LOAN AND SECURITY AGREEMENT
EXHIBIT
10.3
THIS
LOAN AND SECURITY AGREEMENT (the
“Agreement”) is entered into as of the 1st
day of
November, 2005, by and among Wits Basin Precious Minerals Inc., a Minnesota
corporation (the “Company”), and Xxxxxx Xxxxx, a resident of Ohio (the
“Lender”).
INTRODUCTION
A. The
Company currently has an unsecured $250,000 bridge financing (the “Existing
Financing”) with the Lender.
B. The
Company is in need of additional bridge financing and wishes to borrow from
the
Lender, and the Lender desires to loan the Company, up to an additional $350,000
in principal (for an aggregate of up to $600,000) against a secured convertible
promissory note.
C. The
parties wish to enter into an agreement in connection with the financing,
in the
form of this Agreement
AGREEMENT
Now,
Therefore,
in
consideration of the foregoing facts and premises hereby made a part of this
Agreement, the mutual promises hereinafter set forth and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree
as
follows:
Article
1
Loan
1.1 The
Loan.
On the
terms and conditions hereof, the Lender hereby agrees to loan the Company
up to
an aggregate amount of $600,000 (the “Loan”) pursuant to mutually acceptable
monthly draws by the Company of up to $100,000 (each a “Monthly Draw”). The
parties hereby acknowledge and agree that the Existing Financing is set against
the Loan, thereby allowing additional Monthly Draws of up to an aggregate
of
$350,000 in principal. Additionally, the parties also agree to the acceptance
of
the first Monthly Draw, and that such Monthly Draw shall occur on November
1,
2005 via a wire transfer of immediately available funds by Lender to the
Company
(the “Initial Monthly Draw”). Thereafter, the parties may mutually agree to
additional Monthly Draws during each successive month commencing December
2005
and ending February 2006 (each such month shall be hereinafter referred to
as a
“Month” and each additional Monthly Draw an “Additional Monthly Draw”); provided
that, the aggregate of such Monthly Draws (including the Existing Financing),
shall not exceed $600,000. The aggregate amount of the Monthly Draws shall
be
referred to herein as the “Loan Amount.”
1.2 Mechanics
of Additional Monthly Draws.
If the
Company intends to exercise an Additional Monthly Draw for any Month, it
shall
deliver to the Lender a written notice of its intent (each, a “Notice”), such
Notice to include the amount of such draw (not to exceed $100,000) and current
assay reports relating to the Company’s exploration operations (“Assays”), on or
prior to the 25th
day of
the calendar month prior to the such Month. If the Lender intends to reject
such
Additional Monthly Draw, it shall, within three (3) Business Days of its
receipt
of Notice, deliver to the Company written notice of such rejection. If the
Lender accepts the Additional Monthly Draw, it shall deliver to the Company,
via
wire transfer of immediately available funds, the amount of such draw specified
in the Notice on or before the fifth (5) day of such Month (the “Wire Date”).
For purpose of this Agreement, “Business Day” means any day other than a
Saturday, Sunday or legal holiday in the State of Minnesota. In the event
any
day upon which notice is required to be delivered falls on Non-Business Day,
a
weekend or holiday, the party shall have until the end of next Business Day
to
deliver such notice to the other party.
1.3 Consideration.
(a) Existing
Xxxxxxxxx.Xx
consideration for the Existing Financing, the Company will, within two (2)
Business Days of the date hereof:
(i) Issue
and
deliver to the Lender a convertible secured promissory note in a principal
amount equal to the Loan Amount, in the form attached hereto as Exhibit
A
(the
“Note”); provided that the Company shall not be required to issue the Note to
Lender until such time it has received from Lender the original note underlying
the Existing Financing; and
(ii) Issue
and
deliver to the Lender warrants to purchase 2,500,000 shares of the Company’s
common stock, par value $.01 per share (the “Common Stock”) at an exercise price
of $0.12 per share, in the form attached hereto as Exhibit
B
(the
“Warrants”).
(b) Initial
Monthly Draw.
In
consideration of the Initial Monthly Draw, the Company shall, within two
(2)
Business Days of the Company’s receipt of such Initial Monthly
Draw:
(i) Issue
and
deliver to the Lender 500,000 shares of restricted Common Stock;
(ii) Issue
and
deliver to the Lender Warrants to purchase 1,000,000 shares of Common Stock
at
an exercise price of $0.12 per share; and
(iii) Reflect
in the Company’s records the increase to the Principal balance of the Note (as
such term is defined in the Note).
(c) Additional
Monthly Draws.
For
each additional Monthly Draw, the Company shall:
(i) Issue
and
deliver to the Lender, within two (2) Business Days of the Wire Date associated
with such Monthly Draw, Warrants to purchase an additional 1,000,000 shares
of
Common Stock (or pro-rated amount) at an exercise price of $0.12 per share;
and
(ii) Reflect
in the Company’s records the increase to the Principal balance of the Note (as
such term is defined in the Note).
(d) Non-Usage
of Draws.
In the
event the Company does not exercise any Additional Monthly Draws, the Company
shall issue to the Lender 500,000 restricted shares of Common Stock; provided
that, the Company shall not be required to issue Common Stock pursuant to
this
Section 1.3(d) if the Company provides one or more Notices to exercise an
Additional Monthly Draw and each such Notice is rejected by the Lender.
Article
2
Company
Representations and Warranties
The
Company hereby makes the following representations and warranties to the
Lender
as of the Closing Date.
2.1 Organization,
Good Standing and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota. The Company has all requisite
corporate power and authority to own and operate its properties and assets,
to
execute and deliver this Agreement, the Note and the Warrants (together,
the
“Transaction Documents”), to issue and sell the shares of Common Stock issuable
hereunder and upon exercise of the Warrants (the “Warrant Shares”), to
carry out the provisions of the Transaction Documents, and to carry on its
business as presently conducted and as presently proposed to be conducted.
The
Company is duly qualified and is authorized to do business and is in good
standing in each jurisdiction in which the nature of its activities makes
such
qualification necessary, except for those jurisdictions in which failure
to be
so qualified would not have a materially adverse effect on the Company or
its
business, taken as a whole.
2.2 Authorization;
Binding Obligations.
All
corporate action on the part of the Company, its officers, directors and
shareholders necessary for the authorization of the Transaction Documents,
the
performance of all obligations of the Company hereunder, including the
authorization, sale, issuance and delivery of the Common Stock, including
the
Warrant Shares, has been taken. The Transaction Documents, when executed
and
delivered, will be valid and binding obligations of the Company enforceable
in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights and according to general
principles of equity that restrict the availability of equitable
remedies.
2.3 Issuance
of Common Stock.
The
shares of Common Stock issuable hereunder, including upon exercise of the
Warrants, when issued, shall be validly issued, fully paid and
nonassessable.
2.4 Collateral.
The
Company is the legal and beneficial owner of the Collateral, as defined in
Article 4 hereof. The Collateral is subject to a priority security interest
held
by Pandora Select Partners, L.P. (the “Priority Security Interest”) and a
secondary security interest held by Pacific Xxxx Capital, LLC (the “Secondary
Security Interest”). Except
for the Priority Security Interest and the Secondary Security Interest, the
Collateral is free and clear of all mortgages, security interests, liens,
encumbrances and claims of every kind (the “Encumbrances”). The Collateral is
and will remain free and clear of all Encumbrances of any nature whatsoever,
except for the Priority Security Interest and Secondary Security Interest
and
those contemplated herein.
2.5 Offering.
Assuming the accuracy of the representations and warranties of the Lender
contained in Article 3 hereof, the offer, issue and sale of the Note, Warrants,
the Common Stock and the Warrant Shares (collectively, the “Securities”) is and
will be exempt from registration and prospectus delivery requirements of
the
Securities Act of 1933, as amended, and are exempt from registration and
qualification under the requirements of all applicable state securities
laws.
Article
3
Lender’s
Representations and Warranties
The
Lender hereby represents and warrants to the Company, as of the Closing Date,
as
follows:
3.1 Investment
Representations.
The
Lender understands that neither the offer or the sale of the Securities have
been registered under the Securities Act. The Lender also understands that
the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in material part upon the Lender’s
representations contained in the Agreement. In this regard, the Lender
additionally represents and warrants as follows:
(a) The
Lender has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company
so that
it is capable of evaluating the merits and risks of its investment in the
Company. The Lender must bear the economic risk of this investment indefinitely
unless the Shares are registered for resale pursuant to the Securities
Act, or
an exemption from registration is available. The Lender has no present
intention
of selling or otherwise transferring the Securities, or any interest therein.
The Lender also understands that there is no assurance that any exemption
from
registration under the Securities Act will be available and that, even
if
available, such exemption may not allow the Lender to transfer all or any
portion of the Securities under the circumstances, in the amounts or at
the
times the Lender might wish. Lender
represents and agrees that if, contrary to the foregoing representations
and
warranties, Lender should later desire to dispose of or transfer all or
any
portion of the Shares or Securities in any manner, Lender shall not do
so
without complying with applicable securities laws.
(b) The
Lender is acquiring the Securities for the Lender’s own account, for investment
only, and not with a view towards their public distribution. Lender is not
aware
of any occurrence, event or circumstance upon the happening of which Lender
intends to transfer or sell the Securities. Lender has been informed that,
in
the view of the certain state securities commissions, a purchase of Securities
with a current intent to resell, by reason of any foreseeable specific
contingency or anticipated change in market values, any change in the condition
of the Company or the investment market as a whole, or in connection with
a
contemplated liquidation or settlement of any loan obtained for the acquisition
of the Securities, would represent a purchase with an intent inconsistent
with
the representations set forth above, and that certain state securities
commissions might regard such sale or disposition as a deferred sale with
regard
to which an exemption from registration is not available.
(c) The
Lender represents that, by reason of the business or financial experience
of
Lender’s management, the Lender has the capacity to protect his own interests in
connection with the transactions contemplated in this Agreement and the
Securities. Further, the Lender is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement.
(d) The
Lender represents that the Lender is an accredited investor within the meaning
of Regulation D under the Securities Act.
(e) The
Lender represents that the obligations of Lender hereunder are legal, valid
and
binding upon the Lender, enforceable in accordance with their terms and that
Lender is an individual residing in the State of Ohio.
3.2 High
Risk.
The
Securities offered hereby are highly speculative in nature and an investment
therein involves a high degree of risk, including but not limited to the
risk of
losing the entire investment in such Securities.
3.3 No
Governmental Approval.
No
federal or state agency, including the Commission or the securities commission
or authority of any state, has approved or disapproved the Securities, passed
upon or endorsed the merits of the issuance of Securities or the accuracy
or
adequacy of any information provided by the Company, or made any finding
or
determination as to the fairness or fitness of the Securities for
sale.
3.4 No
Reliance.
Lender
has been encouraged to rely upon the advice of its legal counsel, accountants
or
other financial advisors with respect to tax and other considerations relating
to the purchase of the Securities pursuant hereto. Lender is not relying
upon
the Company with respect to the economic considerations involved in determining
to make an investment in the Securities.
3.5 Access
to Information.
Lender
has been given access to full and complete information regarding the Company
and
has utilized such access to Lender’s satisfaction for the purpose of obtaining
information respecting the Company. Particularly, Lender has been given
reasonable opportunity to meet with and/or contact Company representatives
for
the purpose of asking questions of, and receiving answers from, such
representatives concerning the terms and conditions of the issuance of the
Securities and to obtain any additional information, to the extent reasonably
available, necessary to verify the accuracy of information about the Company
already obtained.
Article
4
Other
Agreements
4.1 Security
Agreement.
To
secure the full and timely payment and performance of the Company’s obligations
under this Agreement and the Note, the Company hereby grants to Lender a
security interest (the “Security Interest”) in the property of the Company
identified on Exhibit C hereto, whether now owned or later acquired or created,
and including all proceeds therefrom, whether cash or non-cash (collectively,
the “Collateral”). The Security Interest is secondary in interest to the
Priority Security Interest held by Pandora Select Partners, L.P., and, pursuant
to that certain Intercreditor Agreement entered into effective November 1,
2005
by and between Lender and Pacific Xxxx Capital, LLC, pari
passu
with the
Secondary Security Interest held by Pacific Xxxx Capital, LLC.
4.2 “Piggyback”
Registration.
Except
in the event of a public offering of securities by the Company, at any such
time
the Company proposes to file a registration statement with the SEC under
the
Securities Act registering equity securities or debt with equity features
for
public sale or resale (except by a Form S-4 or Form S-8 Registration Statement
or any successor forms thereto), it will give Lender at least ten (10) days’
advance written notice of its intention to file such registration statement
and
Lender shall have the right to have included in such registration statement
the
number of shares of Common Stock issued to Lender hereunder, including shares
issued upon conversion of the Note or exercise of the Warrants, as Lender
shall
designate to the Company within ten (10) days after the date the Company
provides such notice. The Company will use commercially reasonable efforts
to
cause all of such shares to be included in such registration statement proposed
to be filed by the Company; provided,
however,
that
nothing herein shall prevent Company from, at any time, abandoning or delaying
any registration. If any registration pursuant to this Section is underwritten
in whole or in part, the Company may require that the shares be included
in the
underwriting on the same terms and conditions as the securities otherwise
being
sold through the underwriters and that the Purchaser execute any underwriting
agreement, “lock-up” letters or other customary agreements or documents executed
by all of the other selling securityholders in connection with that underwritten
offering. If, in the reasonable opinion of the managing underwriter of the
proposed offering, the number of shares offered for participation in the
proposed offering cannot be accommodated without adversely affecting the
proposed offering, then the amount of such shares proposed to be offered,
as
well as the number of securities of any other selling stockholders participating
in the registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.
4.3 Preemptive
Rights.
Except
for Excluded Shares (as defined below), the Company shall not, for cash,
issue,
sell or exchange, agree to issue, sell or exchange, or reserve or set aside
for
issuance, sale or exchange, (i) any shares of its Common Stock, (ii) any
other
equity securities of the Company, including, without limitation, shares of
Preferred Stock, (iii) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any equity securities of the Company, or (iv)
any
debt securities convertible into capital stock of the Company (collectively,
the
“Offered Securities”), unless in each such case the Company first delivers to
the Lender a written notice of any proposed or intended issuance, sale or
exchange of Offered Securities (the “Offer”), which Offer shall
(i) identify and describe the Offered Securities, (ii) describe
the
price and other terms upon which they are to be issued, sold or exchanged,
and
the number or amount of the Offered Securities to be issued, sold or exchanged,
(iii) identify the persons or entities to which or with which the
Offered
Securities are to be offered, issued, sold or exchanged and (iv) offer
to
issue and sell to or exchange with the Lender such portion of the Offered
Securities as the aggregate number of shares of Common Stock then held by
the
Lender pursuant to this Agreement (on an as-converted basis assuming the
conversion of the Loan Amount on the Note and the exercise of outstanding
Warrants) bears to the total number of shares of Common Stock outstanding
on an
as-converted basis. The Lender shall have the right, for a period of 20 days
following delivery of the Offer, to purchase or acquire, at a price and upon
the
other terms specified in the Offer, the number or amount of Offered Securities
described above. The Offer by its term shall remain open for such 20-day
period.
For purposes of this Agreement, “Excluded Shares” shall include securities of
the Company issued pursuant to (A) a stock option plan (or similar equity
incentive plan) to employees, consultants or directors for the primary purposes
of soliciting or retaining services, (B) a conversion or exercise of derivative
securities, (C) a bona fide business acquisition of or by the Company, whether
by merger, consolidation, sale of all or substantially all of the assets
of the
Company or a third party, (D) a financing of the Company whereby the Company
receives gross proceeds of $2,000,000 or more, (E) a public offering of
securities of the Company, and (F) that certain Amended and Restated Loan
and
Security Agreement dated November 1, 2005, by and between the Company and
Pacific Xxxx Capital, LLC and transactions related thereto.
Notwithstanding
the foregoing, in the event the Board of Directors of the Company determines,
in
its good faith and reasonable discretion, that the Company is unable to obtain
available financing necessary to the Company due to its obligation to provide
the Lender the rights referenced in this Section 4.3, the Company is entitled
to
obtain such financing and shall use its best efforts to offer the Lender
the
opportunity to purchase like-securities of the Company at terms similar to
those
provided to third-party investors in such financing arrangement.
4.4 Future
Issuance of Warrants.
On each
date which the Company prepays outstanding Principal (as defined in the Note)
under the Note (each, a “Payment Date”), the Company shall issue to the Lender a
warrant to purchase the number of shares of Common Stock into which such
Principal would be convertible on such Payment Date (each, a “Payment Warrant”)
at an exercise price equal to the Conversion Price applicable on the Payment
Date (subject to adjustment), in a form substantially similar to that provided
herein as Exhibit B relating to the Warrants. Each Payment Warrant shall
be
exercisable from the date of its issuance through and including the Maturity
Date (as defined in the Note).
Article
5
General
Provisions
5.1 Entire
Agreement.
The
Transaction Documents and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound
to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
5.2 Governing
Law; Venue.
This
Agreement shall be governed by the laws of the State of Ohio without regard
to
its conflicts-of-law principles. The parties expressly acknowledge and agree
that any judicial action to enforce any right of any party under this Agreement,
the Note or the Warrant may be brought and maintained in Ohio state or federal
courts. Accordingly, the parties hereby submit to the process, jurisdiction
and
venue of any such court. Each party hereby waives, and agrees not to assert,
any
claim that it is not personally subject to the jurisdiction of the foregoing
courts in the State of Ohio or that any action or other proceeding brought
in
compliance with this Section is brought in an inconvenient forum.
5.3 Survival.
The
representations, warranties, covenants and agreements made herein shall survive
the Closing.
5.4 Successors
and Assigns.
Except
as otherwise expressly provided herein, the provisions hereof shall inure
to the
benefit of, and be binding upon, the successors, assigns, heirs, executors
and
administrators of the parties hereto and shall inure to the benefit of and
be
enforceable by each person who shall be a holder of the Securities from time
to
time.
5.5 Severability.
In case
any provision of the Agreement shall be invalid, illegal or unenforceable,
the
validity, legality and enforceability of the remaining provisions shall not
in
any way be affected or impaired thereby.
5.6 Amendment
and Waiver.
This
Agreement may be amended or modified, and any provision hereunder may be
waived,
only upon the written consent of the Company and the Lender.
5.7 Notices.
All
notices, requests, consents, and other communications hereunder shall be
in
writing and shall be deemed effectively given and received when delivered
in
person or by national overnight courier service or by certified or registered
mail, return-receipt requested, or by telecopier, addressed as
follows:
(a) if
to the
Company:
00
Xxxxx
Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxx,
Xxxxxxxxx 00000
Attention:
Xxxx X. Xxxxx, Chief Financial Officer
Facsimile:
(000) 000-0000
(b) if
to the
Lender:
Xxxxxx
Xxxxx
0000
Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx,
XX 00000
Facsimile:
(000) 000-0000
5.8 Counterparts.
This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one agreement binding on the parties. Facsimile
and
electronically transmitted signatures shall be valid and binding to the same
extent as original signatures. Each party shall become bound by this Agreement
immediately upon signing and delivering any counterpart, independently of
the
signature of any other party. Nevertheless, in making proof of this Agreement,
it will be necessary to produce only one copy signed by the party to be
charged.
5.9 Further
Assurances.
Each
party hereby agrees to execute and deliver such additional documents and
instruments and to perform such additional acts as may be necessary or
appropriate to effectuate, carry out and perform all of the terms, provisions
and conditions of this Agreement and the transactions contemplated
hereby.
Signature
Page Follows
In
Witness Whereof,
the
parties hereto have set their hands to this Purchase Agreement to be effective
as of the date first set forth above.
| COMPANY: | LENDER: | ||
| WITS BASIN PRECIOUS MINERALS INC. | |||
| By:/s/ Xxxx X. Xxxxx | By: /s/ Xxxxxx Xxxxx | ||
|
Its: CFO |
Xxxxxx Xxxxx |
||
