August 23, 2006
Exhibit 2.1
August 23, 2006
Tornado Gold International Corp.
0000 Xxxxxxxxxx Xxx, Xxxxx 000
Xxxx, Xxxxxx 00000
Fax number: 000-000-0000
Attention: Xxxx X. Xxxxxx, Chief Executive Officer
Re: Illipah Gold Project — Asset Purchase
Gentlemen:
This letter sets forth the terms of an agreement for your approval (“Letter Agreement”) to be effective as of August 23, 2006 (“Effective Date”), by and among Tornado Gold International Corp., a Nevada corporation, whose mailing address is 0000 Xxxxxxxxxx Xxx, Xxxxx 000, Xxxx, Xxxxxx 00000 (“Tornado”), and Golden Cycle Gold Corporation, a Colorado corporation (“Golden Cycle”). Tornado and Golden Cycle are referred to herein individually as a “Party” and collectively as the “Parties.”
Background
1. Golden Cycle currently has an exploration and mining lease on 139 unpatented mining claims described in Schedule A. (“Leased Claims”) and located an additional 52 unpatented mining claims in White Pine County, Nevada, more particularly described in Schedule B (“GCC Claims”) and together with the Leased Claims, the “Illipah Claims.”
2. Golden Cycle acquired the Leased Claims from Xxxx Xxxxxx and Xxxxx Xxxxxx under the terms of the Mining Claims Purchase and Royalty Agreement dated effective as of August 31, 2001 and the Mining Deed attached thereto, each of which is attached hereto as Schedule C (the “Xxxxxx Agreement”) and incorporated herein by reference.
3. Tornado desires to acquire the Illipah Claims from Golden Cycle, and Golden Cycle desires to sell, transfer and assign the Illipah Claims to Tornado pursuant to the terms of this Letter Agreement.
Agreement
For and in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties agree as follows:
1) Transfer and Assignment of Illipah Claims. In consideration of the payment of the Purchase Price (as defined below) by Tornado to Golden Cycle and the covenants,
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2) agreements, representations, warranties and deliveries of Tornado and Golden Cycle set forth in this Letter Agreement, and subject to the terms set forth in this Letter Agreement on the Closing Date, (a) Golden Cycle shall sell, assign, convey and transfer to Tornado all right, title and interest of Golden Cycle in and to the Illipah Claims, and (b) Tornado shall purchase from Golden Cycle all right, title and interest of Golden Cycle in and to the Illipah Claims and accept, assume and be liable for the due performance of all obligations and liabilities related to the Illipah Claims and the Xxxxxx Agreement (collectively, the “Transaction”).
3) Consideration for Illipah Claims. The purchase price (the “Purchase Price”) payable by Tornado to Golden Cycle for Golden Cycle’s right, title and interest in and to the Illipah Claims shall be payable as follows:
a) Cash Payments: Tornado will pay to Golden Cycle:
i) Fifty Thousand Dollars (US$50,000) payable in cash immediately upon execution and delivery of this Letter Agreement;
ii) Forty-eight Thousand Six Dollars and fifty cents (US$48,006.50) payable in cash immediately upon signing of this Letter Agreement for (A) the payment of United States Department of the Interior Bureau of Land Management (“BLM”) mining claim maintenance fees in the amount of Twenty-three Thousand Eight Hundred Seventy-five Dollars (US$23,875) due in accordance with 43 Code of Federal Regulations §§ 3833 et seq and required to maintain the Illipah Claims in good standing for the United States mining assessment year; (B) the payment of annual maintenance and filing fees to White Pine County in the amount of Sixteen Hundred Thirty-one Dollars and fifty cents (US$1,631.50) and (C) advanced minimum royalty payments under the Xxxxxx Agreement in the amount of Twenty-two Thousand Five Hundred Dollars (US$22,500) representing the 4th anniversary payment; and
iii) Fifty Thousand Dollars (US$50,000) payable in cash 90 days after the execution and delivery of this Letter Agreement.
b) Common Stock Payments: Tornado will issue to Golden Cycle Three Hundred Fifty Thousand (350,000) shares of common stock of Tornado, which shall be registered for resale under the terms of a registration rights obligation, issued as follows:
i) Fifty Thousand (50,000) shares of common stock of Tornado issued 90 days after the execution and delivery of this Letter Agreement;
ii) One Hundred Thousand (100,000) shares of common stock of Tornado issued one hundred eighty (180) days after the execution and delivery of this Letter Agreement; and
iii) Two Hundred Thousand (200,000) shares of common stock of Tornado issued one (1) year after the execution and delivery of this Letter Agreement.
iv) Golden Cycle acknowledges that the common stock issuable under this Letter Agreement have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), and may not be offered or sold absent registration or an available exemption from registration. Tornado shall prepare and file with the SEC within sixty (60) calendar days after the Closing Date (as defined in the Definitive Agreement, but in any event no
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later than 150 days after the execution and delivery of this Letter Agreement) a registration statement (on Form X-0, XX-0, XX-0, X-0, or other appropriate registration statement form reasonably acceptable to the Subscriber) under the 1933 Act (the “Registration Statement”), at the sole expense of Tornado, in respect of Golden Cycle, so as to permit a public offering and resale of the common stock issued under this Letter Agreement in the United States under the 1933 Act by Golden Cycle as selling stockholder and not as underwriter. Tornado shall use its best efforts to cause such Registration Statement to become effective as soon as possible thereafter, and within the earlier of: (A) one hundred twenty (120) calendar days after the Closing Date (as defined in the Definitive Agreement, but in any event no later than 210 days after the execution and delivery of this Letter Agreement), or (B) five (5) calendar days of the SEC clearance to request acceleration of effectiveness. Tornado will notify Golden Cycle of the effectiveness of the Registration Statement within three (3) business days.
c) Production Royalties to Golden Cycle:
i) Tornado will grant to Golden Cycle production royalties for the rents, issues, profits and Bullion and Other Products derived from any lands within one (1) mile of any boundary line of any Illipah Claim located on the date of this Letter Agreement (hereafter the “Area of Interest”) of two percent (2%) of Net Smelter Returns calculated in accordance with Exhibit I attached hereto (the “GC Production Royalties”); and
ii) Tornado will have the option, exercisable at any time prior to commercial production on any of the Illipah Claims, to reduce the GC Production Royalties from two percent (2%) to one percent (1%) by paying Golden Cycle, at Golden Cycle’s sole option (A) the sum of One Million Dollars (US$1,000,000) in cash or (B) that number of ounces of gold bullion equal to One Million Dollars (US$1,000,000) divided by the closing price of gold on the New York Commodity Exchange on the date of this Letter Agreement.
d) Work Commitment: Tornado will undertake an exploration program on the Area of Interest and incur exploration and development expenditures in the following amounts:
i) at least Two Hundred Fifty Thousand Dollars (US$250,000) within one (1) year of the execution and delivery of this Letter Agreement;
ii) at least Seven Hundred Fifty Thousand Dollars (US$750,000) in aggregate within two (2) years of the execution and delivery of this Letter Agreement; and
iii) within forty-five (45) days of each fiscal calendar quarter of Tornado and 90 days of the fiscal year end of Tornado. Tornado shall provide Golden Cycle with a report of exploration and development expenditures related to the Area of Interest, certified by the Chief Financial and Accounting Officer, and Golden Cycle may, for a period of fifteen (15) days after receipt of the report, request that the auditor for Tornado commence and complete as soon as reasonably possible thereafter, an audit of the books and records of Tornado related to the Illipah Claims to verify the reported exploration and development expenditures. Golden Cycle shall be solely
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responsible for reimbursement of all reasonable costs and expenses of the audit unless the calculation of exploration and development expenditures by the auditor is less than the calculation of exploration and development expenditures by Tornado by more than ten percent (10%), in which case the cost of the audit shall be paid by Tornado.
4) Assumption of Xxxxxx Agreement Obligations. Upon execution and delivery of this Letter Agreement, Tornado will assume all of Golden Cycle’s rights, obligations, covenants and commitments under the Xxxxxx Agreement, including but not limited to, the payment of BLM mining claim maintenance fees and annual rental fees, due to the United States and any fees required by the State of Nevada and any agency or subdivision of the State of Nevada or County or municipality, advance royalty payments and royalties on production of minerals, title fees, recordation fees, reclamation costs, service fees and other costs to keep the Illipah Claims in good standing, except as otherwise paid by Golden Cycle and reimbursed by Tornado under section 2(a)(ii).
5) Maintenance of GCC Claims. Upon execution and delivery of this Letter Agreement, Tornado will assume all of Golden Cycle’s rights, obligations, covenants and commitments related to maintaining the GCC Claims, including but not limited to, the payment of BLM mining claim maintenance fees and annual rental fees, due to the United States and any fees required by the State of Nevada and any agency or subdivision of the State of Nevada or County or municipality, advance royalty payments and royalties on production of minerals, title fees, recordation fees, reclamation costs, service fees and other costs to keep the GCC Claims in good standing (collectively, the “Maintenance Obligations”), except as otherwise paid by Golden Cycle and reimbursed by Tornado under section 2(a)(ii). Tornado will provide Golden Cycle evidence of payment and performance of the Maintenance Obligations no later than forty-five (45) days prior to the due date of such obligations. The Parties agreed that a failure to provide such notice shall constitute an event of default under this Letter Agreement.
6) Assumption of Reclamation Obligations. Tornado, its successors and assigns, hereby releases Golden Cycle from and against any environmental liabilities including any present or future claims arising from any environmental laws which Tornado can, shall or may have at any time against Golden Cycle, and Tornado agrees not to make or to directly or indirectly cause, facilitate or promote any environmental claim to be made or threatened against Golden Cycle (whether by Tornado, any government authority or any third party) or to allege or claim that Golden Cycle is responsible directly or indirectly, in whole or in part, for any remediation of any part of the Area of Interest, any activity related to such remediation, or the presence of any contaminants which are in, on or under or which may have originated from any part of the Area of Interest, or any reclamation of any part of the Area of Interest.
7) Notice of Impairment of Claims. Tornado, its successors and assigns, shall (a) give Golden Cycle, its successors and assigns, not less than ninety (90) days’ written notice of its intent to (i) reduce the Illipah Claims in number or area within the Area of Interest or (ii) withdraw from the project area of the Illipah Claims, the mine, if any, or the Area of Interest, and (b) Golden Cycle, its successors and assigns, shall have the right, at its sole option, to reacquire title to such interest and Tornado will cooperate with Golden Cycle, its successors and assigns, in reacquiring title thereto. The maintenance fees and associated charges and recordings shall be paid and filed by Tornado within the time thereafter allowed by law so as to preserve the title for such acquisition by Golden Cycle, its successors or assigns.
8) Formal Agreement. Upon mutual agreement of the parties, the parties shall prepare and execute formal agreements to memorialize the Transaction if the parties determine that it is desired to satisfy United States corporate security requirements and other commercial terms
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as the parties may mutually agree (“Formal Agreements”). This Letter Agreement shall remain fully enforceable whether or not the Formal Agreements are executed.
9) Failure to Pay Purchase Price or Failure to Maintain Illipah Claims. The Parties acknowledge that Golden Cycle is transferring a valuable right and interest in the Illipah Claims and its rights to develop the Area of Interest. The Parties acknowledge that there is no adequate remedy at law for failure by Tornado to satisfy its obligations under this Letter Agreement, including but not limited to, payment of the Purchase Price under Section 2, performance of the obligations under the Xxxxxx Agreement under Section 3, maintenance of the GCC Claims under Section 4, assumption of the reclamation obligations under Section 5 and notice of impairment under Section 6, and that such failure would not be adequately compensable in damages. Therefore, Tornado agrees that in the event that within ten (10) days after a written notice of default upon failure to make any payment when due or satisfy its obligations under this Letter Agreement, Tornado will transfer all rights title and interest in the Illipah Claims to Golden Cycle, free of all liens, claims and charges of any kind, as liquidated damages and not as a penalty for such failure. The Parties agree that such transfer will be evidenced by quit claim deed delivered at Closing under the terms of the Formal Agreements, but in no event later than one hundred twenty (120) days after the execution and delivery of this Letter Agreement.
10) Term. Any right to acquire any interest in real or personal property under this Letter Agreement shall be exercised, if at all, so as to vest such interest in Tornado within twenty-one (21) years after the date of this Letter Agreement.
11) Costs and Expenses. Except as provided in this Letter Agreement, each Party shall pay its own costs and expenses in connection with the proposed Transaction and the activities contemplated herein, including but not limited to any fees payable to attorneys, consultants and other advisors.
12) Assignment. Neither this Letter Agreement nor any rights hereunder shall be assignable by any Party without the prior written consent of the other Parties hereto, which may be withheld for any reason.
13) No Third Party Beneficiaries. Nothing in this Letter Agreement is intended, nor shall it be construed to give any person other than the Parties hereto and their successors and permitted assigns any legal or equitable right, remedy or claim under or in respect of this Letter Agreement or any provision contained herein.
14) Entire Agreement. This Letter Agreement constitutes the entire understanding between the Parties with respect to the Transaction and supersedes all negotiations, prior discussions or prior agreements and understandings relating to such matters, provided that this Letter Agreement shall be replaced by the Formal Agreements upon their execution.
15) Governing Law. This Letter Agreement shall be governed and construed under the laws of the State of Colorado without regard to its conflicts of laws principles.
16) Amendment. This Letter Agreement shall not be amended except by a written instrument executed by all of the Parties hereto.
17) Counterparts. This Letter Agreement may be executed in counterparts, each of which shall be deemed to constitute an original but all of which together shall constitute one and the same instrument.
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If the terms of this Letter Agreement are in accordance with your understanding of the Transaction, please sign and return the enclosed duplicate of this Letter Agreement to Golden Cycle.
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Very truly yours, |
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GOLDEN CYCLE GOLD CORPORATION |
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By: |
/s/ R. Xxxxxxx Xxxxxxx |
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Name: |
R. Xxxxxxx Xxxxxxx |
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Title: |
President & CEO |
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Duly agreed to and executed |
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as of the Effective Date. |
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TORNADO GOLD INTERNATIONAL CORP. |
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By: |
/s/ Xxxx X. Xxxxxx |
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Name: |
Xxxx X. Xxxxxx |
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Title: |
President & CEO |
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Date: |
August 24, 2006 |
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STATE OF |
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COUNTY OF |
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Subscribed, sworn to and acknowledged before me this day of , 2006, by , the of Golden Cycle Gold Corporation., a Colorado corporation, who stated that the foregoing instrument was signed on behalf of said corporation.
My commission expires: .
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NOTARY PUBLIC |
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STATE OF |
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COUNTY OF |
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Subscribed, sworn to and acknowledged before me this day of , 2006, by , the of Tornado Gold International Corp., a Nevada corporation, who stated that the foregoing instrument was signed on behalf of said corporation.
My commission expires:
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NOTARY PUBLIC |
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