Exhibit 10.26
NET SMELTER
RETURN
ROYALTY AGREEMENT
This Agreement (the " Agreement ")
is entered into on _________ __, 2008, by and among BOLSA
RESOURCES, INC., a corporation duly organized under the laws of the
State of Arizona (hereinafter referred to as " Bolsa "),
Aurelio Resource Corporation, a Nevada corporation ("
Aurelio ") and Telifonda (Cayman) Ltd., a Cayman Islands
corporation, or its designee (" NewCo "). Bolsa, Aurelio and
NewCo are referred to herein as a 'Party" and collectively herein
as the " Parties ".
NewCo acquired all of the
outstanding capital stock of Bolsa from Aurelio under a certain
Stock Purchase Agreement between Aurelio and the NewCo, September
30, 2008, as amended (the " Stock Purchase Agreement ").
Under the terms of the Stock Purchase Agreement, NewCo agreed to
cause Bolsa, its wholly owned subsidiary, to grant to Aurelio a net
smelter return royalty from the minerals product derived form
certain real property assets owned and/or leased by
Bolsa.
This Agreement sets forth
the terms and conditions under which (a) Bolsa grants to
Aurelio the net smelter return royalty from the minerals product
derived from certain real property assets owned and/or leased by
Bolsa, and (b) Bolsa, NewCo and Aurelio have the right to
convert the net smelter return royalty granted hereunder into
shares of Bolsa or NewCo, as the case may be, and Aurelio has the
right to purchase all of the shares of common and preferred stock
of Bolsa.
Now, therefore, in
consideration of the premises and the mutual promises herein made,
and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as
follows.
1.
Definitions . The following terms shall have the following
meaning for purposes of this Agreement:
" Affiliate " has the meaning set forth in Rule 12b-2 of
the regulations promulgated under the Securities Exchange Act of
1934, as amended.
" Cash Consideration " shall have the meaning set forth
in Section 9(a) below.
" Concentrates " means the product derived from Crude Ore
after waste materials have been removed through leaching, milling
or other beneficiation.
" Crude Ores ," whether singular or plural, shall mean
all ores, metals, Minerals which Bolsa either (A) mines, extracts,
or otherwise recovers (including by in situ methods) from the
Initial Bolsa Real Property Assets and sells or delivers to a
processing plant for physical or chemical treatment, or (B) treats
in place on the Initial Bolsa Real Property Assets by chemical,
solution, or other methods; said term shall also include all
Mineral-bearing solutions, natural or introduced, recovered by
Bolsa from the Initial Bolsa Real Property Assets and sold or
delivered for processing by Bolsa, and all Mineral and non-mineral
components of all such materials and solutions.
" Extraction Taxes " means sales, use, value added, gross
receipts, ad valorem, severance, any taxation on the net proceeds
of mining operations and other taxes payable in respect to
severance, production, removal, sale or disposition of the Crude
Ore or Concentrates, but excluding any taxes on net income.
" Initial Bolsa Real Property Assets " shall mean the
real property rights and interests described in
Annex A attached hereto and incorporated herein
by this reference, and any and all amendment, relocations,
substitutions or replacements of the mining claims on the
referenced real property in which Bolsa or any Affiliate of Bolsa
has any right, title or interest..
" Minerals ," whether singular or plural, shall mean any
and all mineral substances of any nature, metallic or non-metallic.
The term "Minerals" shall not include oil, gas, or other liquid or
gaseous hydrocarbon or geothermal substances.
" Proceeds " means the sum actually received by Bolsa
during each calendar quarter from the sale, including forward
sales, of Crude Ore or Concentrates produced from the Initial Bolsa
Real Property. "Proceeds" does not include any profits or losses
incurred by Bolsa or any of its Affiliates in any hedging, price
protection, commodities trading or similar activities.
" Processing Costs " means either (a) the amounts
actually incurred by Bolsa for leaching, milling, treating,
processing or other beneficiation, including transporting, sizing
and crushing of the ores, where such services are performed by a
party other than Bolsa and including assaying and sampling costs
and including penalties, if any incurred, or (b) if such operations
are carried out by Bolsa, the charges, cost and penalties, if any
incurred, for such operations, including transportation, which
Bolsa would have incurred if such operations were carried out in
facilities not owned or controlled by Bolsa and then offering
comparable custom services for comparable products or on comparable
terms; provided, however, that in all cases "Processing Costs"
shall not include the Transportation Costs..
" Transportation Costs " means the expenses and charges
actually incurred by Bolsa in transporting the Crude Ore or
Concentrates from mine to smelter, refinery or other place of sale.
Such expenses shall include, but not be limited to, freight,
shipment insurance, handling, port, delay, demurrage, lighterage,
tug, forwarding costs and transportation taxes.
Reference to dollar amounts in this agreement shall refer to
United States dollars.
2.
Net Smelter Return Royalty . As of the date hereof, in
connection with the transactions contemplated under the Stock
Purchase Agreement, Bolsa does hereby grant convey, remise,
release, and forever quitclaim unto Aurelio, its successors and
assigns, a production royalty of three percent (3%) of the Net
Smelter Returns (as herein defined) from all Crude Ores and
Concentrates mined or otherwise recovered and removed from the
Initial Bolsa Real Property Assets (the "Bolsa NSR"). The Bolsa NSR
shall be determined as follows:
(a)
Sale of Crude Ore or Concentrates to Third Party . If Crude
Ore or Concentrates are sold by Bolsa to a third party that is not
an Affiliate of Bolsa, the "Net Smelter Returns" shall mean the
Proceeds received from such sale by Bolsa, less, to the extent
borne by Bolsa, sales and brokerage costs, Transportation Costs,
Processing Costs and Extraction Taxes. For purposes of this
Agreement, such Crude Ore or Concentrates shall be deemed sold at
the time the Proceeds are received by Bolsa.
(b)
Sale of Crude Ore or Concentrate to Affiliate . If Crude Ore
or Concentrates are sold or transferred by Bolsa to an Affiliate,
the "Net Smelter Returns" shall mean an amount equal to that which
would have been received by Bolsa from a bona fide third party
purchaser in an arms-length transaction for an identical product
less Transportation Costs, Processing Costs and Extraction Taxes
incurred by Bolsa. For purposes of this Agreement, such Crude Ore
or Concentrates shall be deemed sold at the time they are delivered
to the Affiliate.
(c)
Retainage of Crude Ore or Concentrates . If Concentrates are
retained by Bolsa for further smelting, refining, precipitation or
other additional processing by a third party that is not an
Affiliate of Bolsa at a site that is not located adjacent to or on
the Initial Bolsa Real Property Assets, such Concentrates shall be
deemed sold by Bolsa at the time such Concentrates are delivered to
the smelter, refinery, precipitation plant or other facility, and
the "Net Smelter Returns" from such Concentrates shall mean an
amount equal to that which would have been received by Bolsa from a
bona fide third party purchaser in an arms-length transaction for
an identical product less Transportation Costs, Processing Costs
and Extraction Taxes incurred by Bolsa.
3.
Payment of Royalty . The obligation to pay the Bolsa NSR
shall accrue upon the actual or deemed sale of the Crude Ores or
Concentrates subject thereto.. Payment of the Bolsa NSR shall be
made on or before the last day of January, April, July and October
(" Payment Dates ") of each year for royalty obligations
that accrued during the preceding calendar quarter. Each Payment
shall be accompanied by a statement showing weights and values of
mineral substances recovered from the Crude Ore and Concentrates
produced from the Initial Bolsa Real Property Assets during the
period for which payment is made, the Proceeds received or the
value of the deemed sale of such Crude Ore and Concentrates and the
amounts deductible therefrom to determine Net Smelter Returns as
set forth in Section 2 of this Agreement. If no written objection
is made by Aurelio to the correctness of the statement within sixty
(60) days from the date thereof, such statement shall be deemed
conclusively to be correct and such royalty payment sufficient and
complete.
4.
Disputes . In case of any dispute or question as to the
ownership of all or any portion of the Bolsa NSR, or the amount of
payment to be made by Bolsa under this Agreement, Bolsa may deposit
any amount otherwise due to Aurelio in escrow until the dispute is
finally resolved. Bolsa may credit all costs and expenses,
including attorney's fees, it incurs by reason of such dispute or
question against all amounts otherwise due to Aurelio only in the
event Bolsa prevails.
5.
Waste Rock, Spoil and Tailings . The ore, mine waters,
leachates, pregnant liquors, pregnant slurries, or other products
or compounds of Mineral Substances mined or extracted from the
Initial Bolsa Real Property Assets shall be the property of Bolsa
subject to the Bolsa NSR as provided herein. Bolsa shall not be
liable for mineral values lost in mining or processing employing
sound practices. The Bolsa NSR shall be payable on all Minerals
recovered and sold or deemed sold both prior to and after the time
waste rock, spoil, tailings, or other mine wastes and residue are
first disposed of as such, and such waste rock, spoil, tailings or
other mine wastes and residue shall be the sole property of Bolsa.
Bolsa shall have the sole right to dump, deposit, sell, dispose of,
or reprocess such waste rock, spoil, tailings, or other mine wastes
and residues, and Aurelio shall have no claim or interest therein
or to proceeds or minerals values recovered therefrom.
6.
Weighing, Measuring and Sampling .
(a)
Bolsa shall at all times while production is occurring upon the
Initial Bolsa Real Property Assets accurately weigh, measure and
sample in accordance with customary industry practices for precious
metals mines, all Crude Ore or other material including products
developed from ore or other material, and all Concentrates, to the
end that accurate and complete records and reports are made and
retained to ascertain the quantity of ores and minerals recovered
and removed from the Initial Bolsa Real Property Assets. Aurelio
shall have the right, at its sole cost and risk, upon reasonable
notice at all reasonable times, to inspect all records and reports
mentioned herein, and the operations being conducted on the Initial
Bolsa Real Property Assets, so long as such inspections do not
unreasonably interfere with Bolsa's business or operations and
comply fully with its safety rules and procedures. Aurelio shall
indemnify and hold harmless Bolsa and its Affiliates and their
respective directors, officers, shareholders, employees, agents and
attorneys, from and against any liabilities which may be imposed
upon, asserted against or incurred by any of them by reason of
injury to Bolsa, its Affiliates, or Aurelio or any of their
respective agents or representatives caused by Aurelio's exercise
of its inspection rights under this Agreement.
(b)
Bolsa shall have the right of mixing or commingling, at any
location and either underground or at the surface, any ores,
metals, minerals or mineral products from the Initial Bolsa Real
Property Assets with any ores, metals, minerals, or mineral
products from other lands, provided that Bolsa shall determine the
weight and volume of, sample and analyze all such ores, metals,
minerals and mineral products before the same are so mixed or
commingled. Any such determining of weight or volume, sampling and
analysis shall be made in accordance with sound sampling and
analytic practices and procedures. The weight or volume and the
analysis so derived shall be used as the basis of allocation of
Bolsa NSR payable to Aurelio under this Agreement.
7.
Operations . Bolsa shall have no obligation to commence or
to continue mining, or to mine any particular quantities of Crude
Ores from the Initial Bolsa Real Property Assets. Aurelio's
interest in the Initial Bolsa Real Property Assets shall be solely
that of a non-participating royalty holder and it shall have no
rights to participate in or influence management or decision-making
regarding operations on the Initial Bolsa Real Property Assets.
Aurelio expressly disclaims any implied covenants of diligence with
respect to operations on the Initial Bol
