Exhibit 10.4
Agreement
THIS ACQUISITION AND OPERATIONS AGREEMENT ("Agreement") is entered into as
of this the 21st day of April, 2007, by and between Spirit Exploration Inc., a
Nevada corporation ( "Spirit" ), with its principal business address of 0000
Xxxx Xxxx Xxxx, Xxx Xxxxx, XX 00000, and Minera Del Pacifico Noroeste, S.A., an
Ecuadorian corporation ("Pacifico"), of Machala, Oro Province, Ecuador;
WITNESSETH:
WHEREAS, Spirit is a United States publicly traded company in the business
of acquiring and, through its subsidiaries and affiliates, operating various
Mining Property in the country of Ecuador, South America, and
WHEREAS, Spirit operates in Ecuador through its wholly-owned subsidiary
Minera EcuadorGoldCorp S.A., an Ecuadorian corporation ("EcuadorGoldCorp"); and
WHEREAS, Pacifico is in the business of developing and operating of Mining
Properties in the country of Ecuador, South America , and
WHEREAS, Pacifico has identified and negotiated for the option to acquire
certain mining properties in Ecuador which it desires to assign to Spirit and/or
EcuadorGoldCorp; and
WHEREAS, the parties hereto desire to work together for the purpose of
developing mining property in Ecuador, South America,
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and the mutual promises and benefits to be derived by the
parties, they do hereby agree to the following terms and conditions:
ARTICLE 1
ORGANIZATION
Section 1.1 PURPOSES, SCOPE, RIGHTS AND DUTIES UNDER THIS AGREEMENT.
1.1.1 PRIOR AGREEMENT. This Agreement supercedes and terminates that
certain Agreement dated April 20, 2007 (the "Prior Agreement") among Pacifico,
Spirit, EcuadorGoldCorp and Xxxxx XxXxxx. The parties hereto hereby acknowledge
and agree that the Prior Agreement is terminated with no liabilities or further
requirements on the part of any of the parties hereto.
1.1.2 ASSIGNMENT OF PROPERTIES. Pacifico hereby agrees to assign and sell
to Spirit those certain assets relating to mining concessions and interests and
related obligations (the "Properties") as more fully set forth on Exhibit A
hereto. Without limitation to the generality of the foregoing, Pacifico agrees
to provide whatever title documents, legal opinions, property descriptions or
other definitive documentation required to formally effectuate legal title, to
register legal title and/or record in the appropriate registration and recording
offices transfer of and title to such Properties set forth therein with Spirit
and/or EcuadorGoldCorp as the case may be under applicable Ecuadorian law to the
reasonable satisfaction of counsel to Spirit and/or EcuadorGoldCorp, sufficient
to assure that Spirit and/or EcuadorGoldCorp has full legal right, title and
interest to such properties including without limitation any and all mineral
rights and mining rights thereto.
1.1.3 CAPITALIZATION OBLIGATIONS. Spirit agrees to obtain capitalization
and funding required for the operation of the Properties, including without
limitation development, exploration and mining operations
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for the Properties. Such funding shall be pursuant to mutually agreed upon
budgets between Spirit and Pacifico. Pacifico agrees to provide Spirit with
separate accounts for each of the individual Properties which shall be compiled
in accordance with generally accepted accounting principles consistently applied
in the United States, and which shall be subject to an annual audit. Pacifico
shall provide such accounting on a monthly basis and Spirit may inspect such
books upon reasonable notice and at any reasonable time. It is understood and
agreed that the method of accounting used by Pacifico shall be the accrual
method and that the accounting year shall be the calendar year. Pacifico
acknowledges and agrees that Spirit shall have formal reporting obligations with
the United States Securities and Exchange Commission and any and all books and
records shall be required to comply with the rules and regulations required for
such periodic financial reporting.
Without limitation, Pacifico and Spirit agree that they shall comply with
the Use of Proceeds attached hereto as Exhibit B with respect to funding
obligations and requirements.
Section 1.2 RIGHT OF FIRST REFUSAL. During the term of this Agreement, Pacifico
may joint venture, option, sell, transfer and enter into any transaction for any
mineral property interest in Ecuador (each being a "Property Interest") except
in accordance with the terms of this Agreement. Pacifico hereby grants to
Spirit a 30 calendar day right of first refusal to acquire any Property that is
offered to either acquire, lease, joint venture, option or otherwise enter into
a transaction of in any manner that may be presented by Pacifico. If Spirit does
not respond or refuses Spirit acknowledges that Pacifico may use its best
efforts to secure such property into Pacifico through other relationships.
Section 1.3 TERM. The Term of this Agreement (the "Term") is for a period of
60 months commencing upon the execution date hereof (the "Effective Date"),
subject to the terms hereafter set forth.
a. This Agreement shall renew automatically for subsequent 60 month periods
if not specifically terminated in accordance with the following provisions.
Either Party hereto agrees to notify the other Party hereto in writing at least
180 calendar days prior to the end of the Term of its intent not to renew this
Agreement (the "Non-Renewal Notice"). Should both Parties fail to provide a
Non-Renewal Notice this Agreement shall automatically renew. Such renewal shall
be on the same terms and conditions contained herein unless modified and agreed
to in writing by the Parties.
b. Notwithstanding any other provision of this Agreement, this Agreement
may be terminated by either Party upon written notice to the other Party if:
(i) the other Party fails to cure a material breach of any provision
of this Agreement within 30 calendar days from its receipt of written
notice from said Party (unless such breach cannot be reasonably cured
within said 30 calendar days and the other Party is actively pursuing
curing of said breach); or
(ii) the other Party commits fraud or serious neglect or misconduct in
the discharge of its respective duties hereunder or under the law; or
(iii) the other Party becomes adjudged bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy, and
where any such petition is not dismissed;
(iv) any default by either party under, redemption of or acceleration
prior to maturity of any Indebtedness (as defined below) in excess of
$100,000 of such party or any of its subsidiaries. "Indebtedness" for
purposes of this provision includes (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (including, without limitation,
"capital leases" in accordance with generally accepted accounting
principals) (other than trade payables entered into in the ordinary course
of business), (C) all reimbursement or payment obligations with respect to
letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (E) all indebtedness created
or arising under any conditional sale or other title retention agreement,
or incurred as financing, in either case with respect to any property or
assets acquired with the proceeds of such indebtedness (even though the
rights
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and remedies of the seller or bank under such agreement in the event
of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently
applied for the periods covered thereby, is classified as a capital lease,
(G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (A) through (G) above;
c. Upon any such termination, neither party shall have any further
obligation or liability to the other and the compensation provisions set forth
in Paragraphs 2.2 and 2.3 for Pacifico shall be void and of no further effect.
Furthermore, any such termination shall immediately require immediate
liquidation of any and all obligations created hereby and/or related to the
operations set forth herein without penalty or fee to Spirit, such that there
would be no obligation or impediment to Spirit in transferring or disposing of
any of the mining related properties herein
ARTICLE 2
COMPENSATION TO PACIFICO
As consideration for the assignment of the Properties set forth herein and
in consideration for Pacifico's duties and obligations as operator of the
Properties more fully set forth herein, the parties hereto hereby acknowledge
that Pacifico shall be entitled to the following consideration:
Section 2.1 STOCK CONSIDERATION. Spirit will issue and deliver 15 million
shares of common stock of Spirit Exploration, Inc. (the "Stock Consideration")
to Pacifico or assigns. Pacifico acknowledges and
agrees that: (i) The Stock Consideration to be issued to Pacifico or assigns is
being issued without registration under applicable federal and state securities
laws in reliance upon certain exemptions from registration under such securities
laws; (ii) Pacifico and its officers and directors have had the opportunity to
ask questions of and receive answers from Spirit, its respective executive
officers concerning its businesses and all such inquiries have been completed to
his satisfaction; (iii) Each certificate to be issued to Pacifico or assigns
will bear a legend restricting its transfer, sale, conveyance or hypothecation,
unless such shares of SPXP Stock is either registered under applicable
securities laws or an exemption from such registration is applicable, and
provided that if an exemption from registration is claimed; (iv) Pacifico shall
not transfer any of the Stock Consideration except in compliance with all
applicable securities laws; (v) Pacifico is acquiring the Common Stock for its
own account, for investment purposes only and not with a view to the sale or
distribution thereof; (vi) Pacifico has not received any general solicitation or
general advertising regarding the acquisition of the Stock Consideration; and
(vii) Pacifico is capable of evaluating the merits and risks of an investment
in the Stock Consideration because Pacfico, through its shareholders, officers
and directors, is a sophisticated investor by virtue of its prior investments
and have experience in investments similar in nature to the Stock Consideration,
including investments in unlisted and unregistered securities, and have
knowledge and experience in financial and business matters in general. Pacifico
acknowledges and agrees that any and all recipients of the Stock Consideration
shall be required to enter into lockup agreements with the Company restricting
sales and other transferability of the Stock Consideration for up to three years
in common with all other Officers, Directors and more than 5% shareholders of
record.
Section 2.2 MANAGEMENT FEES.
(A) In connection with its duties for acquisitions, construction,
exploration and operations of all assets in Ecuador, Pacifico shall be
reimbursed monthly for all expenses incurred in the behalf of this
Agreement at cost plus 10% (Ten Percent). As more fully set forth
elsewhere herein, any and all such expenditures shall be as set forth
on the mutually agreed upon budget for capital expenditures, expenses
and other costs associated with any of the Projects.
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(B) In connection with its duties for acquisitions, construction,
exploration and operations of all assets in Ecuador, Pacifico shall
also receive 10% of the net revenues of the project up to a maximum of
$10,000 per month which shall be applied to community development
projects in Ecuador.
(C) In connection with its duties for acquisitions, construction,
exploration and operations of all assets in Ecuador, Pacifico shall
also receive a gross amount of $10,000 per month for the first twelve
months, which payment shall be deferred until April 11, 2008 or until
funding of the Company, whichever is earlier. Commencing on April 11,
2008, Spirit and Pacifico shall meet and shall reasonably negotiate
the amount of this gross amount payable under this Agreement for
Pacifico's duties hereunder.
Section 2.3 NET SMELTER RETURN ROYALTY. Pacifico shall be entitled to a Net
Smelter Return Royalty equal to 3% (three percent) of the Net Smelter Returns
for the entire life of the operations in Ecuador or 30 years, whichever comes
later. "Net Smelter Returns" means the proceeds received from any smelter or
other purchaser from the sale of any ores, concentrates or minerals produced
from operations in Ecuador after deducting from such proceeds the following
charges only to the extent that they are not deducted by the smelter or other
purchaser in computing the proceeds: (i) the cost of transportation of the
ores, concentrates or minerals from the property to such smelter or other
purchaser, including related transport; (ii) smelting and refining charges
including penalties; (iii) marketing costs. The Net Smelter Return Royalty
shall be calculated and paid to Pacifico on a quarterly basis within forty-five
(45) days after the end of each fiscal quarter. Spirit shall have the right to
buy-back 1% of the Net Smelter Return Royalty held by Pacifico for $1,000,000
USD in cash.
Section 2.4 BOARD OF DIRECTORS. Upon execution of this Agreement, Spirit
Exploration, Inc. will appoint an assignee of Pacifico to its Board of
Directors.
ARTICLE 3
MANAGEMENT
Section 3.1 OPERATION MANAGER
Pacifico is hereby appointed Operations Manager of the all operations in
mining for Spirit/Ecuadorgold for the term of this Agreement in Ecuador.
Section 3.2 POWER AND AUTHORITY.
After execution of this Agreement Pacifico shall have full right, power and
authority to do everything necessary or desirable in connection with the
Exploration and Development of the Properties and, without limiting the
generality of the foregoing, the right, power and authority to:
(a) regulate access to the Properties subject only to the right of the
Parties to have access to the Properties at all reasonable times for the purpose
of inspecting work being done thereon but at their own risk and expense;
(b) employ and engage such employees, agents and independent
contractors as it may consider necessary or advisable to carry out its duties
and obligations hereunder and in this connection to delegate any of its powers
and rights to perform its duties and obligations hereunder; and
(c) to undertake expenditures as in accordance with budgets developed
and mutually approved from time-to-time, and in accordance with the provisions
herein
Section 3.3 DUTIES AND OBLIGATIONS.
After execution of this Agreement, Pacifico shall have such duties and
obligations as the parties hereto may from time to time determine, including,
without limiting the generality of the foregoing, the following duties and
obligations:
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(a) to manage, direct and control all exploration, development and
mining operations in and under the Properties, in a prudent and workmanlike
manner, and in compliance with all applicable laws, rules, orders and
regulations;
(b) to prepare and deliver to the Parties annual work plans and
budgets and during periods of active field work to provide monthly and quarterly
progress reports of the work in progress within 14 days of the end of the
relevant period;
(c) subject to the terms and conditions of this Agreement and the
developed budgets, to keep the Properties in good standing free of liens,
charges and encumbrances of every character arising from operations, (except
liens for taxes not yet due, other inchoate liens and liens contested in good
faith by Pacifico), and to proceed with all diligence to pay or contest or
discharge any lien that is filed;
(d) to maintain true and correct books, accounts and records of
operations;
(e) to permit Spirit to inspect, take abstracts from or audit any or
all of the records and accounts during normal business hours;
(f) to obtain and maintain, or cause any contractor engaged hereunder
to obtain and maintain, during any period in which active work is carried out
hereunder adequate insurance;
(g) to regulate access to the Properties, subject only to the right of
Spirit and its representatives to have access to the Properties, at all
reasonable times for the purpose of inspecting work being done thereon and to
permit Spirit to conduct such independent audits of the work as it may
reasonably require;
(h) to arrange for and maintain worker's compensation or equivalent
coverage for all eligible employees engaged by Pacifico in accordance with local
statutory requirements;
(i) to perform their duties and obligations in a manner consistent with
good exploration and mining practices;
(j) to transact, undertake and perform all transactions, contracts,
employments, purchases, operations, negotiations with third parties and any
other matter or thing undertaken by Pacifico; and
(k) to diligently advise Spirit of any material change in the status or
exploration results of the Properties, to take all necessary acts in respect to
such changes, and to assist the parties to produce timely coordinated public
announcements.
(l) during the Term of this Agreement, to not engage in any business
which reasonably may detract from, compete with or conflict with Pacifico's
duties and obligations to Spirit as set forth in this Agreement without
disclosure to the Board of Directors of Spirit.
(m) to not, except as authorized or required by Pacifico's duties
hereunder, reveal or divulge to any person or companies any information
concerning the organization, business, finances, transactions or other affairs
of Spirit, or of any of its subsidiaries, which may come to Pacifico's knowledge
during the continuance of this Agreement, and Pacifico will keep in complete
secrecy all confidential information entrusted to Pacifico and will not use or
attempt to use any such information in any manner which may injure or cause loss
either directly or indirectly to Spirit's business. This restriction will
continue to apply after the termination of this Agreement without limit in point
of time but will cease to apply to information or knowledge which may come into
the public domain.
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(n) to comply with all Ecuadorian, U.S. and other foreign laws, whether
federal, provincial or state, applicable to Pacifico's duties hereunder and, in
addition, hereby represents and warrants that any information which Pacifico may
provide to any person or company hereunder will be accurate and complete in all
material respects and not misleading, and will not omit to state any fact or
information which would be material to such person or company.
(o) to undertake general analysis of and planning for exploration
activities and other work related to the pre-feasibility study stage of any of
the Projects;
(p) to undertake general analysis of and planning for the design,
engineering, development, construction and operation of any of the Projects,
including without limitation work related to the preparation of a feasibility
study;
(q) to prepare tender materials, reviewing bids, and interviewing and
selecting the engineering, architectural, and construction firms that will work
on any exploration activities, any other pre-feasibility stage work, any
feasibility study, or any development, operation or expansion of any of the
Projects;
(r) to negotiate contracts on behalf of Spirit/EcuadorGold
with any engineering, architectural, and construction firms so selected;
(s) to arrange for and supervise any mine planning, engineering,
pre-stripping and other work to be performed, provided that all such activities
shall be on an arm's length commercial basis;
(t) to coordinate and schedule the work of any firms selected to
perform work, and supervising the performance of such firms through a designated
management team, or otherwise;
(u) to arrange for the purchase, lease or other acquisition of land
required for any exploration activities, any other pre-feasibility work, any
feasibility study or the development, operation or expansion of any of the
Projects;
(v) to procure such materials, supplies, equipment and services as may
be needed or required in connection with any exploration activities, any other
pre-feasibility work, any feasibility study or the development, operation or
expansion of any of the Projects;
(w) to secure insurance covering such risks and in such amounts as, in
the judgment of Pacifico, are appropriate (taking into account changes in the
availability of such insurance on commercially reasonable terms) with respect to
any exploration activities, any other pre-feasibility work, any feasibility
study or the development, operation or expansion of any of the Projects;
(x) to apply for, obtain and maintain, all necessary governmental
approvals or permits necessary in connection with any exploration activities,
any other pre-feasibility work, any feasibility study or the development,
operation or expansion of any of the Projects;
(y) to conduct relations with all national and local governmental
entities and in all public relations matters;
(z) to conduct labor relations and coordinating environmental
compliance and materials management;
(aa) to do all such other acts and things as Pacifico shall determine
to be necessary or advisable in connection with any exploration activities, any
other pre-feasibility work, any feasibility study or any development, operation
or expansion of any of the Projects.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Pacifico. Pacifico hereby
makes the following representations and warranties to Spirit.
(a) Pacifico has full power and authority to transfer the Properties and,
except as set forth in Exhibit A or otherwise acknowledged of mortgage, are
owned free and clear without any liens or encumbrances.
(b) The execution, delivery and performance of this Agreement by Pacifico,
and the consummation of the transactions contemplated hereby, will not with or
without the giving of notice of the lapse of time or both, (i) violate any
material provision of law, statute, rule or regulation to which Pacifico is
subject, (ii) violate any judgment, order, writ or decree to which Pacifico is a
party or by which it is or may be bound; or (iii) result in any material breach
of or conflict with any term, covenant, condition or provision of, or result in
the modification or termination of, or constitute a default under or result in
the creation or imposition of any lien, security interest, charge or encumbrance
upon any of the Properties being transferred hereunder, under the corporate
charter or by-laws or any other agreement, understanding or instrument to which
Pacifico is a party or by which it is or may be bound or affected.
(c) All necessary action has been taken by Pacifico or any of the related
concession holders to authorize the execution, delivery and performance of
transactions contemplated by this Agreement. This Agreement has been duly and
validly authorized, executed and delivered by Pacifico and any such concession
holders and constitutes the valid and binding obligation of Pacifico and such
concessions holders enforceable against them in accordance with their respective
terms, except as enforceability is limited by (1) any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally or (2) general principles of equity, whether considered in a
proceeding in equity or at law.
(d) All necessary consents and approval required for transferring the
Properties have been obtained or will be obtained, including without limitation
any and all approvals required by any agency of the Ecuadorian government. No
consent of any court, governmental agency or other public authority is required
as a condition to the enforceability of the transactions contemplated by this
Agreement.
(e) There is no action of law, in equity, arbitration proceeding,
governmental proceeding or investigation pending, or to Pacifico's knowledge
threatened against Pacifico or any of the concessionaries with respect to the
operation of the Properties, or Pacifico's or any such concessionaire's
ownership thereof. None of Pacifico or any concessionaire is in default with
respect to any decree, injunction or other order of any court or other
jurisdiction with respect to any of the Properties to be transferred.
(f) Pacifico and the concessionaires have conducted their business in
compliance with all material national, state and local laws, regulations and
ordinances.
Section 4.2. Spirit Representations. Spirit hereby makes the following
representations and warranties to Pacifico.
(a) Spirit is a Company duly organized, validly existing and in good
standing under the laws of the State of Nevada and is qualified or licensed as a
foreign corporation in any other jurisdiction where said licensing is required.
Spirit has the full power and authority to conduct the business in which it is
engaged and will be engaged upon completion of the transaction contemplated
herein.
(b) All the issued and outstanding shares of capital stock of Spirit are
duly authorized, validly issued, fully paid and non-assessable.
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(c) The execution and delivery of this Agreement by Spirit and the
performance of Spirit's obligations hereunder have been duly authorized and
approved by all requisite corporate action on the part of Spirit pursuant to
applicable law. Spirit has the power and authority to execute and deliver this
Agreement and to perform all its obligations hereunder.
(d) This Agreement and any other documents, instruments and agreements
executed by Spirit in connection herewith constitute the valid and legally
binding agreements of Spirit, enforceable against Spirit in accordance with
their terms, except that (i) enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application affecting the enforcement of the rights and remedies of creditors;
and (ii) the availability of equitable remedies may be limited by equitable
principles.
(e) Neither the execution, delivery nor performance of this Agreement or
any other documents, instruments or agreements executed by Spirit in connection
herewith, nor the consummation of the transactions contemplated hereby: (i)
constitutes a violation of or default under (either immediately, upon notice or
upon lapse of time) the Articles of Incorporation or Bylaws of Spirit, any
provision of any contract to which Spirit may be bound, any judgment or any law;
or (ii) will or could result in the creation or imposition of any encumbrance
upon, or give to any third person any interest in or right to, the any capital
stock of Spirit; or (iii) will or could result in the loss or adverse
modification of, or the imposition of any fine or penalty with respect to, any
license, permit or franchise granted or issued to, or otherwise held by or for
the use of, Spirit; or (iv) violate any applicable law or order currently in
effect to which Spirit is subject (other than any applicable "bulk sales" laws).
(f) Spirit is not a party to, the subject of, or threatened with any
litigation nor, to the best of Spirit's knowledge, is there any basis for any
litigation. Spirit is not contemplating the institution of any litigation.
ARTICLE 5
GENERAL PROVISIONS
Section 5.1 COMPLETE AGREEMENT; AMENDMENT; NOTICE.
5.1.1 ENTIRE AGREEMENT. This Agreement embodies the entire understanding of the
parties, and any changes must be made in writing and signed by all parties.
5.1.2 AMENDMENT. This instrument may be amended or modified only by an
instrument of equal formality signed by all of the respective parties hereto.
5.1.3 NOTICE. All notices under this Agreement shall be in writing and shall be
delivered by personal service, or by certified or registered mail, postage
prepaid, return receipt requested, to the Parties of the Agreement (and where
required, to the person required to be copied with the notice) at the addresses
herein or at such other address as the addressee may designate in writing, and
to the Agreement at its principal place of business as set forth in Section 1.3
hereof, and shall be effective upon receipt (or refusal to accept).
The addresses for notices to the Parties of the Agreement are as follows:
If to Pacifico:
Minera Del Pacifico Noroeste S.A.
Circunvalacion Norte #511y 00 xxx. Xxxxx
Xxxxxxx, Xx Xxx, Xxxxxxx
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If to Spirit:
Spirit Exploration, Inc
0000 Xxxx Xxxx Xxxx
Xxx Xxxxx, XX 00000
Attn: Xxxxx Laipnieks
Copy to
Xxxxxx Law Group
0000 Xxxx Xxxxxxxxx Xx
Xxxxxxx, XX 00000
Attn: M. Xxxxxxx Xxxxxx
Section 5.2 ATTORNEYS FEES.
Should any litigation be commenced between the parties hereto or their
representatives, or should any party institute any proceeding in a bankruptcy or
similar court which has jurisdiction over any other party hereto or any or all
of his or its property or assets concerning any provision of this Agreement or
the rights and duties of any person or entity in relation thereto, the party or
parties prevailing in such litigation shall be entitled, in addition to such
other relief as may be granted, to a reasonable sum as and for his or its or
their attorneys fees and court costs in such litigation or in a separate action
brought for that purpose.
Section 5.3 VALIDITY.
In the event that any provision of this Agreement shall be held to be
invalid or unenforceable, the same shall not affect in any respect whatsoever
the validity or enforceability of the remainder of this Agreement.
Section 5.4 SURVIVAL OF RIGHTS.
Except as provided herein to the contrary, this Agreement shall be binding
upon and inure to the benefit of the parties signatory hereto, their respective
heirs, executors, legal representatives, and permitted successors and assigns.
Section 5.5 GOVERNING LAW.
This Agreement has been entered into in the state of Nevada, and all
questions with respect to this Agreement and the rights and liabilities of the
parties hereto shall be governed by the laws of Nevada, and the venue of any
action brought hereunder shall be in Xxxxx County, State of Nevada. Without
limitation in any way to the foregoing, Spirit and Pacifico hereby expressly
waive any and all application of Ecuadorian law to the interpretation and
enforcement of this Agreement and expressly waive any right to venue or
jurisdiction of any court in Ecuador
Section 5.6 WAIVER.
No consent or waiver, express or implied, by a Party of the Agreement to or
of any breach or default by another Party of the Agreement in the performance by
such other Party of the Agreement of its obligations hereunder shall be deemed
or construed to be a consent or waiver to or of any other breach or default in
the performance by such other Party of the Agreement hereunder. Failure on the
part of a Party of the Agreement to complain of any act or failure to act of
another Party of the Agreement or to declare another Party of the Agreement in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Party of the Agreement of its rights hereunder. The giving of
consent by a Party of the Agreement in any one instance shall not limit or waive
the necessity to obtain such Party of the Agreement consent in any future
instance.
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Section 5.7 REMEDIES IN EQUITY.
The rights and remedies of any of the Parties of the Agreement hereunder
shall not be mutually exclusive, i.e., the exercise of one or more of the
provisions hereof shall not preclude the exercise of any other provisions
hereof. Each of the Parties of the Agreement confirm that damages at law may be
an inadequate remedy for a breach or threatened breach of this Agreement and
agree that, in the event of a breach or threatened breach of any provision
hereof, the respective rights and obligations hereunder shall be enforceable by
specific performance, injunction, or other equitable remedy, but nothing herein
contained is intended to, nor shall it, limit or affect any rights at law or by
statute or otherwise of any party aggrieved as against the other for a breach or
threatened breach of any provision hereof, it being the intention by this
Section to make clear the agreement of the Parties of the Agreement that the
respective rights and obligations of the Parties of the Agreement hereunder
shall be enforceable in equity as well as at law or otherwise.
Section 5.8 INDEMNIFICATION.
Each Party of the Agreement (Indemnifying Party of the Agreement) hereby
agrees to indemnify and hold the other Parties of the Agreement and the
Agreement harmless from and against any and all claims, demands, actions, and
rights of action (including attorneys fees and costs) that shall or may arise by
virtue of anything done or omitted to be done by the Indemnifying Party of the
Agreement (through or by its agents, employees, or other representatives)
outside the scope of, or in breach of the terms of, this Agreement; provided,
however, that the other Parties of the Agreement shall be notified promptly of
the existence of any such claim, demand, action, or cause of action and shall be
given reasonable opportunity to participate in the defense thereof. In the event
that one Party of the Agreement shall be held severally liable for the debts of
the Agreement he shall be awarded contribution from the other Parties of the
Agreement so that each Party of the Agreement shall only be obligated to pay
that portion of such liability as shall be proportionate to such Party of the
Agreement interest in the Agreement.
Section 5.9 SUCCESSORS AND ASSIGNS.
The rights and obligations of this Agreement may be not assigned by either
Pacifico or Spirit to any successor or assignee without the express written
agreement of the other, which agreement may be withheld in such party's sole
discretion.
Section 5.10 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which shall constitute one and the
same Agreement.
Section 5.11 FURTHER ASSURANCES.
Each party hereto agrees to do all acts and things and to make, execute,
and deliver such written instruments as shall from time to time be reasonably
required to carry out the terms and provisions of this Agreement.
10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above set forth.
/s/ Xxxxxx Xxxxx
-----------------------------------------
By: Xxxxxx Xxxxx Authorized Signatory on Behalf of;
MINERA DEL PACIFICO NOROESTE S.A.
/s/ Xxxxx Laipnieks
-----------------------------------------
By: Xxxxx Laipnieks, President;
SPIRIT EXPLORATION INC.
11
EXHIBIT A
Properties
KYLEE
Spirit has agreed to purchase the concessions of Kylee for a lump sum payment of
$400,000 USD on or before October 31, 2007. The formal title for such properties
shall be transferred and delivered to Spirit immediately upon payment.
XXXXX XXXXXX
Spirit has agreed to purchase the concessions of Xxxxx Olivia for a lump sum
payment of $400,000 USD on or before October 31, 2007, of which a mortgage is
due and owed on said concession. The formal title for such properties shall be
transferred and delivered to Spirit immediately upon payment.
MULUNCAY
Pacifico has acquired the following properties inside the mining district known
as Muluncay (See below).
MINES OWNER
Mina Buena Xxxxxxxxx Xx. Xxxxx Xxxxx Xxxxxxx ACQUIRED
Mina Naranjitos ACQUIRED
Mina De La Divina Justricia ACQUIRED
Xxxx Xx Xxxxxx ACQUIRED
Mina Los Quindes ACQUIRED
Mina Las Xxxxx Sr. Xxxxxx Xxxxxx ACQUIRED
Mina Autonomos Sr Manual Xxxxx ACQUIRED
PROPERTIES TO BE ACQUIRED
1) Fierro Urco II
2) Campo De Oro Sur
3) Concession Xxxxxxx Xxxxxx
4) Oro Norte Xxxxx
12
EXHIBIT B
USE OF PROCEEDS
$ 20,000,000 ASSET BACKED NOTES FINANCING
MULUNCAY MINING PROJECT
The Muluncay Project is the company's principle concession and will utilize the
majority of the proceeds from the $20,000,000 asset backed note financing. The
Muluncay project currently consists of three mines and a flotation processing
plant in Southern Ecuador- the Muluncay Project. These acquisitions provide
properties from which Spirit can start producing gold immediately. We have
already produced our first shipment of concentrate but it has become apparent
that we need to upgrade our processing capacity to take advantage of the
tremendous opportunity presented us at Muluncay. These mines and processing
plant are presently being upgraded and are anticipated to be cash flow positive
within six months. Spirit's Muluncay Project encompasses 2100 hectares, with
estimated inferred resource of 600,000 ounces of gold. Spirit has spent
approximately $1,000,000 on this project to date upgrading the mines and
processing plant.
The following reflect the planned use of proceeds for the development of the
Muluncay Mining Project. Specific uses of these funds may be reviewed and
revised based on Management's review of the status of the project, unforeseen
costs and uncertainties, and the reasonable judgment of Management as to more
appropriate utilization of the proceeds for specific components of development
of the Muluncay project.
USE OF PROCEEDS IN PHASE I THRU III FOR MULUNCAY MINING PROJECT
PHASE I
Continuation of Mine preparation and modernization with equipment for proper
mining excavation for the tonnage required for the production plant(s). The
acquisition and purchase of 100 hectares for the new Central Processing Plant
for growth and tailing ponds to fulfill our Environmental Impact Studies for
this future site. Deposits will be applied for new Equipment to bring current
Plant to 150 Tons per day at our Xxxxxxxxx location and the deposit to acquire
Equipment for New Floatation Plant that will begin under construction during
Phase II (Start up Plant to be 250 tons per day with a foot print to build to
500 tons per day). TIME: 90 Days after funding COST: $2,000,000 USD
PHASE II
Construct New Central Floatation Plant from designed Blueprints prepared by
engineering. Clearing of land, preparation of utilities and pouring footers to
begin immediately. During concrete curing, begin tailing pond preparation and
equipment transporting to site. Begin on site assembly of tanks and crushing
line assembly for installation. Apply equipment in order of placement and
continue through test run of plant of 250 ton per day operation. TIME: One Year
from Start. COST: $4,500,000.
PHASE III
Continuing Mine development and slashing process to continue to create proper
ore feed. Develop holding deposits for extracted ore for proper blending for the
Plant. After plant has run 250 tons per day for 90 consecutive days begin
process to add additional equipment to raise to 500 tons per day. StateplaceOre
volume per day will dictate the growth stages (50 ton tanks can be added
quickly) based on the mining progress for vein quality. TIME: One Year. Cost:
$2,500,000.
13
USE OF PROCEEDS FOR FOREGOING PHASES ON MULUNCAY AND ALSO REFLECTING PROPERTY
PURCHASE AND MORTGAGE TERMINATION COSTS
PHASE I
OCT. 1/07 - MAR. 1/08 PURCHASE PRICE
--------------- -------------------------------
Deposit with 3 Yr. Mortgage
Terms ($375,000 remains owed
Purchase of "Xxxxx" Mine $ 506,783 on Mortgage)
Deposit with 3 Yr. Mortgage
Terms ($620,000 remains owed
Purchase "Xxxxxxxxx" Mine $ 850,000 on Mortgage)
Deposit with Mortgage Terms
(2 Pmts.) ($160,000 remains
Purchase "Asanza" Mine $ 260,000 owed on Mortgage)
---------------
TOTAL PURCHASES $ 1,560,000
MINING OPERATION UPGRADES:
"Xxxxx" Mine $ 325,000 Slashing & Safety Construction
Xxxxxxxxx Plant $ 575,000 Slashing & Safety Construction
Slashing & Safety Construction
CityplaceSanta Fe Plant $ 50,000 in Mine & Plant Prep
---------------
SUB TOTAL $ 950,000
Contingency (10%) $ 95,000
---------------
TOTAL UPGRADES $ 1,045,000
TOTAL COSTS FOR PHASE 1 $ 2,525,000
PHASE II
NOV/07-JUNE/08
Land-100 Hectares
Property Purchase $ 150,000 (247.1 Acres)
Development of Spirit 1 & 2 Plant $3,500,000
----------
TOTAL $3,650,000
PHASE II PLANT & MINE UPGRADES:
Upgrade Mine to
"Xxxxx" $ 300,000 Production Level
Upgrade Mine to
Production Level &
"Xxxxxxxxx" $ 500,000 Increase Volume
Upgrade Mine to
"Asanza" $ 300,000 Production Level
----------
TOTAL UPGRADES $1,100,000
Upgrade Contingency (10%) $ 110,000
Total Upgrade Expense Phase II $1,210,000
----------
TOTAL COSTS PHASE II $4,680,000
PHASE III
FEB. 1/08 - JULY 1/08
Transportation & Moving Equipment $ 250,000
Completion of Spirit 1 & 2 Plant $ 1,500,00
----------
TOTAL $1,750,000
----------
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PHASE III PLANT & UPGRADES:
"Xxxxx" Mine $ 250,000 Upgrade Mine & Extraction Bins
Upgrade to Production
Xxxxxxxxx Plant $ 750,000 Level & Increase Plant Volume
CityplaceSanta Fe Plant $ 100,000 Upgrade Mine to production level
----------
SUB TOTAL $1,100,000
Contingency (10%) $ 110,000
----------
TOTAL UPGRADES $1,210,000
TOTAL COSTS FOR PHASE 1II $2,960,000
TOTAL FUNDS REQUIRED FOR MULUNCAY EXPANSION: $10,165,000
XXXXX XXXXXX PROJECT
Spirit has undertaken a joint venture on this project with Franzosi S.A., an
exploration company based in Quito, Ecuador. Franzosi is scheduled to spend
$4.8 million developing this property. To meet our obligations under the
agreement, Spirit is required to provide $1,200,000 for additional property
acquisitions and contributions to the joint venture.
Xxxxx Xxxxxx has similar geology, structures and mineralization as Muluncay.
Within the Portovelo Series volcanics a series of parallel structures found in
the NW corner of the district is grouped as Cerro de Oro. These local area
structures encompass both those veins found within the Xxxxx Olivia concession,
such as Tres Diablos, Bolivar and placeCitySan Antonio, as well as those
immediately outside the concession boundaries but considered to be part of the
same Ayapamba area mineralizing system (e.g. La Sucre Vein). This system of
veins is the northwest continuation of the large system of veins around
Portovelo-Zaruma. There is significant additional potential at depth of up to
1500 m for most of the concession in the district, including those veins
contained within the Xxxxx Olivia concession. A preliminary estimate of the
resource from the three known veins (Tres Diablos, Bolivar, San Antonio) with an
estimated strike length of 1 km (similar to the Sucre Vein), with an average
width of 1.3 m and an average depth of 600 m is probable that a resource of
greater than 1.5 million tonnes in the order of 12 g/T (due to dilution by
secondary veins and disseminations) could produce 562,500 oz Au. No estimate of
the value derived from silver or sulphide concentrate has been made, but it
would add a significant amount to the value of this resource.
The Company plans to undertake production of the Xxxxx Xxxxxx concession
production in four phases:
1. Initially in Phase 1 through startup exploration, completion of an
environmental impact study, undertaking soil and water studies to begin with
laboratory results and engaging mining engineers to begin surface evaluations
for possible entry points of the main tunnel.
2. In Phase 2, the Company will put its drill program into place. This will
including (i) hiring a drill team with an approved North American Geologist to
prepare cores for booking and lab preparation; (ii) building a security shelter
for cores and equipment; (iii) moving equipment on site and beginning drilling;
(iv) preparing a model from drilling results of the ore body after the first
16,000 feet have been drilled and sampled; (v) beginning calculation of provable
resources based upon early lab reports; (vi) starting a second round of drilling
(16,000 feet); (vii) using these results to assure mining tonnage and grade for
valuations and (viii) repeating the above based upon distance, depth and width
of findings.
3. In Phase 3, the Company will begin underground extraction (mining). The
Company will need to complete an environmental impact study for extraction. The
Company's mining engineers will begin construction for the entry of the main
tunnel and its mechanical engineers will approve final drawings of the flotation
processing plant. Key paperwork will be completed include approval of budgets,
flow charts and objectives from financing to construction, and setting
production objectives.
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4. In the final Phase 4, the Company will begin construction of a 200 ton
plant and mining extraction. Included in this phase will be (i) setting footers
for 400 ton per day Processing flotation plant; (ii) purchasing equipment to set
200 ton per day in this Phase; (iii) developing a tailings pond for five year
production at 200 ton per day for a key impact study; (iv) providing rail,
water, air and electricity mine for extraction of a 200 ton per day operation;
(v) building a laboratory on site and (vi) setting a security perimeter around
the active plant and mine area.
TOTAL FUNDS REQUIRED FOR XXXXX OLIVIA JOINT VENTURE: $1,200,000
KYLEE CONCESSION
This project contains at least one major vein of 1 metre width, and is suggested
to be 2.3 kilometres long, trending NE-SW. The width of the vein suggests
strength, continuity and depth. Our current workings are on a vein exposed
along Quebrada Xxxx of Rio San Francisco, which lies NE of the major Rio
Jubones. There are possible parallel veins in Quebrada Cuchicorral. This area
has not yet been explored for parallel structures which may host similar
mineralization. Spirit Exploration's proposed exploration program would consist
of stream sediment sampling of all creeks in concession, where accessible, at
approximately 100 metres separation along each creek. The purchase cost of
acquiring this asset is $400,000.
PHASE I
Begin Environmental Impact Study by recommended geologist team from
placeCityQuito. At the same time begin soil sampling, magnetometer land survey,
and laboratory testing through-out the concession to design proper target areas
to begin drilling program. Time: 120 Days. Cost: $150,000
PHASE II
Hire professional drillers and work out first 5,000 meter program with geologist
team. Build model of ore body and create tonnage estimates based on findings.
Cut core samples in half and send to bonafide laboratory for testing report.
Time: Six Months Cost: $1,000,000 Drillers Est. 5,000 meters x $150 = $750,000,
plus mobilization cost plus Laboratory.
PHASE III
Body over 1 million ounces will be recommended to continue with a second 5,000
meter program to clarify ore body pitch and depth. Time: Six Months Cost:
$1,000,000.
PHASE IV
Begin under-ground engineering studies and prepare Mining Report. Begin
designation of entrance to the ore body. (Cost to be based on meter removed plus
equipment). Time: One Year Cost: $1,500,000.
TOTAL FUNDS REQUIRED FOR KYLEE CONCESSION: $3,900,000
XXXXXX URCO I & II PROJECTS
Spirit's strategic land package, Fierro Urco II, is comprised of 11 concessions
totaling 13,503 hectares (approximately 28,000 acres) inside the Regional Mining
District of Loja. This land package is north of Loja, Ecuador and just west of
the Aurelian Resources, Inc.(TSX) Fruta Del Norte Gold-Silver Deposit, which
recently reported an inferred resource of 13.7 million oz. of gold equivalent.
The purchase price of this concession is $1,500,000.
In addition to the Fierro Urco II project, we have a purchase agreement to
acquire the Xxxxxx Urco I project. This is a very strategic package and is on
the same geological trend as the Fierro Urco II project. We have spent $100,000
on this project to date and need $1,100,000 to complete the acquisition.
16
There have been numerous exploration programs carried out on this property under
the auspices of the British Geological Commission, the United Nations and Geolog
a del Ecuador. Our geological team in Ecuador has conducted an extensive
document search and review of previous work in this very strategic area in
Southern Ecuador. The 11 mining concessions we obtained in this package
presented 134 areas interest to our experts. This project will be fully
evaluated with a preliminary Exploration program already initiated with soil
sampling. The program will include detailed mapping, prospecting, stream
sediment sampling, and chip and channel sampling to confirm the previous
exploration data. Spirit will be very aggressively defining each phase of our
exploration results based on these lab tests and will move quickly into a drill
program.
PHASE I
Begin Environmental Impact Study by third party geologist team from
placeCityQuito. At the same time begin soil sampling, magnetometer land survey,
and laboratory testing through-out the concession to design proper target areas
to begin drilling program. Time: 120 Days. Cost: $250,000
PHASE II
Hire professional drillers and work out first 5,000 meter program with geologist
team. Build model of ore body and create tonnage estimates based on findings.
Cut core samples in half and send to bonafide laboratory for testing report.
Time: Six Months Cost: $1,000,000 Drillers Est. 5,000 meters x $150 = $750,000,
plus mobilization cost plus Laboratory.
TOTAL FUNDS REQUIRED FOR XXXXXX URCO I & II: $3,850,000
PROJECTED GENERAL WORKING CAPITAL AND CORPORATE COSTS: ANNUALIZED FOR 2008
Management Salaries (President, CEO, Exploration VP, CFO) $440,000
Rent for Management Staff, Utilities, travel, etc. 50,000
Consultants (Financial, Geologists, Operational) 175,000
Legal, Accounting, Audits 150,000
Investor Relations 70,000
TOTAL FUNDS REQUIRED FOR CORPORATE COSTS $885,000
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SUMMARY OF USE OF PROCEEDS
FUNDS REQUIRED FOR MULUNCAY EXPANSION: $10,165,000
FUNDS REQUIRED FOR XXXXX XXXXXX JOINT VENTURE: $1,200,000
FUNDS REQUIRED FOR KYLEE CONCESSION: $3,900,000
FUNDS REQUIRED FOR XXXXXX URCO I & II: $3,850,000
CORPORATE COSTS: $885,000
----------------
TOTAL USE OF PROCEEDS $20,000,000
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