PRODUCTION PAYMENT PURCHASE
AGREEMENT
This Production
Payment Purchase Agreement (the "Agreement") is entered into as of
September 26, 2005, by and between Golden Phoenix Minerals, Inc., a
Minnesota corporation (the "Company") and Ashdown Milling Company,
LLC, a Nevada limited liability company ("Purchaser"). Both the
Company and the Purchaser may sometimes be referred to as a "Party"
or collectively as the "Parties."
WHEREAS, the
Company is the manager and operator of a joint venture established
with Win-Eldrich Mines Limited by written agreement dated February
4, 2004 (the "Ashdown Joint Venture Agreement") encompassing 101
unpatented lode mining claims in Humboldt County, Nevada, commonly
known as the Ashdown Mine; and
WHEREAS, pursuant
to the Ashdown Joint Venture Agreement, the Company has the right
to receive sixty percent (60%) of all minerals, base and precious,
produced from the Ashdown Mine once, among other things, the
Company constructs a "pilot mill" and completes certain other
exploration and development activities resulting in initial
production of minerals from the Ashdown Mine sufficient to recover
the cost of production of the minerals and resulting in a cash
distribution to the members of the Ashdown Joint Venture;
and
WHEREAS, in order
to finance continued exploration and development of the Ashdown
Mine, including, but not limited to, obtaining necessary permits
and constructing the "pilot mill" to test production methods and
milling techniques before entering into commercial production of
minerals, precious and base, from the Ashdown Mine, the Company is
willing to sell to the Purchaser and the Purchaser is willing to
purchase from the Company a carved out production payment to be
paid from the Company’s share of the distribution of minerals
(or sales of minerals) from the Ashdown Joint Venture.
NOW THEREFORE, in
consideration for the mutual promises set forth in this Agreement,
and for other valuable consideration the receipt of which is hereby
acknowledged, the Parties agree as follows:
ARTICLE
1
PURCHASE OF THE
PRODUCTION PAYMENT
1.1
Purchase of
Production Payment. In exchange for the Purchase
Price set forth in Section 1.2 of this Agreement, the Company
agrees to sell and the Purchaser agrees to purchase a production
payment equal to two hundred forty percent (240%) of the Purchase
Price paid by the Purchaser to the Company pursuant to the schedule
of payments specified in Section 1.2 of this Agreement. The payment
shall be paid exclusively from the Company’s share of
production of base and precious minerals produced from the Ashdown
Mine allocated to the Company pursuant to the Ashdown Joint Venture
Agreement. The rate of payment shall be equal to a twelve percent
(12%) Net Smelter (Refinery) Return on the entire production of
precious and base minerals produced from the Ashdown Mine, but paid
solely from the Company’s share of production distributed to
the Company pursuant to the Ashdown Joint Venture Agreement. Until
the production payment is paid by the Company in full, the Company
shall provide the Purchaser with monthly reports in writing
reporting production and sales of minerals, both precious and base,
from the Ashdown Mine and the calculation of the production payment
to be paid by the Company. The production payment shall be paid to
the Purchaser monthly by the end of the month following the month
the production occurs.
1.2
Purchase Price
and Schedule of Payments. The minimum purchase price for
the production payment set forth in Section 1.1 of this Agreement
shall be eight hundred thousand US Dollars ($800,000) paid to the
Company by the Purchaser pursuant to the Schedule of Payments
attached hereto and made a part hereof as Exhibit "A" upon the
Company achieving the milestones set forth therein. Additional
purchase payments may be paid by the Purchaser, in its sole and
absolute discretion, in $50,000 increments up to a maximum purchase
price of one million five hundred thousand US Dollars ($1,500,000).
All payments of the purchase price, except for the first scheduled
payment due upon the execution of this Agreement by the Parties,
must be requested by the Company after achieving the applicable
milestone ten (10) days prior to funding.
1.3
Use of
Proceeds. The Company agrees to use the
proceeds paid by the Purchaser pursuant to Section 1.2 of this
Agreement solely for Exploration and Development Expenditures as
defined in Section 2.3 of this Agreement in order to satisfy the
Company’s obligation to explore and develop the Ashdown
Mine.
1.4
Purchase of
Common Stock and Common Stock Purchase Warrants.
In addition to the
production payment purchased by the Purchaser pursuant to Section
1.1 of this Agreement, the Purchaser agrees to purchase and the
Company agrees to sell to the Purchaser one share of the
Company’s common stock and one common stock purchase warrant
with an exercise price equal to twenty cents ($0.20) per share
expiring three (3) years from the date of this Agreement for each
one Dollar of Purchase Price paid for the production payment
pursuant to Section 1.2 of this Agreement at no additional
consideration. Solely for the purpose of determining the
sufficiency of legal consideration for the issuance of the shares
and warrant, $0.17 of each Dollar of the Purchase Price paid for
the production payment pursuant to Section 1.2 of this Agreement
shall be allocated to each share of common stock and common stock
purchase warrant purchased pursuant to this Section 1.4 without
reducing the amount of the production payment purchased pursuant to
Section 1.1 of this Agreement.
1.5
Representations
and Warranties Relating to the Purchase of Common Stock and
Warrants. In connection with the purchase
of the shares of the Company’s common stock and common stock
purchase warrants, the Purchaser represents and warrants that each
member of the Purchaser is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D, that the Purchaser is
purchasing the shares and warrants for its own account, for
investment purposes, and not with the intention of distributing the
shares and warrants to the public. The Purchaser acknowledges that
the shares and warrants, when issued, shall constitute "restricted
securities" as defined in Rule 144(a) and may not be offered or
sold by the Purchaser without registration with the Securities and
Exchange Commission or may be sold only pursuant to an available
exemption from the registration requirements of the Securities Act
of 1933, as amended.
ARTICLE
2
DEFINITIONS
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The following
definitions shall apply to the terms and conditions of this
Agreement:
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2.1
Pilot
Mill .
The term pilot mill referred to herein follows the usage of the
term in the Ashdown Joint Venture Agreement, and is not equivalent
to the usage of the term by Nevada state and federal permitting
agencies. For the purposes of this document a pilot mill is a
milling facility constructed and operated by the Company for the
purpose of performing metallurgical testing of Ores and Minerals
and production of marketable concentrates for use in testing and
sales prior to Commencement of Commercial Production. The pilot
mill may be converted to a full-scale milling facility by the
Company once metallurgical testing is completed and thereafter used
to perform Commercial Production, as evidenced by a resolution of
the Company as manager and operator of the Ashdown Mine pursuant to
the Ashdown Joint Venture Agreement.
2.2
Commencement of
Commercial Producti
