PRODUCTION PAYMENT PURCHASE AGREEMENT
Exhibit
10.19
This Production Payment Purchase Agreement (the “Agreement”) is entered into as of September
___, 2005, by and between Golden Phoenix Minerals, Inc., a Minnesota corporation (the “Company”)
and Ashdown Milling Company, LLC, a Nevada limited liability company (“Purchaser”). Both the
Company and the Purchaser may sometimes be referred to as a “Party” or collectively as the
“Parties.”
WHEREAS, the Company is the manager and operator of a joint venture established with
Win-Eldrich Mines Limited, by written agreement attached hereto and made a part hereof as Exhibit
“A” (the “Ashdown Joint Venture Agreement”) encompassing 101 unpatented lode mining claims in
Humboldt County, Nevada, commonly known as the Ashdown Mine; and
WHEREAS, pursuant to the Ashdown Joint Venture Agreement, the Company has the right to receive
sixty percent (60%) of all minerals, base and precious, produced from the Ashdown Mine once, among
other things, the Company constructs a “pilot mill” and completes certain other exploration and
development activities resulting in initial production of minerals from the Ashdown Mine sufficient
to recover the cost of production of the minerals and resulting in a cash distribution to the
members of the Ashdown Joint Venture; and
WHEREAS, in order to finance continued exploration and development of the Ashdown Mine,
including, but not limited to, obtaining necessary permits and constructing the “pilot mill” to
test production methods and milling techniques before entering into commercial production of
minerals, precious and base, from the Ashdown Mine, the Company is willing to sell to the Purchaser
and the Purchaser is willing to purchase from the Company a carved out production payment to be
paid from the Company’s share of the distribution of minerals (or sales of minerals) from the
Ashdown Joint Venture.
NOW THEREFORE, in consideration for the mutual promises set forth in this Agreement, and for
other valuable consideration the receipt of which is hereby acknowledged, the Parties agree as
follows:
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ARTICLE
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PURCHASE OF THE PRODUCTION PAYMENT
1.1 Purchase of Production Payment. In exchange for the Purchase
Price set forth in Section 1.2 of this Agreement, the Company agrees to sell and the Purchaser
agrees to purchase a production payment equal to two hundred forty percent (240%) of the Purchase
Price paid by the Purchaser to the Company pursuant to the schedule of payments specified in
Section 1.2 of this Agreement. The payment shall be paid exclusively from the Company’s share of
production of base and precious minerals produced from the Ashdown Mine allocated to the Company
pursuant to the Ashdown Joint Venture Agreement. The rate of payment shall be equal to a twelve
percent (12%) Net Smelter (Refinery) Return on the entire production of precious and base minerals
produced from the Ashdown Mine, but paid solely from the Company’s share of production distributed
to the Company pursuant to the Ashdown Joint Venture Agreement. Until the production payment is
paid by the Company in full, the Company shall provide the Purchaser with monthly reports in
writing reporting production and sales of minerals, both precious and base, from the Ashdown Mine
and the calculation of the production payment to be paid by the Company. The production payment
shall be paid to the Purchaser monthly by the end of the month following the month the production
occurs.
1.2 Purchase Price and Schedule of Payments. The minimum purchase
price for the production payment set forth in Section 1.1 of this Agreement shall be eight hundred
thousand US Dollars ($800,000) paid to the Company by the Purchaser pursuant to the Schedule of
Payments attached hereto and made a part hereof as Exhibit “B” upon the Company achieving the
milestones set forth therein. Additional purchase payments may be paid by the Purchaser, in its
sole and absolute discretion, in $50,000 increments up to a maximum purchase price of one million
five hundred thousand US Dollars ($1,500,000). All payments of the purchase price, except for the
first scheduled payment due upon the execution of this Agreement by the Parties, must be requested
by the Company after achieving the applicable milestone ten (10) days prior to funding.
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1.3 Use of Proceeds. The Company agrees to use the proceeds paid by
the Purchaser pursuant to Section 1.2 of this Agreement solely for Exploration and Development
Expenditures as defined in Section 2.3 of this Agreement in order to satisfy the Company’s
obligation to explore and develop the Ashdown Mine.
1.4 Purchase of Common Stock and Common Stock Purchase Warrants. In
addition to the production payment purchased by the Purchaser pursuant to Section 1.1 of this
Agreement, the Purchaser agrees to purchase and the Company agrees to sell to the Purchaser one
share of the Company’s common stock and one common stock purchase warrant with an exercise price
equal to twenty cents ($0.20) per share expiring three (3) years from the date of this Agreement
for each one Dollar of Purchase Price paid for the production payment pursuant to Section 1.2 of
this Agreement at no additional consideration. Solely for the purpose of determining the
sufficiency of legal consideration for the issuance of the shares and warrant, $0.02 of each Dollar
of the Purchase Price paid for the production payment pursuant to Section 1.2 of this Agreement
shall be allocated to each share of common stock and common stock purchase warrant purchased
pursuant to this Section 1.4 without reducing the amount of the production payment purchased
pursuant to Section 1.1 of this Agreement.
1.5 Representations and Warranties Relating to the Purchase of Common
Stock and Warrants. In connection with the purchase of the shares of the Company’s common stock
and common stock purchase warrants, the Purchaser represents and warrants that each member of the
Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D, that
the Purchaser is purchasing the shares and warrants for its own account, for investment purposes,
and not with the intention of distributing the shares and warrants to the public. The Purchaser
acknowledges that the shares and warrants, when issued, shall constitute “restricted securities” as
defined in Rule 144(a) and may not be offered or sold by the Purchaser without registration with
the Securities and Exchange Commission or may be sold only pursuant to an available exemption from
the registration requirements of the Securities Act of 1933, as amended.
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ARTICLE
2
DEFINITIONS
The following definitions shall apply to the terms and conditions of this Agreement:
2.1 Pilot Mill. The pilot mill is a milling facility constructed
and operated by the Company for the purpose of performing metallurgical testing of Ores and
Minerals prior to Commencement of Commercial Production. The pilot mill may be converted to a
full-scale milling facility by the Company once metallurgical testing is completed and thereafter
used to perform Commercial Production, as evidenced by a resolution of the Company as manager and
operator of the Ashdown Mine pursuant to the Ashdown Joint Venture Agreement.
2.2 Commencement of Commercial Production. Commencement of
Commercial Production shall occur upon the completion of all major construction and development
work, including but not limited to, conversion of the pilot mill to a full-scale milling facility,
receipt of all necessary production and operating permits from local, state and federal regulatory
agencies and the beginning of reasonably satisfactory operation of mine and mill facilities in the
course of substantial mining operations resulting in the production and sale of marketable
concentrates, other than for metallurgical testing and trial marketing purposes, as evidenced by a
resolution of the Company as manager and operator of the Ashdown Mine pursuant to the Ashdown Joint
Venture Agreement.
2.3 Exploration and Development Expenditures. Exploration and
Development Expenditures shall mean the Company’s total costs and expenses incurred with respect to
examining, exploring, and developing the Ashdown Mine pursuant to the Ashdown Joint Venture
Agreement and all matters connected therewith incurred after the date of the Ashdown Joint Venture
Agreement and prior to the Commencement of Commercial Production, including, without limitation,
costs and expenses incurred with respect to the design and construction of any and all milling
facilities, together with costs and expenses relating to geological, geochemical, and geophysical
studies, feasibility studies, exploration and development drilling, sampling and assaying, mine
design and development, the cost of any mining equipment or machinery
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purchased prior to the Commencement of Commercial Production, compliance with environmental and
regulatory requirements, pre-production stripping, the construction of roads connecting the Ashdown
mine to a central road system, and any other similar or related expenses incurred prior to the
Commencement of Commercial Production and any attorney’s fees reasonably related to any of the
foregoing.
2.4 Net Smelter Returns. Net Smelter Returns for all purposes of
this Agreement shall mean the amount actually received by the Ashdown Joint Venture from any sale
of Ores and Minerals mined or otherwise recovered and removed from the Ashdown Mine less, but only
to the extent actually incurred and borne by the Ashdown Joint Venture:
2.4.1 Sales, use, gross receipts, severance, and other taxes, if any,
payable with respect to severance, production, removal, sale or disposition of Ores and
Minerals, but excluding any taxes on net income;
2.4.2 Brokerage fees and sales commissions, if any;
2.4.3 Charges and costs, if any, for transportation from the mine or
mill to places where Ores and Minerals are smelted, refined, processed and/or sold; and
2.4.4 Charges, costs, including assaying and sampling costs, and all
penalties, if any, incurred upon smelting, refining, or processing Ores and Minerals; in the
event smelting, refining, or processing is carried out in facilities owned or controlled by
the Ashdown Joint Venture, charges, costs, and penalties for such operations shall mean the
amount the Ashdown Joint Venture would have incurred if such operations were carried out at
facilities not owned or controlled by the Ashdown Joint Venture then offering comparable
services for comparable products on prevailing terms.
2.5 Ores and Minerals. Ores and Minerals for all purposes of this
Agreement shall mean collectively Ores and Minerals as defined below:
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2.5.1 Minerals. Minerals, whether singular or plural, shall mean
any and all mineral substances of any nature, metallic or non-metallic, including, but not
limited to, Molybdenum. The term Minerals shall not include oil, gas, or other liquid or
gaseous hydrocarbon substances, or sand, gravel, aggregates or building stone.
2.5.2 Ores. Ores, whether singular or plural, shall mean all
material which in the sole discretion of the Ashdown Joint Venture justifies either (i)
mining, extracting, or recovering from place in the Ashdown Mine and selling or delivering
to a processing plant for physical or chemical treatment, or (ii) treating in place in the
Ashdown Mine by chemical, solution, or other methods; said term shall also include all
mineral-bearing solutions, natural or introduced, recovered by the Ashdown Joint Venture
from the Ashdown Mine and sold or processed by the Ashdown Joint Venture, and all mineral
and non-mineral components of all such material and solutions.
ARTICLE
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MISCELLANEOUS PROVISIONS
3.1. Successors and Assigns. This Agreement may not be assigned by a
Party hereto without the prior written consent of the Company or the Purchaser, as applicable,
provided, however, that a Party may assign its rights and delegate its duties hereunder in whole or
in part to an Affiliate of the Party without the prior written consent of the Company or Purchaser,
after notice duly given by such Party to the Party. The provisions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and assigns of the Parties.
Nothing in this Agreement, express or implied, is intended to confer upon any person or entity
other than the Parties hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as expressly provided in
this Agreement.
3.2. Counterparts; Faxes. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which together shall
constitute
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one and the same instrument. This Agreement may also be executed via facsimile, which shall be
deemed an original.
3.3. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in construing or interpreting
this Agreement.
3.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed effectively given as
hereinafter described (i) if given by personal delivery, then such notice shall be deemed given
upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given
upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three
days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an
internationally recognized overnight air courier, then such notice shall be deemed given one
Business Day after delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may designate by ten
days’ advance written notice to the other party:
| If to the Company: | ||||
| Attention: Xxxxx X. Xxxxxxxx | ||||
| Fax: 000-000-0000 | ||||
| With a copy to: | ||||
| Xxxxxx Eng & Xxxxxxxx | ||||
| 0000 Xxxxxx Xxx, Xxxxx 000 | ||||
| Xxxxxxxxxx, Xxxxxxxxxx 00000 | ||||
| Attention: Xxxxx Xxxxxx, Esq. | ||||
| Fax: (000) 000-0000 | ||||
| If to the Purchaser: | ||||
| Attention: Xxxxxxx X. Xxxxxx | ||||
| Fax: 000-000-0000 | ||||
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3.5. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written consent of the Company
and the Purchaser.
3.6. Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining provisions hereof but
shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted
by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the Parties hereby waive any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
3.7. Entire Agreement. This Agreement, including the Exhibits,
constitute the entire agreement among the Parties hereof with respect to the subject matter hereof
and thereof and supersede all prior agreements and understandings, both oral and written, between
the Parties with respect to the subject matter hereof and thereof.
3.8. Further Assurances. The Parties shall execute and deliver all
such further instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.
3.9. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by, and construed in accordance with, the internal laws of the
State of Nevada without regard to the choice of law principles thereof. Each of the Parties hereto
irrevocably submits to the exclusive jurisdiction of the courts of the State of Nevada located in
Las Vegas County and the United States District Court for the District of Nevada for the purpose of
any suit, action, proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such suit, action or
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proceeding may be served on each Party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement (other than by telex or facsimile which
shall be deemed improper service). Each of the Parties hereto irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in
such court. Each Party hereto irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an inconvenient forum.
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year
first written above.
| GOLDEN PHOENIX MINERALS, INC. | ||||
| Xxxxxx X. Xxxxx, Chairman of the Board | ||||
| ASHDOWN MILLING COMPANY, LLC | ||||
| Xxxxxxx X. Xxxxxx, Manager |
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