improvements thereon; (d) leases or subleases and licenses or sublicenses granted to others in the ordinary course of the Company's business; (e) any right, title or interest of a licensor under a license provided that such license or sublicense does not prohibit the grant of the security interest granted hereunder; (f) liens arising from judgments, decrees or attachments to the extent and only so long as such judgment, decree or attachment has not caused or resulted in any Event of Default; (g) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar liens affecting real property not interfering in any material respect with the ordinary conduct of the business of the Company; (h) liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (i) liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; (j) liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlord and other like persons arising in the ordinary course of the Company's business and imposed without action of such parties; (k) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described in clauses (a) and (j) above, provided that any extension, renewal or replacement lien shall be limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; and (I) liens in favor of the Investors and arising from or in connection with the Notes (collectively, "Permitted Liens").

  

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(d) The Company hereby irrevocably appoints the Collateral Agent (and any officer or agent of the Collateral Agent) as its true and lawful attorney-in-fact, with power of substitution for and in the name of the Collateral Agent or otherwise, for the use and benefit of the Investors, effective upon the occurrence of an Event of Default. Also upon the occurrence of an Event of Default, the Collateral Agent shall also have the remedies of a senior secured party" under the UCC and may also invoke the other remedies provided in this agreement and/or the Notes as to the Collateral. In exercising any of said remedies, Collateral Agent may proceed against any or all of the Collateral separately or together and in any order whatsoever, without in any way affecting the availability of the Investors' remedies under the UCC or of the other remedies provided in this Agreement and/or the Notes. Without limiting the generality of the foregoing, the Company expressly agrees that in any such event Collateral ~gent, without demand of performance or other demand, advertisement or notice of any kind [except the notice specified below of time and place of public or private sale) to or upon the company or any other person, may (i) reclaim, take possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in connection with the liquidation of the Collateral and collection of the accounts receivable pledged as Collateral, use any trademark, copyright, patent ~r process used or owned by the Company and (ii) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker's board or elsewhere at such prices as it may deem commercially reasonable, for cash or on credit or for future delivery without assumption of any credit risk. The company further agrees, at the Collateral Agent's request, to assemble its Collateral and make it available to the Collateral Agent at places which the Investors shall reasonably select, whether at the Company's premises or elsewhere. The Collateral Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 2(g), below, with the Company remaining liable for any deficiency remaining unpaid after such application. The Company agrees that the Collateral Agent need not give more than twenty (20) days' notice of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. It is understood and agreed that the power of attorney granted to the Collateral Agent for the purposes set forth above in this Section 2(d) is coupled with an interest and is irrevocable, and the Company hereby ratifies all actions taken by its attorney-in-fact by virtue hereof. The provisions of this Section 2(d) shall in no event relieve the Company of any of its obligations hereunder or under any of the other Transaction Documents with respect to the Collateral or any part thereof or impose any obligation on the Collateral Agent to proceed in any particular manner with respect to the Collateral or any part thereof, or in any way limit the exercise by the Collateral Agent of any other or further right which it may have on the date of this Agreement or hereafter, whether hereunder, under any of the other Transaction Documents, by law or otherwise.

  

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(e) The Company also agrees to pay all fees, costs and expenses of the Investors, including, without limitation, reasonable attorneys' fees, incurred in connection with the enforcement of any of its rights and remedies hereunder.

(f) The Company hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral.

(g) The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be distributed by the Collateral Agent in the following order of priorities:

 

    FIRST, to the Collateral Agent in an amount sufficient to pay in full the reasonable costs of the Collateral Agent in connection with such sale, disposition or other realization, including all fees, costs, expenses, liabilities and advances incurred or made by the Collateral Agent in connection therewith, including, without limitation, reasonable attorneys' fees;

 

    SECOND, to the Investors in an amount equal to the pro-rata unpaid secured obligations of the Investors under this Agreement and all outstanding Notes; and

 

    FINALLY, upon payment in full of such secured obligations, to the Company or its representatives, in accordance with the UCC or as a court of competent jurisdiction may direct.

3.           Conversion of the Notes. Each Note shall be convertible into capital stock of the Company according to the following terms:

 

       3.1   Definitions. The following terms shall have the meaning assigned below:

(a) "Next Equity Financing" means the next sale (in one or F.0re closings) by the Company or any Successor Entity of its capital stock following the date of his Agreement whereby the issuer commits to register the capital stock offered for sale in such financing by filing a registration statement in compliance with the Securities Exchange Act of Conversion. 1934, as amended, and from which the Company or any Successor Entity receives gross proceeds of at least $5,500,000 (excluding any Notes that are converted into such capital stock).

  

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(b) "Maturity Date" means December 6,2011.

(c) "Change of Control" shall mean (A) a consummation of the acquisition of more than 50% of the outstanding stock of the Company (other than a preferred stock financing principally for capital raising purposes), (B) the consummation of a merger, consolidation, or other reorganization of the Company, if after giving effect to such merger, consolidation, or other reorganization of the Company, the stockholders of the Company immediately prior to such merger, consolidation or other reorganization do not hold a majority of the outstanding equity securities of the surviving or resulting entity after such merger, consolidation, or other reorganization, or (C) the sale of all or substantially all of the stock of the Company to a third party. Notwithstanding the foregoing, any such Change of Control shall be limited to the reorganization of the Company as contemplated in that certain term sheet dated October 27, 2010 by and among the Company and Seahawk Capital Partners, Inc., as such term sheet may be amended from time to time (the "Term Sheet").

(d) "Successor Entity" shall mean any entity having beneficial ownership of at least a majority of the outstanding capital stock of the Company as a result of a Change of Control following the date of this Agreement.

3.2           Conversion

(a) Next Equity Financing. In event the Company consummates a Next Equity Financing during such time as any Note is outstanding, then (i) if the Company has undergone a Change of Control, the Company shall cause the Successor Entity to assume all of the Company's obligations under this Agreement and the Notes and (ii) the outstanding principal amount of each Note and all accrued interest thereon shall be automatically converted into the capital stock of the Company or Successor Entity issued in the Next Equity Financing and subject to the same terms and conditions as all other participants in such Next Equity Financing; provided, however, the number of shares of such capital stock to be issued to each Investor upon such automatic conversion shall be equal to the quotient obtained by dividing (x) the outstanding principal amount and all accrued interest due on the Note on the date of conversion by (y) an amount equal to a discount of 66.67% to the lowest price at which a share of capital stock is sold to the investors in the Next Equity Financing. In connection with the conversion pursuant to this Section 2.2(a), the Investor agrees to execute all agreements and documents applicable to investors in the Next Equity Financing.

(b) Optional Common Stock Conversion. In the event a Next Equity Financing is not consummated prior to the Maturity Date, then at the option of the Requisite Holders (as defined in Section 4.9 below), the outstanding principal amount of each Note and all accrued interest thereon may be converted on the Maturity Date into common stock of the Company at a valuation to be mutually determined by the Company and the Requisite Holders at such time.

3.3           Mechanics of Conversion. No fractional shares of the Successor Entity's capital stock or the Company's capital stock, as the case may be, will be issued upon conversion of Notes. In lieu of any fractional share to which the holder would otherwise be entitled, the Successor Entity or the Company, as the case may be, will pay in cash the amount of the unconverted principal and interest balance of the Note that would otherwise constitute such fractional share. Upon conversion of a Note pursuant to this Agreement, each Investor shall surrender such Investor's Note(s) for cancellation, at the principal offices of the Company or any transfer agent for the Company. At its expense, the Successor Entity or the Company, as the case may be, shall promptly issue and deliver to such Investor a certificate or certificates for the number of shares or other securities to which such Investor is entitled upon such conversion, together with any other securities and property to which the Investor is entitled upon such conversion under the terms of this Agreement, including a check payable for any cash amounts payable for fractional shares.

  

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4.           Representation and Warranties of the Company; Covenants.

To induce the Investors to purchase each of the Notes hereunder, the Company represents and warrants to each Investor that as of the First Closing Date:

4.1           Existence and Good Standing of Company. The Company is a Delaware corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has all requisite power and authority to carry on its business as now conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the character of the property owned or leased or the nature of the business transacted by it makes qualification necessary.

4.2           Authority to Execute. The execution, delivery and performance by the Company of the Transaction Documents are within the Company's corporate powers, does not and will not conflict with any organizational document of the Company (including its Certificate of Incorporation or Bylaws), any provision of law in any material respect or any agreement or contractual restriction binding upon or affecting the Company or any of its property. All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of the Transaction Documents by the Company, the authorization, sale, issuance and delivery of the Notes contemplated herein and the performance of the Company's obligations hereunder has been taken and no further action is required by the Company or its stockholders in connection therewith.

4.3           Binding Obligation. This Agreement is, and the other Transaction Documents when delivered hereunder will be, legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles.

4.4           Valid Issuance. The Notes are duly and validly issued. The capital stock to be issued by the Company upon conversion of the Notes shall be duly and validly issued, fully-paid and nonassessable. The issuance of the Notes and any capital stock pursuant to the conversion of the Notes is not subject to any preemptive rights or rights of first refusal ranted by the Company which have not been [waived or complied with, and the Notes are, and any such capital stock will be (assuming the accuracy of Investor's representation and warranties issued in compliance with all applicable federal and state securities laws, and are (or will be) free of any liens and encumbrances; provided, however, that the Notes and capital stock may be subject to restrictions on transfer under federal and state securities laws.

  

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4.5           Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company which questions the validity of this Agreement or the right of the Company to enter into it, or to consummate the transactions contemplated hereby, or which might result, either individually or in the aggregate, in any material adverse effect on the business, properties, financial condition or results of operations of the Company.

4.6           Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Certificate of Incorporation or Bylaws or of any material instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of the Notes and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree, contract, statute, rule or regulation.

4.7           Collateral.

(a) Except for the security interest granted to the Investors under this Agreement and Permitted Liens, the Company is the sole legal and equitable owner of each item of the Collateral in which it purports to grant a security interest hereunder. I

(b) No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral exists, except such as may have been filed by the Company in favor of the Investors pursuant to this Agreement and except for Permitted Liens.

(c) This Agreement creates a legal and valid security interest on and in all of the Collateral in which the Company now has rights.

(d) The Company has paid or will pay when due all taxes, fees, assessments and other charges now or hereafter imposed upon the Collateral except for any tax, fee, assessment or other charge the validity of which is being contested in good faith by appropriate proceedings and so long as the Company has set aside on its books adequate reserves With respect thereto.

(e) Schedule 4.7(e) hereto lists, as to the Company, (i) the Company's chief executive office and other place(s) of business, (ii) the Company's legal organizational structure and its jurisdiction of incorporation, (iii) the address where records relating to the Collateral are maintained, (iv) any other location of the Collateral, (v) location of leased facilities and name of lessor/sublessor, (vi) any fictitious names used by the Company, and (vii) all accounts of the Company together with the name of the bank where they are located, the account number and a contact person.

  

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(f) None of the Collateral is held by a third party in any location as assignee, trustee, bailee, consignee, or in any similar capacity. C attached hereto.

(g) All items constituting the Collateral are set forth on Exhibit C attached hereto.

(h) The Company will maintain the tangible Collateral in good condition and repair and preserve it against loss, damage or depreciation in value other than by reasonable wear and tear.

(i) The Company will maintain and preserve all patents, patent applications, trademarks, trademark applications, license agreements, agency agreements and other similar intangible Collateral in good standing and in full force and effect; and make any payments due by the Company thereunder or perform any obligations on the part of the Company to be performed thereunder, and otherwise not permit any defaults on the part of the Company to occur thereunder. The Company will use reasonable commercial efforts to keep the Collateral Agent advised of the status of any of its pending patent applications. The Company will give prompt written notice to the Collateral Agent of any default or alleged default by any party with respect to any of the foregoing and, if the Company shall be the defaulting party, afford the Collateral Agent, on behalf of the Investors, the opportunity to cure such default (without in any way waiving any claims the Investors may have against the Company for permitting such a default to occur in violation of this Agreement). Upon the Company becoming aware of any alleged violations or infringements of any patent, patent application, trademark or similar rights of the Company, the Company shall give prompt written notice to the Collateral Agent and at the demand of the Collateral Agent, shall, at the Company's cost and expense, take whatever action is appropriate to protect the interest of the Company in such patent, patent application, tradename or similar right and to prevent the continued violation of the Company's rights therein.

(j) The Company will comply with all laws, ordinances and governmental regulations with which it must comply with respect to its ownership of the Collateral.

(k) The Company shall permit the Collateral Agent from time to time while this Agreement is in effect, upon one day's prior notice and during normal business hours, to inspect the Collateral.

(l) The Company will immediately notify the Purchaser upon receipt of any information which may affect in any way the value of the Collateral.

(m) Within thirty (30) days of the date of this Agreement, the Company will obtain and thereafter keep insured by financially sound and reputable insurance companies all the tangible Collateral against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, upon the request 1of the Collateral Agent furnish a certificate of a reputable insurance broker setting forth the nature and extent of all insurance maintained by the Company in accordance with this Section. I II such policies shall name the Collateral Agent as an additional insured and provide for the payment of losses to the Collateral Agent and for thirty (30) days prior written notice to the Collateral Agent of any cancellation.

  

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(n) Except in connection with a merger transaction between the Company and a public shell entity, the Company shall not: (i) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except in the ordinary and usual course of business or as otherwise permitted by this Agreement; or (ii) create or suffer to exist any lien or other charge or encumbrance upon or with respect to any of the Collateral to secure indebtedness owing to any person or entity, except for the security interest created by this Agreement.

(o) The Company will defend any proceeding which may affect title to or the Investor's security interest in the Collateral, and will indemnify and hold harmless the Investor for all costs and expenses incurred by it, including reasonable attorney's fees, in connection with any such proceeding. The Company agrees to indemnify the Investor from and against any and all claims, losses and liabilities, costs and expenses (including, without limitation, reasonable attorney's fees), arising out of or resulting from the Company's breach of this Agreement (including, without limitation, enforcement of this Agreement upon such breach), except claims, losses or liabilities resulting from the Investor's gross negligence or willful misconduct.

4.8           Reservation of Stock. The Company covenants that in connection with its Next Equity Financing and/or Change of Control, as the case may be, the Company will (i) reserve from its authorized and unissued capital stock a sufficient number of shares to provide for the issuance of capital stock upon the conversion of the Notes or (ii) take all necessary steps, within the opinion of legal counsel, to amend its Certificate of Incorporation to provide sufficient reserves of shares of capital stock issuable upon conversion of the Notes.

4.9           The Company covenants and agrees with the Investors that from and after the date of this Agreement and until the Company's obligations under all of the Notes have been performed and paid in full:

(a) Liens. Without the consent of the holders of a majority of the aggregate outstanding principal amount of the Notes (the "Requisite Holders") prior written consent, the Company shall not, directly or indirectly, create, incur, assume or permit to exist any lien on or with respect to any property or assets of the Company, whether now owned or hereafter acquired, or any income or profits therefrom or rights in respect thereof, except pursuant to or as permitted under this Agreement, including Permitted Liens hereunder.

(b) Maintenance of Collateral. The Company will maintain the Collateral in good working condition (ordinary wear and tear excepted), and the Company will not use such Collateral for any unlawful purpose. The Company will immediately advise the Investors in writing of any proposed disposition, material loss or damage to the Collateral (excluding the disposition of inventory in the ordinary course of business).

(c) Compliance with Laws. The Company will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations applicable to Company, including, but not limited to, those relating to the conduct and licensing of the Company's business.

  

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(d) Notification to Secured Party. Unless waived in writing by the Requisite Holders, the Company shall give the Investors at least 15 days' notice before it changes the location of its principal place of business, chief executive office, state of organization or type of entity and shall at the expense of the Company execute and deliver, and authorize the filing of, such records, instruments and documents as may reasonably be required by the Investors to maintain a prior perfected security interest in the Collateral.

(e) Modification to Contracts. Unless waived in writing by the Requisite Holders, the Company shall not modify or substitute contracts included in the Collateral unless (i) such modification is in good faith only and (ii) is not otherwise prohibited hereunder.

(f) Further Assurances. At any time and from time to time, upon the written request of the Requisite Holders, and at the sole expense of the Company, the Company shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as the Secured Party may reasonably deem necessary or desirable for the Secured Party to obtain the full benefits of the security interested granted under this Agreement.

4.10           Board Appointment. In the event a Change of Control and a Next Equity Financing do not close as of the Company's termination of its engagement of Seahawk Capital Partners, Inc. (as such engagement is defined in the Term Sheet and as may be amended from time to time), the Company shall use its best efforts to cause Richard Galterio, or such other person as nominated by the Requisite Holders, to be appointed to the Company's Board of Directors.

5. Representations and Warranties of the Investors.

Each Investor hereby, severally and not jointly, represents and warrants to the Company:

5.1           Authorization; Binding Obligations. The Investor has full power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party, and this Agreement and each other Transaction Document to which it is a party constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles.

5.2           Purchase Entirely for Own Account. The Notes and any securities issuable upon conversion of the Notes (collectively, the "Securities") are acquired for investment for such Investor's own account not as a nominee or agent, and not with a view to the resale or distribution of any part thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities.

5.3           Investment Experience. The Investor is experienced in investing in securities of development stage companies. The Investor is able to fend for itself, can bear the economic risk of its investment, including the full loss of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities.

  

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5.4           Accredited Investor. The Investor is an "accredited investor" within the meaning of SEC Rule 501 of Regulation D, as currently in effect.

5.5           Tax Advisors. Each Investor has reviewed with such Investor's own tax advisor the federal, state and local tax consequences of this investment, where applicable, and the transactions contemplated by this Agreement. Each such Investor is relying solely on such advisors and not on any statements or representations of the Company or other Investors or any of their agents,

5.6           Legal Counsel. Each Investor acknowledges that such Investor has had the opportunity to review this Agreement and the other Transaction Documents, the exhibits and the schedules attached hereto and thereto and the transactions contemplated hereby and thereby with such Investor's own legal counsel and other advisors. Each such Investor is relying solely on such Investor's legal counsel and advisors and not on the Company's or any other Investor's counselor advisors for legal advice with respect to this investment or the transactions contemplated by this Agreement.

6.    Defaults.

6.1           Events of Default. Each of the following events shall be an event of default (the "Event of Default") for purposes of this Agreement and each Note:

(a) Any representation or warranty made by the Company in this Agreement shall not have been true in any material respect when made; provided, that if the facts or events making such representation or warranty untrue are capable of correction or cure, then the Company shall have thirty days after notice of the breach is delivered to the Company to correct or cure such breach;

(b) The Company fails to observe or to perform any material covenant, obligation, condition or agreement contained in this Agreement or the Note; provided, that if the failure to observe or to perform such obligations may be remedied or cured, then the Company shall have thirty days after notice of the breach is delivered to the Company to correct or cure such breach;

(c) One or more judgments for the payment of money in an amount in excess of $200,000 in the aggregate shall be rendered against the Company and shall remain undischarged for a period of thirty days during which execution shall not be effectively stayed, or any action is legally taken by a judgment creditor to levy upon any such judgment;

(d) The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated in full or in part, , (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it or (vi) take any action for the purpose of effecting any of the foregoing;

  

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(e) If any material portion of the Collateral shall be damaged, destroyed, or otherwise lost and such damage, destruction or loss is not covered by insurance; or

(f) Upon commencement of any proceeding against the Company seeking any bankruptcy reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, provided such proceeding shall not have been dismissed within sixty (60) days of filing.

Notwithstanding any provision of this Section 6.1 to the contrary, in no event shall any of the transactions contemplated pursuant to the Term Sheet be deemed an Event of Default.

6.2           Rights and Remedies. If any Event of Default shall occur, Investors may, with written consent of the Requisite Holders, (a) declare the Notes, all interest thereon, and all other obligations under, or pursuant to, the Transaction Documents to be immediately due and payable, and upon such declaration, the outstanding principal and accrued and unpaid interest on the Notes shall immediately be due and payable, without presentment, demand, protest or any notice of any kind, all of which are expressly waived; and (b) exercise any other right, power or remedy granted to it by any of the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both.

7.     Conditions to Closing.

7.1           Investors' Conditions to Closing. Each Investor's obligation to purchase the Notes at each of the Closings as provided herein, except as specifically indicated below, is subject to the fulfillment on or prior to the First Closing (except as specifically indicated below) of the following conditions:

(a) Representations and Warranties Correct. The representations and warranties made by the Company in Section 4 shall be true and correct.

(b) Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the applicable Closing shall have been performed or complied with.

(c) Deliverables. The Company shall have executed and delivered to the Investors their respective Notes.

7.2           Company's Conditions to Closing. The Company's obligation to sell and issue the Notes at each Closing is subject to the fulfillment of the following conditions:

(a) Representations and Warranties Correct. The representations made by the Investors in Section 5 shall be true and correct on the date of each applicable Closing with the same force and effect as if they had been made on and as of said date (except with respect to representations and warranties that are as of a specific date, in which case the representations and warranties shall be true and correct as of such date).

  

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(b) Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by each Investor on or prior to the applicable Closing shall have been performed or complied with, including, but not limited to, payment to the Company of the principal amounts of the Notes to be issued to such Investor.

8.           Miscellaneous.

8.1           Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's property and assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the obligations under this Agreement and the Notes, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of such obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, such obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

8.2           No Waiver; Cumulative Remedies. No failure or delay on the part of any party to this Agreement in exercising any right or remedy under, or pursuant to, any Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy or power preclude other or further exercise thereof, or the exercise of any other right, remedy or power. The remedies in the Transaction Documents are cumulative and are not exclusive of any remedies provided by law.

8.3           Amendment. Neither this Agreement nor the Notes shall be amended except upon written consent of the Company and the Requisite Holders. Each Investor acknowledges that an amendment of this Agreement and/or the Notes may occur by consent of the Requisite Holders and shall be binding upon all Investors. Notwithstanding the foregoing, Exhibit A shall be updated to reflect the issuance of Notes at any Subsequent Closing without the need to comply with the preceding sentence.

8.4           Entire Agreement; Waivers. This Agreement and the Notes and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties and supersede all prior understandings with regard to the subject matter hereof and thereof. No waiver of any provisions of any this Agreement or the Notes shall be effective unless such amendment or waiver is in writing signed by the Requisite Holders and the Company, any such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which it was given.

  

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8.5           Notices. All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person, sent by facsimile transmission to the number set forth on the signature page hereof or Exhibit A hereto, or such other number as may hereinafter be designated in writing by the recipient to the sender, or duly sent by first class registered or certified mail, return receipt requested, postage prepaid, or overnight delivery service (e.g., Federal Express) addressed to such party at the address set forth on the signature page hereof or such other address as may hereafter be designated in writing by the addressee to the addresser. All such notices and communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of facsimile transmission, on the date of transmission, and (c) in the case of mailing or delivery by service, on the date of delivery as shown on the return receipt or delivery service statement. An electronic communication ("Electronic Notice") shall be deemed written notice for purposes of this Section 8.4 if sent with return receipt requested to the electronic mail address specified on the signature page hereof or Exhibit A hereto. Electronic Notice shall be deemed received at the time the party sending Electronic Notice receives verification of receipt by the receiving party. Any party receiving Electronic Notice may request and shall be entitled to receive notice on paper, in a non-electronic form ("Non-Electronic Notice"), which shall be sent to the requesting party within ten days of receipt of the written request for Non-Electronic Notice.

8.6           Costs and Expenses. Each party shall bear their own costs and expenses, including legal fees, in connection with the preparation and negotiation of the Transaction Documents.

8.7           Governing Law; Actions; Waiver of Trial by Jury. This Agreement shall be constructed and construed in accordance with the internal substantive laws of the State of New York, without regard to the choice of law principles of said State. The exclusive venue of any action, suit, counterclaim or cross claim arising under, out of, or in connection with this Agreement shall be the state or federal courts in New York, New York. The Company hereby consents to the personal jurisdiction of any court of competent subject matter jurisdiction sitting in New York, New York.

8.8           Severability. If any term in this Agreement shall be held to be illegal or unenforceable, the remaining portions of this Agreement shall not be affected, and this Agreement shall be construed and enforced as if this Agreement did not contain the term held to be illegal or unenforceable.

8.9           Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and each Investor and their respective successors and assigns. The Company may not assign its rights or interest under this Agreement without the prior written consent of the Requisite Holders.

8.10           Survival of Warranties. The representations and warranties of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement, and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the other parties.

8.11           Exculpation Among Investors. Each Investor acknowledges that it is not relying upon any person, association or entity, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each of the Investors agrees that no other Investor or the respective controlling persons of any other Investor shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the transactions contemplated by this Agreement.

  

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8.12           Appointment of Collateral Agent. Investor hereby irrevocably designates Seahawk Capital Partners, Inc. as Collateral Agent. Investor hereby irrevocably authorizes the Collateral Agent to exercise all of the rights of the Investor under the provisions of this Agreement, and any other instruments and agreements referred to herein, and to exercise such other powers and take such other actions as are appropriate to protect the interests of the Investor in the Collateral. The provisions of this Section are solely for the benefit of the Collateral Agent and Investor, and neither the Company nor any of its subsidiaries or affiliates shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Collateral Agent shall act solely as agent of the Investors and the Collateral Agent does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with the Company, or for any of its subsidiaries or affiliates. The Collateral Agent shall administer the Collateral and any lien thereon for the benefit of the Investors in the manner provided herein. The Collateral Agent shall exercise such rights and remedies with respect to the Collateral as are granted to the Investor hereunder and applicable law and as shall be directed by the Investors. All directions of the Investor shall be determined by the Requisite Holders. Upon payment in full of all obligations under this Agreement and the Note (including, without limitation, upon the conversation of the Note in accordance with the terms herein), the Collateral Agent shall promptly release any and all Collateral. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, electronic mail, cablegram, radiogram, order or other document, telephone message, or other electronic form of communication signed, sent or made by Investor and upon advice and statements of legal counsel, independent accountants and other experts selected by the Collateral Agent. The Collateral Agent may resign from the performance of all its respective functions and duties hereunder and under related documents at any time by giving 15 day's prior written notice to the Investors and the Company. Such resignation shall take effect upon the appointment of a successor Collateral Agent.

8.13           Counterparts. This Agreement shall be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

8.14           Requisite Holders. Anything to the contrary notwithstanding, any change to this Agreement or waivers of any of the terms, provisions and conditions of this Agreement can be made or determined upon the mutual consent of the Company and the Requisite Holders.

 

[Signatures appear on the following page.]

  

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IN WITNESS WHEREOF, the parties have executed this Senior Secured Convertible Promissory Note Purchase Agreement as of the day and year first above written.

COMPANY:

AMARANTUS THERAPEUTICS, INC.

/s/ Martin D. Cleary

By: Martin D. Cleary

Its: Chief Executive Officer

COLLATERAL AGENT:

 

 

SEAHAWK CAPITAL PARTNERS, INC.

/s/ Michael Caridi

By: Michael Caridi

Its: Vice President

  

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IN WITNESS WHEREOF, the parties have executed this Senior Secured Convertible Promissory Note Purchase Agreement as of the day and year first above written.

 

 

INVESTORS:

Ascendant Partners, LLC.

By: /s/ Richard Galtcrio

Name: Richard Galtcrio

Title: Managing Member

Address: 112 Serpentine Drive,

Morganville, NJ 07751

Telephone: (732) 642-7720

Fax:

E-Mail: Flm500@yahoo.com

  

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IN WITNESS WHEREOF, the parties have executed this Senior Secured Convertible Promissory Note Purchase Agreement as of the day and year first above written.

 

 

INVESTORS:

Seahawk Capital Partners

By: /s/ Michael Caridi

Name: Michael Caridi

Title: Vice President

Address: 122 E. 42nd St. Ste. 2900

N.Y., NY. 10168

Telephone: (212) 949-3400

Fax: (212) 949-7534

E-Mail: Mcaridi@seahawkcap.com

  

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IN WITNESS WHEREOF, the parties have executed this Senior Secured Convertible Promissory Note Purchase Agreement as of the day and year first above written.

 

 

INVESTORS

By: /s/ Marc Siegel

Name: China Discovery Investors

Title: Marc Siegel (G.P)

Address: 943 Lake Wyman Rd.

Boca Rain, FL. 33431

Telephone: (561) 213-6076

Fax:

E-Mail: edgefund2003@yahoo.com

  

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EXHIBIT A

 

Schedule of Investors

First Closing

	
Investor

	 	
Principal Amount of Note

	 	
Purchase Price

	
China Discovery Investments Limited

	 	$	125,000.00	 	$	125,000.00
	
Ascendant Partners, LLC

	 	$	62,500	 	$	62,500
	
Seahawk Capital Partners, Inc.

	 	$	62,500	 	$	62,500

  

  

  

 

EXHIBIT B

 

Form of Note

 

  

  

  

 

SECURED CONVERTIBLE PROMISSORY NOTE

	
PN-1

	
Date of Issuance

	
$________________

	
________________, 201__

FOR VALUE RECEIVED, Amarantus Therapeutics, Inc., a Delaware corporation (the "Company"), hereby promises to pay ________________________________________________(the "Investor"), the principal sum of __________________________________________ ($_____________________.____), together with interest thereon from the date of this Note. Simple interest shall accrue at a rate of 5% per annum. Unless converted into Company capital stock pursuant to Section 3 of that certain Senior Secured Convertible Promissory Note Purchase Agreement dated December 28, 2010, among the Company, Investor and certain other Investors, and Seahawk Capital Partners, Inc. (the "Purchase Agreement"), the principal and accrued interest shall be due and payable by the Company on the Maturity Date (as such term is defined in the Purchase Agreement).

This Note is one of a series of notes (the "Notes") issued pursuant to the Purchase Agreement, and capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement.

1. Payment. All payments shall be made in lawful money of the United States of America at the principal office of the Company, or at such other place as the holder hereof may from time to time designate in writing to the Company; provided that the Investor may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Investor's wire transfer instructions. Whenever any amount expressed to e due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day. Payment shall be credited first to Costs (as I defined below), if any, then to accrued interest due and payable and any remainder applied to principal. The Company hereby waives demand, notice, presentment, protest and notice of dishonor.

2. Prepayment. The Company shall not have the right to call, refinance or prepay the Note in whole or in part.

3. Security. This Note is a senior secured obligation of the Company, pursuant to the terms of Section 2 of the Purchase Agreement.

4. Priority. This Note shall be senior in all respects to all other indebtedness of the Company and pari passu with the other Notes issued pursuant to the Purchase Agreement.

5. Conversion of the Notes. This Note and any amounts due hereunder shall be convertible into the capital stock of the Company or Successor Entity, whichever the case may be, in accordance with the terms of Section 3 of the Purchase Agreement. As promptly as practicable after the conversion of this Note, the Company or Successor Entity at its expense shall issue and deliver to the holder of this Note, upon surrender of the Note, a certificate or certificates for the number of shares of capital stock issuable upon such conversion.

6. Amendments and Waivers; Resolutions of Dispute; Notice; Failure or Delay. The amendment or waiver of any term of this Note, the resolution of any controversy or claim arising out of or relating to this Note and the provision of notice shall be conducted pursuant to the terms of the Purchase Agreement. Notwithstanding the foregoing, to the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Purchase Agreement. No failure or delay on the part of the Investor in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such. power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege .

  

  

  

 

7. Successors and Assigns. This Note applies to, inures to the benefit of, and binds the successors and assigns of the parties hereto. Any transfer of this Note by the Investor may be effected only pursuant to the Purchase Agreement and by surrender of this Note to the Company and reissuance of a new note to .the transferee. The Investor and any subsequent holder of this Note receives this Note subject to the foregoing terms and conditions, and agrees to comply with the foregoing terms and conditions for the benefit of the Company or Successor Entity and any other Investors.

8. Officers and Directors Not Liable. In no event shall any officer or director of the Company be liable for any amounts due and payable pursuant to this Note.

9. Expenses. The Company hereby agrees, subject only to any limitation imposed by applicable law, to-pay all expenses, including reasonable attorneys' fees and legal expenses, incurred by the holder of this Note ("Costs") in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by declaration or otherwise. The Company agrees that any delay on the part of the holder in exercising any rights hereunder will not operate as a waiver of such rights, The holder of this Note shall not by any act, delay, omission or otherwise be deemed. to have waived any of its rights or remedies, and no waiver of any kind shall be valid unless in writing and signed by the party or parties waiving such rights or remedies.

10. Lost Note or Stock Certificates. The Company represents and warrants to. Investor that upon receipt of: evidence reasonably satisfactory to Company of the loss, theft, destruction; or mutilation of any Note or stock certificate and, in the case of any such mutilation, upon surrender and cancellation of such Note or stock certificate, Company at its expense will make and deliver a new Note or stock certificate, of, like tenor, in lieu of the lost, stolen, destroyed or mutilated Note or stock certificate.

11. Governing Law: Actions; Trial by Jury. This Note shall be constructed and construed in accordance with the internal substantive laws of the state of New York. without regard to. the choice of law principles of said State. The exclusive venue of any action, suit, counterclaim or cross claim arising under, out of, or in connection with this Note shall be the state or federal courts in New York, New York. The Company hereby consents to the personal jurisdiction, of any court of competent subject matter jurisdiction sitting in New York, New York.

12: Approval. The Company hereby represents that its board of directors, in the exercise of its, fiduciary] duty, has approved the Company's execution of this Note based upon a reasonable belief that , the principal provided hereunder is appropriate for the Company after reasonable inquiry concerning the Company's financing objectives and financial situation.

AMARANTUS THERAPEUTICS, INC.

By: /s/Martin D. Clearly

Martin D. Clearly, CEO

  

  

  

 

EXHIBIT C

COLLATERAL

The Collateral consists of all of the Company's assets and property, whether now owned II or existing or hereafter acquired or arising, regardless of where located, including, without limitation, the following:

(1) All of the Company's inventory, both now owned and hereafter acquired, including, without limitation, all goods, merchandise, raw materials, goods in process, finished I goods and other tangible personal property both now owned and hereafter acquired by the Company and held for sale or lease or furnished or to be furnished under contracts of service or used or consumed in the Company's business, and all proceeds thereof, as well as all additions, improvements and accessions thereto and substitutions and replacements for any thereof, wherever located;

(2) All of the Company's tangible personal property, both now owned and hereafter acquired, including, without limitation, all equipment, consumer goods, furniture, fixtures, machinery, operating equipment, assembly and production equipment, engineering and electrical equipment, and all proceeds of any thereof, as well as all additions, improvements and accessions thereto and substitutions and replacements for any thereof, wherever located;

(3) All contractual rights, titles and interests and general intangibles now owned or, hereafter acquired by the Company, including, without limitation, goodwill, copyrights, copyright applications, trademarks, trademark applications, services marks, service mark applications, trade styles, trade names, patents and patent applications (including the Company's current sole patent application set forth below), leases, license agreements, franchise agreements, , business plans, blueprints, drawings, purchase orders, customer lists, route lists, infringements and other claims, software, computer programs, computer discs, computer tapes, source code, object code, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind;

(4) All now existing and hereafter arising accounts, royalties, license rights and all other forms of obligations owing to the Company arising out of the sale or lease of goods, the licensing of technology or the rendering of services by the Company, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by the Company;

(5) All documents, cash, deposit accounts, securities, investment property, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired by the Company and the Company's books relating to the foregoing;

(6) All of the Company's books and records (in whatever media) relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessories to and proceeds therefor;

(7) All awards in respect of any "Taking" of any of the foregoing (as used herein, a "Taking" shall mean a taking, conveyance or sale of all or any part of the Collateral or any interest therein or right accruing thereto, as a result of, or in lieu or anticipation of, the exercise of the right of appropriation, confiscation, condemnation or eminent domain);

  

  

  

 

(8) All rents, income and issues arising from or in connection with, and all proceeds of, any of the foregoing; and

(9) All rights, title and interests, now owned or hereafter acquired, to all other property and assets, real, personal or mixed.

Schedule of Patents/Patent Applications:

	
Title

 

	
Jurisdiction

	
Application/Publication Number

	
Dopaminergic Neuronal Survival-Promoting Factors and Uses Thereof

 

	
USA

	
10/102,265 (original)

12/535,029 (continuation)

	
Dopaminergic Neuronal Survival-Promoting Factors and Uses Thereof

	
Canada

	
2441740

	
Dopaminergic Neuronal Survival-Promoting Factors and Uses Thereof

	
Europe

	
EP 1373502 A2

	
Dopaminergic Neuronal Survival-Promoting Factors and Uses Thereof

	
Japan

	
JP2004528835TT

	
Dopaminergic Selective

Factors

	
PCT

	
PCT/US2010/050438

61/246,009

	
Neurodegenerative Disorders

	
USA

	
12,934,454

  

  

  

 

Schedule 4.7(e)

 (i) Company's chief executive office:

Amarantus Therapeutics, Inc,

C/O The Parkinson's Institute

675 Almanor Ave.

Sunnyvale, CA 94085

(ii) Company's legal organizational structure and jurisdiction of incorporation:

Delaware "C" corporation

(iii) Address where records relating to the Collateral are maintained:

650 Page Mill Road

Palo Alto, CA 94304

(iv) Location of leased facilities:

675 Almanor Ave.

Sunnyvale, CA 94085

(v) Fictitious names used by the Company:

The Company was previously named CNS Protein Therapeutics, Inc.

(vi) Company bank account information:

Bank of America

530 Lytton Ave

Palo Alto, CA 94301

Checking Acct. No.: 01179-72066

Contact Person: Elmer Melgar

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00190-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00190-of-00352.parquet"}]]